WHAT’S NEW?

  • Spending & Investment Policy Statements

    Keys to a Sustainable Endowment 

    The management of nonprofit or foundation assets can be a challenge. These are unlike managing family wealth due to the need for endowment longevity and the regular withdrawals usually made.

    Ideally, a foundation’s assets should grow beyond many lifetimes and allow for distributions of approximately 5% annually for most nonprofits. If the world could depend on financial markets consistently delivering returns in excess of 5%, or your donations exceeded this figure each year, managing these important assets would be quite simple. However, financial market returns are seldom consistent and can sometimes deliver losses rather than gains. Furthermore, in periods of financial market declines, your donations often decline or disappear altogether as donors tighten their own pocketbooks. 

    So how does a foundation attempt to bring consistency to the challenge of growing your assets, making annual withdrawals, and creating a sustainable endowment?

    The first step to meet the challenges of managing endowment assets lies in having a well-conceived, written Investment & Spending Policy Statements. These documents serve as the rulebook for your finance committee. They should be packed with all the details about how the foundation’s assets will be managed. These policies should be written to assist the finance committee and board not only in your quest for asset appreciation but managing risk. 

    A well-written and defined Spending Policy will include the goals of the foundation, the purpose of grants you make, and a statement of your long-term targets for grant spending. The policy should also include formulas to be pursued to “smooth out” your annual distributions based on recent year’s investment returns as opposed to using an absolute or fixed grant withdrawal rate that may have no connection to the growth or decline of your endowments assets. 

    For example, by using a moving average of recent annual returns, foundations can reduce the risk of overspending in any given year. Once the spending policy is established it should be reviewed and updated at least annually.

    The Investment Policy Statement is a document that assists the finance committee in meeting the spending policy guidelines while managing investment risk – key issues for fiduciaries. All too often foundations and non-profits run afoul in their management of risk. A well-written Investment Policy will instruct the committee on the guidelines to be followed to avoid taking on too much risk. At the same time, the Policy needs to spell out the upper limits of investment risk to meet long-term objectives. Too little risk can often result in below-average returns that equally limit your goals.  Risks need to be balanced. 

    The Investment Policy document will also define the goals of the foundation and all of the important factors that affect the investment of the assets. This will identify the foundation’s risk profile and growth targets, the types of investments allowable, the investment manager selection, guidelines for asset allocation ranges, and risk management strategies to prevent catastrophic loss. 

    In recent years, many foundations and non-profits have also added into their Investment Policy statements of environmental, social and governance (ESG) constraints. When completed, your Investment Policy thus serves as an important guide to reduce and manage risk, meet performance objectives, and fulfill the committee’s fiduciary duty.

    Today, more than ever, there are significant risks in global financial markets – many that we may know about, but more which we are unaware of. Though no one can predict with accuracy the outcome of future market returns or risk, a well-written Spending &  Investment Policy Statements will help your nonprofit’s finance committee to manage its way through up and down market periods and ultimately create a long-surviving, sustainable endowment.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Creating Your Nonprofit’s Investment Committee

    Foundations and non-profits are busy organizations with a myriad of tasks and goals. Often these organizations are filled with smart individuals with specific talents and backgrounds that make them ideal for the job at hand. 

    However, not all foundation board members or employees are actually well-suited for overseeing the management of the organization’s finances and investments. The importance of overseeing your assets cannot be overlooked. Your endowment is a key driver of your nonprofit’s survivability and future growth. 

    So, how can foundations and non-profits create a responsible investment committee to ensure a sustainable future? 

    The first step in creating a good group of individuals to oversee your finances and investments is to appreciate how important this committee is to your future. While it may seem easy to collect various individuals from within your organization who seem like they will be good “team players,” this method is usually a mistake. Each member of the finance committee should be selected carefully without exception. 

    In addition, there should be a written investment committee charter that authorizes its formation, purpose, roles, and responsibilities, as well as its meeting schedules.

    In selecting individuals to be on the investment committee, it is best to have at least one person with some experience in the financial / investment field. While the other members need not have direct experience, they should demonstrate a willingness to learn about investing through meetings and outside resources. 

    Every member of the investment committee has a fiduciary obligation to the organization. This requires many important character traits such as high moral character, the commitment to avoid conflicts of interest, a deep knowledge of the foundation’s mission, and of course the ability to attend all meetings. A member with a great background in investing, but who rarely attends meetings, is less than ideal. 

    To ensure your investment committee stays true to their fiduciary obligations and charter, it is highly recommended that they hire an outside investment manager. In doing so, they can bring in a team that can telegraph the current financial market conditions and can serve as a well-seasoned sounding board for questions and thoughts from the committee. Hiring an outside investment manager also goes a long way to fulfilling the committee’s fiduciary obligations. As with hiring any outside counsel, the committee should have well-planned criteria for this selection and a process to monitor the adviser.

    Members of the investment committee are often exposed to differing opinions about the state of the economy or the direction of the financial markets. Some of these thoughts and media opinions can rightly be debated.  However, a good committee member needs to bring an open mind, a willingness to listen to the professional investment manager, and above all be non-argumentative. A careful balance of open-mindedness and curiosity usually does the trick!

    In the end, a well-formed investment committee will put the odds in your organization’s favor to ensure better communication with the board of directors, to fulfill your fiduciary responsibilities, and to generate successful long-term investment results for a sustainable future.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon



  • Dances with Bulls… & Bears

    Late Cycle Opportunities and Risk

    As we enter the second half of the year global stock indexes have exceeded almost every strategist’s expectations. This powerful advance has just slightly erased the entire steep decline of 2018. It is unusual since it hasn’t been based on any strong underlying themes. In fact, stocks have rallied into declining economic growth and corporate earnings, a tariff war, and a Federal Reserve which has become concerned about the potential for a recession. So what gives? Is the stock market vulnerable? Is there more upside left? I would suggest a little of both.

    During the later stages of an economic expansion, stocks often stage a “super rally” before running into trouble. Investors who recall 1999’s astonishing advance just before the 2000-01 bear market (-50% for indexes) can attest to this phenomenon. Like today’s rally, ‘99 came after a significant warning decline in ‘98 (Russian debt crisis). That decline was quite similar to the mini bear market of last fall. Late-stage rallies like today or others in history can go on longer and higher than investors expect – usually on less than perfect economic and earnings growth – and can be tricky. Our human behavior doesn’t want to miss a stitch of any upside, but we also don’t want to be vulnerable to a significant decline. There are several ways to play this scenario.

    So far my strategy for this late stage rally has been to have less stock exposure. Sacrificing some upside to mitigate risk and adding to stocks only on market corrections and or when we find unique situations. At this point, your portfolio is 2/3rds invested as opposed to 100%, but given that the Federal Reserve may lower rates to “save the market”, what if the late-stage rally lasts another year?? Should we be more invested? Yes, but only during market pullbacks.

    As long as you add stock exposure during market corrections, as I suggested did in May, you are assured of taking less risk and getting your portfolio closer to index-like returns over time. Each time indexes trade down, your portfolio holds up better and your opportunity to add stock presents itself. It’s a “dance” of sorts and I know this process can test the patience of the most aggressive, growth-oriented investor, but historically it has worked. When I say it worked, I mean it gained return while managing risk.

    Over the next few weeks, I will be in the thick of earnings reports for the second quarter. I believe these earnings will be less than expected and coupled with continually weaker economic data and tariff pressure. Investors should expect a normal market pullback from current levels and use such a pullback as another opportunity to add stock exposure.

    You can continue to gain profitability in this late-stage bull market, but it is a riskier environment and one that requires you to be aware of downside risk. Keep in mind that should stock prices begin to fall more than normal, you should be willing to reverse your “dance” pattern, reduce stock and sector exposure, and continue to have stop-loss orders to fend off a catastrophic loss.

    I hope this short update is helpful as we head straight into the earnings reporting season and provides clarity on our opportunistic view of the markets.

    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • “Goodbye Yellow Brick Road?”

    Fed Pivots, Trade War Ensues and Earnings Loom

    Over the past 18 months, global investors have experienced a number of crosscurrents which created quite a bit of drama, yet yielded little upside in global stock markets. For those less invested during this strange period, there has been little missed opportunity. During the past year and a half I have witnessed stock indexes attempt new highs not once, but three times, without success.

    I find this current fourth attempt of interest, since it is in the face of impending earnings results, well-documented slowing economic growth, trade wars and an inverted yield curve – all of which has caused the Federal Reserve to finally agree that we may have veered off “the yellow brick road” as they now consider lowering interest rates. If and when the Fed reduces rates, will it be too late given the well-publicized weakness in so many economic indicators? And what should investors anticipate for the second half of this year?

    Source: Bloomberg

    In many of my previous Strategy Updates, I have emphasized the importance of data: economic and corporate profit growth is essential for meaningful stock market returns. However, a third prong – policy – has played an increasingly important role in financial markets as evidenced by trade wars and the Federal Reserve. Has our path to generating great long-term returns changed? Should we say, “Goodbye yellow brick road?” I think not.

    Trade wars pose a significant risk to global financial markets as companies are forced to rethink supply chains, which impacts margins and ultimately profitability. With earnings season right around the corner, there are already a few companies like Broadcom and FedEx reporting poor quality earnings with explicit citation of geopolitical uncertainties – namely the trade war! It will be interesting to see if these reports are the “canary in the coal mine.” We continue to believe that this trade war must be resolved in order for this market to resume a longer-term uptrend.

    Jerome Powell and his colleagues at the Fed have pivoted their policy from just short six months ago, which has led investors to price-in rate cuts by year’s end. The purpose of lowering interest rates is to stimulate an anemic economy and inflation rate while attempting to counteract the inverted yield curve, which has historically preceded recessions. However, the idea of cutting interest rates so soon and so aggressively suggests that the US economy and moreover global economies are not on firm ground – a view we have had for some time now.

    We certainly do not want to “fight the Fed” if they do decide on a more accommodative policy path like European counterpart, Mario Draghi. However, simply flooding the stock market with additional capital is a bandage on a ten-year wound, which has never fully healed post-2008. The Fed’s lack of tools – specifically the inability to cut rates further from an already low level – leaves the global economy particularly vulnerable as we go forward. This is why I stand prepared to thoughtfully add stock exposure if the Fed acts as the markets want, yet keep on hand risk management tools, such as stop-loss orders and sector management if simply lowering rates does not get this economy back on track.

    While both global economic growth and earnings quality have decreased over the past few quarters, they are still positive (particularly in certain sectors), which bodes well for businesses with consistent revenue models – think goods and services you cannot live without! These are the types of companies we want in your portfolio. The better than expected index performance in defensive sectors such as utilities, consumer staples, and healthcare this year has validated my thesis.

    A lower interest rate environment would also offer more interesting opportunities in the public real estate market (REITs) and select business models. I am cautiously optimistic that the backdrop of low inflation, an accommodative Fed and resilient economic and earnings data will get this market back on track. I expect several corrections along the way as policymakers and companies alike navigate this new landscape and we should stand prepared to thoughtfully add exposure to sectors and companies performing well in this environment. Should trade talks continue to break down, the Fed acts too late, or corporate profits and economies deteriorate further, be well prepared to weather the storm.

    When there are periods of conflicting asset prices and data, I tend to err on the side of caution, as protecting capital in bear markets allows you to better reach your long-term goals of retirement, spending policy guidelines, or next-generation legacy. In that spirit, continue to look for further evidence of better earnings quality, economic growth, and trade resolution before becoming significantly more invested with your portfolio. I think such a period may come sooner than most investors think.

    I hope you find this update helpful.

    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon



  • The Reviews Are In!

    I am grateful for the wonderful reviews that I am receiving for my second book, The Sustainable Endowment. Please take a look at what people are saying…

    The Sustainable Endowment: 10 Principles to Make Your Foundation or Nonprofit Last for Decades is a specialty business title covering foundation and charity endowment investment processes. It is highly recommended for business collections and individuals who have an interest in the structure and investment growth of endowment monies.

    Nonprofit executives receive a primer that assumes a certain level of authority and familiarity with the nonprofit world. This includes a detailed discussion of setting up a nonprofit from the ground up, from selecting an effective board of directors and supportive staff to committee development, to the basics of writing the two key documents nonprofits should have for legal compliance—the Spending Policy and Investment Policy Statement.

    The Sustainable Endowment then details the nuts and bolts of long-term investment strategies from a wealth manager and founder of wealth-management firm, Main Street Research, who sports some 30 years of experience successfully advising nonprofits on endowment-building procedures.

    At each step of the discussion, James E. Demmert focuses on the critical choices specific to the nonprofit culture, supporting his introductory intention: “The core of this book is about how nonprofits can learn to invest their endowment to maximize profitable results while limiting their risk.”

    The book is no light review of investment principles. It outlines many major pitfalls nonprofit executives need to understand in order to carefully assess financial markets and invest to keep their ships afloat. Demmert warns about the consequences of bad investing: “In addition to the loss of growth in value or income in a down market or during a recovery, the math gets even uglier when nonprofits need to make withdrawals during that time to use in their operations or to fund their causes. Each time you withdraw, you reduce your capital base — and that creates a “double whammy.” Furthermore, the effect of taking capital away from your portfolio while it is in a downward trend or in recovery mode adds tremendous pressure on the percentage of market increase you now require to attain the full recapture of your original investment amount.”

    Charts are peppered throughout the book to provide support for the analysis and recommendations, along with textual explanations about historical approaches to investment management versus the needs of modern nonprofits. Demmert offers many insights specific to economic trends that impact nonprofit endowments.

    Even more important, The Sustainable Endowment juxtaposes its recommendations with supporting statistics, historical precedent, and examples of investment fallacies and truths. This creates a powerful connection between “Smart” investing savvy and the specific concerns of nonprofits to remain sustainable to achieve their laudatory missions.

    With its core of seven basics of investment management geared to the structure, purposes, and special requirements of the nonprofit, The Sustainable Endowment creates a clear blueprint for executive success and is a top recommendation for any business reference library where nonprofit leaders are patrons and readers.

    — Diane Donovan, Midwest Book Review


    An engaging breakdown of investment strategies for maximizing security and growth in nonprofit endowments.

    Veteran portfolio manager Demmert (The Journey to Wealth, 2016) draws on decades of experience to point out common mistakes in nonprofit investing. He highlights 10 clearly developed, easy-to-understand principles that nonprofits may use to maximize their assets.

    He begins by focusing on the structures that put nonprofits on courses for financial success, such as a clearly defined staff and board of directors with follow-through, as well as spending policy and investment policy statements that will govern the nonprofit when leadership changes.

    Many suggestions are about organization and delineation, such as Principle 2, which concerns getting the right people with the right experience onto finance and investment committees. The rest of the text focuses on investment itself, showcasing how safe investments are helpful in volatile markets, but that truly maximizing one’s endowment requires “aggressive pro-active management” to both avoid major losses and see major gains.

    He rejects the popular advice to “Set and Forget” one’s endowment in a diversified investment portfolio, as a whole-market crash will substantially reduce assets in that scenario. Instead, he wants nonprofits to understand the strategies that financial asset managers use, stressing how the market is cyclical. This work employs an earnest, thoughtful tone, and it will be clear and understandable to those outside the finance world.

    Even nonprofits with less substantial endowments will benefit from the organizational structures that he suggests. As he points out, “Clearly this new era of investing requires in-depth research, time, and experience. Success today requires a disciplined process and tools that can help manage risk and return.” He also leaves room for new developments in investing and suggests that nonprofits continue to actively evaluate available options.

    A digestible collection of insider tips to maximize nonprofit gains.

    — Kirkus Book Review


    The Sustainable Endowment is a helpful and inspirational financial how-to guide for nonprofit leaders.

    James E. Demmert’s useful book, The Sustainable Endowment, is directed at nonprofits with advice to take charge of their financial futures. Arguing that the world’s financial picture has changed significantly and that nonprofit boards can no longer “set and forget” their asset allocations and endowment funds in various monetary funds, but must take a more active role in money management, the book places the contemporary market in historical context.

    Charts and graphs help to explain the impact that fees and hidden costs have on an organization’s bottom line. The text calls on nonprofit leaders to engage with their financial data down to granular details and empowers them to make difficult decisions about specific stocks.

    The text is focused on managing and growing endowment funds. It uses a mixture of practical and inspirational advice aimed at nonprofit leaders, written in a way that laypeople can understand. Its tools and ideas include having a committee manage funds and advanced notions of asset allocation and risk management.

    The text is organized around ten principles and moves from setting up the right foundation through to drafting spending policies, selecting stocks, and using stop-loss orders. Each technique builds upon those before it, and the text moves in a logical fashion. Chapters begin by recalling the high points of those previous, helping to cut through to the book’s main ideas.

    Textbook-like and with occasional personal asides, the book takes the time to define its key terms, ideas, and topics, including the notion of SMART investors—an acronym that stands for Strategic, Modeling, Attention, Reliability, and Trust. Its complex material is presented in a useful way. Its design is attractive and professional and its advice is credible and approachable.

    Effective in encouraging nonprofits to consider how much money is needed for sustainability, the book raises thoughtful questions like how to consider asset allocation, hire an expert, and determine how much it’s safe to spend from the endowment each year. Thoughtful insights and analyses related to financial trends provide important context for considering how to invest. It references techniques and formulas but leaves out the fine points of related calculations.

    Dense and difficult financial material is presented in an educational, if not expert-making, way. A good starting point for nonprofits hoping to secure their legacies, The Sustainable Endowment is a helpful and inspirational financial how-to guide for nonprofit leaders.

    — Foreward Review, Jeremiah Rood. June 20, 2019


    Anyone who has managed a non-profit knows all too well the ever-present need to raise and manage the funding necessary to sustain the organization. In The Sustainable Endowment, author James Demmert has written a guide for doing just that.

    Every year, there are many new non-profit organizations coming on the scene, most with good mission statements, goals and some funding. Some make it to the next level and receive one or more endowments, and even fewer really know what to do with that funding to make it last.

    In this book, you will find ten basic principles from the establishment of good management, creating a clear vision of how the money is invested and spent, how to maintain stability for decades to come, and much more.

    This is a book that is a must-read for anyone involved in or planning to start a non-profit foundation.

    — Linda Thompson, Host of www.TheAuthorsShow.com


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Stocks, Bonds, Risk & Return

    Will The Trade War Further Diminish Economic Growth?

    Investors have witnessed a number of strange occurrences in recent months, if not years. Though stocks have staged a big rally this year (most of it in January), this has merely been an attempt – unsuccessful as of yet – to recover from 2018’s 20% decline that stocks experienced towards year’s end. Even more interesting and odd is the fact that stock prices are lower today than they were in January 2018 – over 16 months ago! What gives? Why are stocks stuck in this long trading range and when will markets allow us to get back to making significant long term returns?

    Source: Bloomberg

    Global stock markets are tied to economic growth and corporate profits. One need look no further than 2017 as a reminder – a period when economic growth exceeded 3%, corporate profits skyrocketed and stock indexes and your portfolio of stocks soared upwards of 20%. Those were the days!

    However, as we review the past few quarters, economic growth rates have decelerated from over 3% to something closer to 2% or less. The Atlanta Federal Reserve Bank GDPNow model’s most recent estimate is that the US economy is growing at just a 1.3% annual rate in the current quarter. And the Atlanta Fed’s model is not alone: the Economic Cycle Research Institute runs a historically reliable Weekly Leading Index that also shows the US economy is slowing to a stall.

    Lastly, the decline in long term US Treasury yields (lowest level in 2 years) and falling commodity prices are signs that the economy is not on solid ground. Investors would be wise to keep these facts in mind.

    The slowdown in global and US growth is largely attributable to the Federal Reserve’s rate hikes in 2018 which in turn led the punishing 20% decline in stocks. Add to that the month-long US government shutdown and the now real effects of tariffs and it is plain to see why the economy has drifted to a slower pace. In the meantime, it is quite clear that corporate profit growth is feeling the effects of this slowdown.

    Though some companies such as MasterCard, Unilever, and NextEra have been able to generate respectable growth in this slowing economy, many others have missed earnings growth expectations – most specifically in sectors that are sensitive to the economy such as the industrial and consumer discretionary sectors. If the economy continues to slow – or more importantly recede (as in recession) – earnings and stock prices could be in for a further downside slide. Therefore, the key to managing your way through a slower economy is to make sure your portfolio has companies that can generate profits regardless of the economy and also be flexible about your level of stock exposure.

    Just because the economy has slowed doesn’t mean that the market needs to spiral into a wicked bear market (more than the last 20% decline). If the economy can maintain this slower than normal growth rate, there are plenty of companies you can add to your portfolio to potentially make handsome profits this year, particularly in the healthcare, select technology, financial and consumer staples sectors.

    As you know, in an effort to put the odds in your favor for a good year of performance, we have been patiently waiting for stock prices to experience a normal correction after the big rebound in January. That correction appears to be underway as of this writing (~4% off high) – this should give you great opportunity to add more stock exposure in companies that can generate profits in this slower than normal part of the economic cycle. Of course, if the correction appears to be gaining steam on the downside (which would probably be due to negative news about the economy, profits or further tariffs) I may suggest you slow such purchases. Remember: when economies – particularly those threatened by tariffs – are weak, stocks can really take it on the chin.

    Throughout history stocks go up about 80% of the time – however, the 20% of the time stocks are not going up is usually tied to the economy – and this time appears to be no different. The stock market doesn’t deliver consistent year-to-year returns and never has. The important part for investors is to dodge the grizzly bear markets (declines of 35-60%).

    Successful long term investing takes patience and discipline and a keen eye for what the market has done recently (in this case nothing for almost 18 months); and as well an eye for where the economy and profits will take us as we go forward. Once this period of economic weakness stabilizes or even contracts, we could have many years of bull markets and profits to look forward to in the “80% of the time” mode. The stock and real estate markets have been and, as far I can see, will continue to be the best places to grow wealth over the long term.

    Protecting capital in bear markets allows you to reach your long-term goals, whether those goals are to retire, meet your organization’s spending policy guidelines or leave a greater legacy for the next generation. In that spirit, continue to monitor the global economy, the effects of continued tariffs and to manage the risk of your portfolio through your allocation to stocks, sector management and the use of carefully placed stop-loss orders.

    I hope this update finds you well and that you enjoyed the Memorial Day Weekend.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • James Demmert Gives Back!

    A Tiburon resident since 1990, James was honored as 2018-19 “Citizen of the Year” for his longstanding support of, not only the Tiburon chamber and its community events, but many local, county and national organizations.

    James and his company, Main Street Research, have found many ways to give back to the community. Every quarter, Main Street gives a percentage of its profits to a charity. These have included the Susan G. Komen for the Cure, Marin Food Bank, USO, World Villages for Children, American Lung Association and the Leukemia & Lymphoma Society.

    On the Tiburon peninsula, James is a supporter of many charities and schools, has been a sponsor of the Chamber’s Friday Nights on Main since its inception and donated 40 flat-screen monitors to the Belvedere-Tiburon Library as well as giving back to the Tiburon Landmarks Society. It is also one of the first financial services firms to receive the Bay Area Green Business designation for running a truly green business.

    For the past 10 years, Main Street Research has had an internship program for college students, giving them the opportunity to “test the waters” of an investment firm. “Some of them love it and go on to work in the business,” James says, “ and others decide it’s not for them – and that’s o.k., too. This is one way I can pay it back.”


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

  • Why Many Nonprofits and Public Charities Fail to Survive

    Many nonprofits and public charities fail to survive – at a time when their need is unquestionable

    As an investment manager, I have witnessed time and time again that nonprofits lack focus on long-term financial sustainability. A critical challenge faces all nonprofits and charities—how to remain financially sustainable.

    Research indicates that about one in eight nonprofits fails within five years and one in five fails within ten years. The boards of nonprofits usually put a lot of their focus on fundraising, but this neglects their other responsibility – how to invest their endowment so it won’t deplete over time.

    The use of nonprofit organizations to address social and environmental problems is increasing. The National Center for Charitable Statistics (NCCS) reports that in 2018, there were 1.56 million tax-exempt 501(c)(3) nonprofit organizations registered in the U.S. The majority of these (1.09 million) are public charities – organizations to which the public donates contributions. The remainder includes private foundations, and other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues.

    Nonprofits spend a great deal of time and effort fundraising each year, but many do not maximize the value of their endowment by investing it wisely. This wastes their resources and increases the risks that they simply run out of money if their fundraising declines over time.

    The number of nonprofit organizations has been increasing in recent years. This is attributed to many factors, including a recognition that the world faces many social and environmental problems that governments do not have money to address.

    Millennials have a keen interest in getting involved in nonprofit sector work, but often do not have the financial or executive experience necessary to do the proper planning for revenue development and long- term survival.

    Many organizations exist to help nonprofit boards of directors learn leadership, planning, and financial management skills. I especially recommends that once a nonprofit reaches the $500,000 endowment mark, they formalize an Investment Policy document and begin working with an investment manager who can assist them with endowment investment decisions. This step is also necessary to ensure that boards of directors fulfill their fiduciary responsibilities to their stakeholders.

    ***

    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come. This book walks you through the basics and best practices of what you need to know to be successful.

  • Global Stock Indexes Return to Previous Highs: What a Short Strange Trip It’s Been

    The recent recovery in global stock prices has been astonishing and is of historic proportion. Investors would be very hard-pressed to recall a period when stock prices have ever made such a big percentage round trip – both down and back up – in such a short period of time. The reasons for the global sell-off have been well chronicled: Federal Reserve rate hikes, slowing economic growth and corporate profits, the US government shut down, and tariff wars to name a few. Though these were – and are – legitimate concerns, why have stock prices shrugged these risks off? Is this the beginning of another significant, multi-year leg higher for global equity prices? Maybe.

    One thing we know for sure is that stock markets serve as a discount mechanism to future events.  Stocks have an uncanny way of rising just ahead of better news or falling prior to the darkest part of dawn. That is why it is often best to buy stocks when the economy is at its worst – or when the list of worries is as long as it was during the first quarter. The other thing I know about stock prices is that shorter-term movements – months, not years – are often driven by investor psychology – not necessarily fundamentals.

    Fear and greed can move stock prices quite significantly in both directions, as we have seen in the past six months. Is the recent volatility, both up and down, a sign that the market is discounting better news about the economy going forward? Or is it just a massive bout of investor fear and greed? I would suggest a bit of both, which means we should be careful but more opportunistic during any upcoming market corrections and put the odds in your favor for a good year of investment performance.

    It is pretty easy in hindsight to look back over the past three months of this recovery and think that only a fool would have been cautious during such a period. I tend to take a more “safe than sorry approach” when the key pillars of stock market strength – economic growth and corporate profits – look as vulnerable as they have in the past six months. Often times “cracks” in these important pillars bring on treacherous bear markets and catastrophic declines (40-50%) in stock prices – i.e. 2001, 2008. These types of bear markets occur about every 9-10 years and can ruin a healthy financial/wealth plan or an endowment’s spending policy. Investors would be wise to keep that statistic in mind, should one think that risk management is a fool’s game.

    As you know, you have had less stock exposure than normal during this period to mitigate the potential of a further slide in stock prices. This more cautious stance (less stock) has temporarily muted your upside. However, the difference between your return and the market would be easily rectified if we had a normal market correction of 7-9% which is – in my opinion, and that of other bright investment experts – way overdue.

    The laundry list of worries that we faced at year’s end has dissipated. The Federal Reserve has made a key pivot to be more accommodating while the economy looks to have slowed, but maybe stabilizing at the current lower growth rate of 1.5-2% annually. This, in turn, may allow corporate profits to meet already lowered expectations. You can make great profits in a slower-growing economy by tilting your portfolio to companies that can deliver consistent growth.

    Given the fact that things look a bit brighter, you should continue to add stock where you see great value. If we do experience the way overdue, much anticipated, normal market correction you should most likely speed up such purchases to get your portfolio more in line with market returns.

    Though one might be tempted to add back any missing stock exposure now, or within days, I would suggest a more patient approach to yield the best returns over the longer term.  If the economy is truly on a slower, but solid growth path, there will be better opportunities over the coming weeks and months to be fully invested.

    Though the skies appear to be a bit brighter and the clouds are dissipating, we are in the thick of corporate profit reporting for the first quarter. This may bring some disappointments and a return to volatility on the downside. Should profits and economic data experience a further decline, we will continue to manage this risk by adjusting your portfolio’s allocation to stocks, your sector exposure and the use of carefully placed stop-loss orders.


    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon

  • Patient and Value Conscious: Upcoming Data Should Align Stock Prices and the Economy

    Long-term investment success often requires short-term periods of patience, restraint and being value-conscious. In today’s fast-paced, short-term performance, the digitally-driven world this can be a challenging combination. However, the discipline to step away from short-term “noise” and carefully examine the “forest” as opposed to the “trees” can result in significantly better long-term returns. This can often mean going against the crowd in the face of a falling or rising market.

    Years ago I learned that short-term movements in equity markets are driven by psychology, but long-term trends are driven by economic and corporate profit growth. This comes to mind during the past few months as I witnessed the dichotomy of sharply rising stock prices in the face of declining economic growth and corporate profits. Investors need to ask at this point which of the two – the recent direction of stock prices (up) or corporate profits (down) – has greater longevity? And, how will this play out over the next few months and the balance of the year?

    In just a few weeks, stock prices appear to have lost their momentum. In fact, for most of March, global stock indexes were in the red. At the same time, economic statistics and corporate profit reports have continued to deteriorate. Perhaps the long-term fundamentals are beginning to trump short-term psychology? I believe that this may be the case. The bond market, which has historically been the best predictor of such things, appears to agree.

    This is evidenced by the bond market’s recent yield curve inversion – short-term yields higher than long-term yields. This unusual phenomenon often precedes weaker economic data and profits. A bit more time, along with earnings and economic data in April, should bring the disparity between stock prices and underlying fundamentals back in line.

    We faced the beginning of a bear market in the fourth quarter of 2018 with most indexes down 20% and many sectors down much more. Though we don’t predict Armageddon for the global economy or stock market, we also do not believe that a real bull market can begin again without at least a normal correction or perhaps something worse. We may be on the precipice of such a move given that the market has lost its momentum and we are heading into what is likely to be a dismal period of earnings reports and economic statistics from the first quarter when the US Government was shut down. For that reason, we continue to be a bit more defensive than your normal, fully invested portfolio.

    I suggest you continue to search for and take advantage of isolated opportunities in companies that represent great value regardless of the market’s direction. These are difficult to find and, given the overall market environment, the pace of adding significant exposure has been slow.

    It is always difficult to predict with accuracy the direction of stock prices, but one simple rule holds true: When the economy and corporate profits are rising, stocks do great! That has just not been the case over the past 4 months, which poses a risk to investors. As a reminder to anyone who has experienced a normal bear market, stocks typically fall before the bad news about profits as happened in October – and then have sporadic, often significant, advances as we’ve seen recently – only to decline again into poor earnings reports.

    Though global stocks historically decline approximately 40% during an average bear market, I am not predicting such an outcome. In fact, be ready to become more growth-oriented as soon as stock prices and earnings growth are more aligned – most likely when stock prices are lower and most of the bad news about profit growth has been digested. I wouldn’t be surprised to see this come to fruition in the next few months.

    After decades of managing money, I have experienced a number of these short-term periods of being less invested and they have proven to be a bit trying in the middle, but valuable in the end. None of those past periods lasted more than months and I don’t expect this period to be an exception.


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    The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come.

    This book walks you through the basics and best practices of what you need to know to be successful.

    Order your copy today on Amazon