By Susan Belknapp, California Business Journal

During the crash of 2008, was it possible to lose only six percent — or less – of your portfolio?

It actually was, but it was very very rare, according to US News, which said if you lost less than 38 percent, you were essentially a unicorn.

“If your stock fund lost less than 38 percent in 2008, you’re gold. Okay, relatively gold. The stock-fund category includes both active and index funds, but the average loss for actively managed stock funds – that is, those managed by a real, live stock picker – was 41 percent in 2008, according to Morningstar. Investors also didn’t find refuge in a particular size category: large-cap mutual funds and small-cap mutual funds both declined about 38 percent.”

But the mere six percent loss was a reality for clients of Santa Monica, California-based Sierra Investment Management, which saw declines of that amount — or less — during the crash that led to the Great Recession.

Sierra Investment Management clients recovered their 2008 losses in months, as opposed to years. The firms’ principals developed and implement a five-part risk-mitigation strategy that their clients rarely see drops of five percent, regardless of market conditions. And this record goes back more than 30 years.

The Sierra Investment braintrust (L to R): David Wright, Terri Spath and Ken Sleeper

Founded in 1987 in Santa Monica by Ken Sleeper and David Wright, Sierra Investment Management built an innovative investment-management approach that is focused on portfolio management for conservative investors to protect assets while generating satisfying returns across each market cycle. Their strategies have been proven robust during the company’s 31-year tenure, and the Sierra group now manages assets of about $3.4 billion. Unaffiliated with any brokerage firm, Sierra and its sister companies are Registered Investment Advisors with fees from clients as their only revenue.

Time-Tested Strategies

“The rules-based risk-limiting disciplines we employ go back to our beginnings, and our procedures for building very diversified portfolios go back more than 25 years,” Wright says. “We’ve applied them in good markets, tough markets, in periods of war and crisis, and they’re very robust. There isn’t much that has happened on the world scene that we haven’t managed money through. Our job is to manage risk every day, regardless of the environment, the news, or other noise in the investment markets out there.”

To say they manage it “every day,” is not an exaggeration. Sleeper and Wright and their team review every holding daily. Quite a job since their clients may from time to time own mutual funds selected from the over 8,600 available.

Sierra Investment focuses primarily on families where the head of household is 55 or older, has a college degree or equivalent intelligence, and has investable assets of $1 million.

“Our clients are typically very averse to losing money and want a consistent process in place that has shown results,” Sleeper says. “We have proven that, through any market cycle, we’re going to get decent, satisfactory returns without painful losses. In 2008, our clients were down less than six percent or around that figure while many others were down a lot more.”

What to Buy, When to Buy, and When to Sell?

The firm’s disciplines about when to buy and sell are completely quantitative and rules-based, and have proven resilient since Sierra was founded, according to Wright.

“When it’s time for deciding what to buy, we look at a more diversified candidate target set of asset classes and other vehicles than anyone we know of, even hedge funds,” he says.

Sierra was the first fee-based Registered Investment Adviser in the country to access emerging-market debt, which was done about 25 years ago, and it has been one of its most productive income-oriented asset classes in the world since.

“At the same time, we reassure clients if we allocate money to something exotic, like managed-futures or emerging-market debt, their downside is still very limited,” Sleeper says. “One of the key things we found is that slow and steady growth – rather than taking excessive risk – helps people become wealthy and stay wealthy.”

Terri Spath, Chief Investment Officer and now valued member of the leadership team, further clarifies how the dynamics work.

“Ken and Dave are the architects of this strategy and what they’ve learned from more than several hundred clients is that the industry’s standard ideas – which suggest that if you diversify between stocks and bonds, you’ll get you to where you want to go – only tell part of the story, Spath says. “You can still end up with a 20 percent decline. Sierra’s diversification is a lot truer to the goals of the client, who won’t tolerate that 20 percent drawdown.”

Stellar Service and Results

Client relationships and “white-glove service” are two more elements that are part of the Sierra Investment Management business model, resulting in an extremely high client referral and retention rate. The firm even counts other financial professionals among their clientele, which the founders are honored and gratified by.

“We hold ourselves to very high service standards,” Spath says. “We conduct surveys at client events, which we hold three times a year, and get off-the-charts marks for how our clients experience our service and their relationships with us.”

The industry is also aware. In Barron’s 2017 Top 100 Independent Wealth Advisor issue, Sierra Investment Management had risen from halfway down the list to No. 23 in the country. (A deadline error resulted in the firm missing the 2018 rankings, but the partners believe Sierra’s rank would have been similar or even higher.) Sierra has been consistently on the London Financial Times Top 300 American Investment Advisors and is expected to continue this year.

What the firm has found in speaking to hundreds of household investors over the years is that most are focused on risk-mitigation and limiting drawdown, particularly in the last 10+ years as compared to 1970 through 2006.

“People no longer care about Nobel Prize-winning strategies and they don’t believe that equities are ‘necessary for growth’,” Wright says. “They simply want to be kept out of trouble with satisfactory returns during a complete market cycle, and it’s a surprising and overwhelming portion of our target market.”

Creating a relationship based on mutual understanding and clearly defined expectations and goals is paramount to the lasting relationships that Sierra has with its clients, many of which they started with as they neared retirement and are now in their 80s and 90s.

“It’s very important in our minds to make sure we understand what we can do and just as important we need to understand what our clients want,” Sleeper says. “If there is a mismatch, we would rather pass on that relationship, as opposed to getting involved with a client who has unreasonable expectations or doesn’t understand their own risk parameters. So there is a lot of education that goes on as part of our process, especially when we first establish relationships with new clients.”