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We all know investing is supposed to be for the long-term. For Adams Funds that's meant a lot longer than most.
This week marks 90 years since the notorious 1929 stock-market crash that marked the end of the Roaring '20s and the start of the Great Depression. The Adams Diversified Equity Fund (ADX) launched that same month with $75 million in assets.
A closed-end fund, a type of mutual fund with a fixed number of shares that trade on an exchange like a stock, Adams Diversified Equity returned an average of 9.6% annually since its inception in 1929 — it's one of just 12 mutual funds that survived the Great Depression.
Senior portfolio manager Mark Stoeckle attributes the fund's longevity to a focus on finding strong stocks — often without regard to what industry they happen to be in. Among the fun's top holdings right now: Microsoft, Amazon, Apple and Visa.
Money spoke with Stoeckle, who has overseen the fund for the past four years, about his advice for investors. Below is an edited transcript of the conversation.
Pick stocks, not sectors
Being sector-neutral is a big part of what we do. We are good at looking at the risk associated with any given stock. We take the Russell 1000 and identify the high quality stocks in each sector. Then we look at a number of factors including return on invested capital. We also have a quantitative model that looks at quality, valuation, and momentum, and we rank every stock in each sector. Quality and timing are important for us. We also routinely talk to management and go to conferences. Ultimately, we use data and fundamentals to come up with an opinion on a stock.
Don’t let a winning stock overrun your portfolio
As stocks do well, we’ll begin trimming the position, so as not to allow any one stock to get too large. An important part of our philosophy is managing risk, which includes managing individual stock position sizes.
Another aspect of risk control is managing stocks that are under-performing. If we own a stock and it trades below its 52-week low, we sell half of the active position. Also, because we want to manage the number of stocks in the fund, when we find a stock we want to own, we look for something to sell in that sector. Also, if any of a stock’s fundamental attributes change, that’s a sign of something changing in the company and we need to evaluate the change and determine if we still have conviction.
Use risk scores for your stocks
We believe we can do well even in uncertain times. We will always be able to find stocks that can outperform. When we enter a period of uncertainty, we carefully assess the amount of risk in the portfolio and look to lighten up on the stocks that pose the greatest amount of risk.
Stay invested, but adjust your risk tolerance over time
I am very passionate about people staying invested. You need to begin by being honest with yourself about how much risk you should be taking. You then need to decide what asset classes you want exposure to so you can match that with the appropriate funds. Then leave it alone. Of course, annual re-balancing is imperative as is changing your risk profile as things in your life change. The hardest thing will be to tune out the noise but it is so important to be able to do just that.