There are a great many things to beware of,  given today’s market climate. The real task for investors is to determine what’s going to burn them, and what’s just blowing smoke. We spoke to money manager John Raclin this week about what investors should be wary of in immediate future.

“The investing world has grown far more complex, given the number of alternative opportunities and strategies available. And it has become more dangerous, given the increasing use of leverage. However, if you stand away from the “noise” and concentrate on fundamentals, things look somewhat better. I would emphasize diversification, using professional managers across a number of  asset classes while restricting the number I use in order to maximize returns. Avoid leverage and those that do.”

John Raclin is the Principal of Barrington Asset Management specializing in high net worth individuals. For the full interview with Mr. Raclin, click here.

Prices have risen quite a bit recently with regards to agribusiness. We sat down agribusiness analyst Farha Aslam, who had some insights are to why this was the case. Ms. Aslam feels that the increase is largely demand driven.

TWST: Why have prices risen so much? Is it purely supply and demand?

Ms. Aslam: It’s a demand-driven market and there is strong demand for grain, including corn, soy and wheat. Grain prices have also been extremely volatile. Cash corn was trading north of $4.25 per bushel earlier this year; it moved back down to trade around the $3 level, but has recently begun to trade back up in sympathy with the higher wheat and soybean prices. The harvest is not in yet and we’re already looking at the demand for our grains going into next year. There is going to a competition among the crops for acres.

For further information on agribusiness, including interviews with CEOs and the full interview with Ms. Aslam, click here.

This week we’re looking at the Data Management space, and in our conversations, we found out some interesting information on the recent slowdown in the data warehousing space.

Despite a period of good growth over the past five or six years, data warehousing is now experiencing a slowdown. According to analyst Jeff Emebersits, this is due to saturation. It’s no longer a new industry, and as a result, the growth rate from here on out is going to be “in the single digits.”

TWST: Business intelligence and data warehousing has seen good growth over the past five or six years. Why the slowdown? What’s going on?

Mr. Embersits: Saturation. If you want to use five years as a metric, the industry was growing 40% or 50%; companies were going at 60 and higher multiples, huge multiples. Then in year four maybe it was growing at 30% and year three 20%. There is only so much capacity out there for any industry to grow 40% for five years. So I think people are forgetting that these aren’t new technologies growing at extremely high rates.

TWST: So it’s just reverting down to the mean.

Mr. Embersits: Yes. I think that’s a good way to put it.

TWST: What is the mean?

Mr. Embersits: It’s not a new emerging industry; it’s more on the mature side. Mature industries grow single digits.

For more from Mr. Embersits, including a full overview of the data management sector and stock picks, click here.

We encountered something a little different this week when we spoke with portfolio manager Chris Lissner of Acropolis Investment Management.

They use a simulation model: the Monte Carlo Simulation Model.

“The Monte Carlo process removes static averages and replaces them with a more realistic scenario of randomly varying inflation and portfolio returns for each future date.”

“By simulating thousands of potential combinations of random market environments and inflation, one can see the range of potential outcomes and quantify the number of successes and failures.”

“We sit down with clients and actually run the model in front of them. This gives them a very good visual impression of their situation and the ability to ask questions like, “What if I retire earlier, or buy a second home when I retire?” We are able to change the variables on the spot; we put the new assumptions in the model, rerun it, and they can see the new results. This process helps clients gain a very strong understanding of their circumstances and what they can do to impact their outcome. It’s one thing for you and me as financial professionals to say, “Here is what could happen.” It’s another thing for them to visually experience it. ”

For more about Chris Lissner, the Monte Carlo system and Acropolis Investment Management, click here.

As part of looking at Broker’s this week, TWST spoke to anaylst Craig Maurer about the state of some big name credit card companies. Here’s what he had to say about credit card giant, American Express (AXP):

 TWST: Looking at American Express, what is the appeal of that story at the
moment?

Mr. Maurer: Clearly, the appeal is global growth for their products. They occupy a niche in the market at the very high end. Their core group of cardholders are not those who are going to be drastically impacted by what is going on in terms of credit and whatnot. Their brand name continues to be the best in the industry. Their bill business levels continue to show exceptional growth. We just feel that this company, led by an excellent management team, will continue to execute for years to come and continue to grow globally. That is the appeal for me.

For more from Craig Maurer, including a full overview of the Processor & Credit Card Company sectors, click here.

We here at the Wall Street Transcript have interviewed our fair share of Asset Managers. But this week we take a different look: What does it mean to invest in Asset Management?

 ”Asset management is a compelling business with financial characteristics that are very attractive. It’s one of the most transparent businesses in all of financials, which definitely is a plus in periods of heightened volatility. The business is marked by high recurring revenue and cash flow, strong margins and low capital requirements. In addition, we believe there are ample opportunities for growth and we see strong secular support for the industry. “

Okay, so it’s got some good points. But what are some strong companies within the sector?

“Our current outperform-rated names are Affiliated Managers Group (AMG) [and] T. Rowe Price (TROW).”

And why would that be?

• Affiliated Managers Group (AMG)- “AMG’s investments in affiliates are structured to preserve the entrepreneurial culture that made these firms successful in the first place. In addition, the transaction creates proper incentives for continued growth by providing ongoing equity participation and transferring a meaningful amount of ownership to second-tier management.”
• T. Rowe Price (TROW)- “It’s one of the most profitable firms in the industry with pretax operating margins in the mid-40%s, driven by its cost focus and lean operating structure. In addition, the company has a strong balance sheet with $1.6 billion in cash, investments and sponsored products, which is equal to about $6 per share or 10% to 11% of its market capitalization.”

All right, I’m convinced. Are you? Learn more about investing in Asset Management by reading our Brokers & Asset Managers Report.

When to sell is always a key question in investing. This week, we asked three investment professional exactly what their philosophy was in terms of when they sell. They had some pretty interesting things to say:

•  Richard Aster, Aster Investment Management: “We don’t set price targets. The stock market is a dynamic place, it’s not static. Every day things change and this includes the outlook for specific companies… We will sell if the valuation gets extreme and the risk/reward ratio gets way out of line.”
• Robert Sullivan, Satuit Capital Management: “We typically sell a position if we determine that the position’s fundamentals have changed in a way that has negative implications for the holding. That includes but is not limited to a change in revenue outlook, a change in margins or a change in projected earnings. A change in any drivers would cause us to move to the sidelines.”
• Christopher Lissner, Acropolis Investment Management: “[What] eliminates a position from our approved list really has to do with the changing economic and market expectations of a company. These changes are typically linked to some form of alteration in the industry as a whole or in the nature of the company. There are also companies that simply get way overvalued, and we exit for that reason. They may be a great company but a poor long-term value.”

For the full Investment Strategies Report, with complete interviews with each of the above Money Managers, click here.

Transaction Processing is our other special focus this week, and in examining this space, we spoke to several top analysts. One of them was Moshe Katri, who had some positive things to say about actions that he’s seeing in this space, even in light of recent drops:

 Mr. Katri: We feel that in the current environment the space is attractive, considering the fact that it is defensive. Typically, a significant installed base of customers and recurring revenues do create a sticky model, which is something that a lot of investors are looking for, especially as we are headed toward a potential economic slowdown. We like the sector’s consistent free cash flow generation. We like the fact that we are seeing a lot of different actions where management teams are creating opportunities for those specific companies to unlock and enhance shareholder value. Despite the fact that the group did probably drop about 10%-15% in the past three months with the removal of the private equity takeout premiums that were embedded in some of the valuations, we feel that some of these names in our sector are looking very attractive.

For the full interview with Mr. Katri, featuring further coverage of the Transaction Processing sector, as well as stock picks, click here.

One of our special focuses this week is on Securities Brokerage. Richard Bove, Managing Director of Punk Ziegel & Company, spoke on our roundtable about five different factors that have the changed the securities brokerage business over the past few decades:

1.  The creation of huge pools of money, resulting from trade deficits of industrialized countries have developed. Due to the fact that economies receiving this money can’t use it all, a pool of funds has been created.
2. The change in technology- the tremendous increase in computing power has allowed for thousands of very complex, very small transactions to be handled in seconds where they used be handled over days or weeks.
3. Due to the first two items, there has been a explosion of new product development within the securities brokerage industry, such as collateralized loan obligations, debt obligations, credit default swaps, etc.
4. The move from beta investing, attempting to “equal perofrmance of the market by putting funds into an S&P index fund” to alpha investing, which promises that client that no matter what the situation is, money will be made.
5. Finally, in the current environment, regulations have been avoided. “There is no oversight. A truly free market has developed.”

For more on how these five factors impact the Securities Brokerage business today, read the full roundtable discussion by clicking here.

One of the Money Managers that we spoke to this week has a very unique business model. Jeffrey Dunham, founder and CEO of Dunham & Associates Investment Counsel, has created a system whereby all the portfolio managers who work under him are paid only based on the performance they bring the investor. Here’s more from Mr. Dunham:

 TWST: The essential tenet of your philosophy seems to be that performance counts in all your Funds.

Mr. Dunham: That’s absolutely correct because at the end of the day, when the customer stares at that financial adviser and makes the decision as to whether they’re going to slide their family’s net worth over across the table to that financial adviser, the thought that goes through that customer’s mind is, “It took me an entire lifetime to make this money. I’m likely never to have this opportunity again because I can’t turn back the hands of time to make this pile of dough again. Please be safe with this money, please grow this money in an intelligent, conservative fashion.” If we accomplish that objective as advisers, then we deserve to get paid for that and the client doesn’t mind paying for it, but if we don’t accomplish that objective for the client, what value did we add?

For the full interview with Mr. Dunham, complete with a full explanation of Performance-Based Fees, and stock picks, click here.