Waddell Turns Page on ‘Funky’ Year

By Andy Meek

The parting remark David Waddell left with the audience at his company’s yearly “State of the Union” presentation this time last year was that he wanted them all to be optimistic in 2011.

Waddell, president and CEO of Memphis-based financial planning firm Waddell & Associates, also had a theme that could be summed up in three words: America is rising.

Twelve months later, though, Waddell has a different assessment about the past year that he described at the outset of his 2012 “State of the Union” Thursday, Feb. 23, at the University of Memphis FedEx Institute of Technology.

2011 was “really kind of a funky year,” Waddell said, one that was replete with natural disasters, the Arab Spring, congressional gridlock, a U.S. credit downgrade and more that all combined to make panicked investors pay more attention to their emotions than to market fundamentals.

That meant the investment positions that firms like Waddell & Associates built during the year on the basis of careful analysis of fundamentals tended to take a hit because the market, in Waddell’s words, went “Pavlovian.”

“This time last year I said it was time optimism strikes back,” Waddell said.

That was the case until about April, he explained, adding that by the end of 2011, there was essentially a bubble in pessimism.

One of the slides in his presentation described 2011 as a year in which there “few ways to win, lots of ways to lose.” And his firm admittedly took it on the chin during the year.

Waddell said 2011 was one of the most frustrating years ever for many investment professionals, himself included. His firm’s portfolio strategy is weighted 45 percent toward growth investments (companies like Apple), 45 percent toward value investments (companies like Warren Buffett’s Berkshire Hathaway) and 10 percent to what Waddell calls “special situations.”

His firm was down in each of those categories by year’s end.

“That gave me pause and sent me on an autopsy mission,” Waddell said.

The answer he settled on, after analyzing the firm’s offensive and defensive investment moves, was that “We didn’t get dumb last year – smart was just out of favor.”

Said another way, Waddell explained that the market in the short term is a voting machine. In the long term, it’s a weighing machine.

In his view, the primary threat to 2012 is one word: politicians.

However, the United States nevertheless finds itself “one bold president away from fixing its problems,” Waddell said.

He’s also convinced it is now the early innings in “the greatest era of prosperity the world has ever seen.”