How To Construct The Perfect Portfolio In 2023

In these turbulent times, sage financial advice is in short supply. To remedy this we decided to sit down with Max Wasserman, founder and senior portfolio manager of Miramar Capital in Chicago. We discussed the areas of risk affecting portfolios right now, and those on the horizon.

At Miramar they do investments the old fashioned way, according to Max. They build portfolios for HNWIs, institutions and foundations. They pick stocks, bonds, do the analyses and construct the portfolio, without outsourcing.


Miramar’s Process 

What Miramar’s clients have in common is that they are wealthy and want to stay that way. For the most part, they want the ability to live off the income from their portfolio. Where they tend to diverge is on time horizons. For example, an 80 year old client might have an indefinite time horizon because their children will ultimately be the beneficiaries. On the other hand you could have someone, in their 60’s, who wants to retire and live off their investments. A big part of the job is matching a client’s needs with an appropriate time horizon.

Once that’s settled, Wasserman looks at their tax considerations, liquidity and income needs. Then they can establish an objective that prioritizes more income or growth or even a combination of both. At this point the appropriate asset allocation becomes clear. However, regardless of individual asset allocation, clients that own stocks, own the best 25-30 dividend-paying stock picks Miramar has on offer.


What Goes into a Winning Portfolio

According to Wasserman, they actually invest in conservative dividend paying stocks. That’s what he considers a good fit for his clients. The average dividend yield in a stock portfolio is 3% and grows about 8-10%. However, while new clients might not get all the picks right away, there is no sub-set, the stock picks are the same 25-30 of Miramar’s best ideas.

How They Approach Risk

Miramar believes their key to success is to never stray from their area of competency. Wasserman admits complete ignorance when it comes to biotech and bitcoin, so his philosophy, and that of his company, is simple; they don’t invest. What they do instead is to narrow the scope to high quality dividend-paying, shareholder-friendly companies. When they look at a company they assess whether it pays a dividend and whether that dividend grows throughout the economic cycle.

Another crucial element for Wasserman and Miramar is how the company talks about risk. People tend to be obsessed with the macro, what is happening in Ukraine, China and how that will impact a stock. However, quite often individual companies are not affected by these outside factors. For Wasserman it’s important to bring it back down to the basic risks that affect the company. This means focusing on the fundamentals, the catalysts, market share growth and debt. They prioritize understanding the philosophy and capital structure of the company, over monitoring macroeconomic conditions, too closely.

What Other Risk Managers Don’t Understand

For the past 10 years or it’s been a bull market, the extent to which that is about to change will come as a shock to a lot of risk managers and financial professionals. There has been zero interest financing for everything. Wasserman points out that this has meant a huge expansion in growth companies, but the landscape has changed drastically.

So when you see a company for example issuing a lot of debt to buy back their stock because the top line revenue is not growing, that’s a red flag for Wasserman. Another one is if companies use too much zero interest financing to run their company. 

Most companies will tell you if they’re buying back stock or increasing their dividend. However Miramar likes to get their hands dirty, they look at the cash flow statement to see where the money’s coming in, where it ‘s going out; what’s really happening. Wasserman wants to see how the patient is really doing, not just what they’re telling him. He wants the EKG, he wants the blood work, the whole thing.

Wasserman believes fundamentally that In order to make good picks, you need to understand the cash flow, you need to understand the company’s capital structure. You can’t just watch it on TV.

To hear the full interview and get more from Wasserman, Miramar and his expert insights, watch Investing Counterpoint now. 


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