Rudy Wong Case Analysis

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Mary Swanson is a retired non-emotional decision maker female. She has 60% of her portfolio invested in equities and 40% on bonds. Her portfolio is diverse with some investments in gold and real estate in Canada. She doesn’t have any short-term liquidity needs.

The way to approach Swanson is with logic arguments rather than behavioral counseling. She needs to understand that if she shift a large portion of her portfolio to cash, when stocks rebound, she is going to have to buy them at a much higher price. Corporate bonds, which was her biggest investment, had been suffering tremendous losses because of yield. Wong could advise her to invest a little more in gold and real state since these markets are not very volatile but maintain her long term investment on equities. Given the investment horizon of Swanson of 30 years and her need for growth, and the fact that she is not emotionally driven, she should take a less conservative approach and invest more in equities to expect much higher returns in the long-term.

The Kleins have few assets, they are 30 years away from retirement and have a high growth need. They have 85% invested in equities, 15% in bonds which translates to big losses and high risks in the current scenario. Their exposure to equities made their value to drop 50%. They have a very calm temperament, suited for long-term investment.

The way to approach the Kleins is to give them logical arguments of how the asset allocation in equities would be the only alternative to provide them with the high return they needed for retirement and that a low market could be favorable to invest more on equities. On the behavioral side, Wong must convince them that the reason he is suggesting this investment strategy is not for him to make more commissions but because is the only one that is going to give them higher returns. Since they have lost too much and are not trusting Wong or his firm, Wong could suggest them to invest a little more in bonds to mitigate the risks and feel a little safer and to recover their confidence in the firm and Wong himself.

The Nichols are married and are 50 years old. The inherited $100,000 and have some short- term liquidity needs but also have a solid income. They have no need to allocate resources in cash. They want to grow their money and have a high-risk tolerance. 75% invested in equities and 25% in bonds. They have an investment horizon of 10 years with cash invested in dividend funds to lessen tax burden. They have a bias toward trends and believed they stock market could fall to zero.

The way to approach the Nichols to get them past their bias is by showing them specific data that proves that the market achieves higher levels of valuation after each recession and stock market downturn. He could show them the 10 year average return on equities since 1990, and the trend of the market after catastrophic historical events such as the Cuban Missile Crisis, or 9/11 attacks, proving them that the market always recovers to higher levels. Wong should apply behavioral techniques to encourage them and persuade them to keep their long-term investment with the same assets mix, and take advantage of the recession by maybe buying even more equities while the price is depressed to multiply their assets in the long run. If they can take risk, and they have high incomes, I think they should hold their breath and trust Wong’s experience and the historical trends, invest more and wait for the rebound of the crisis, and then they will see great returns.

References

Ross, Stephen A., Randolph Westerfield, and Bradford D. Jordan. Essentials of Corporate Finance. 8th ed. New York: McGraw-Hill, 2014. Print.

"Rudy Wong, Investment Advisor." Rudy Wong, Investment Advisor. N.p., n.d. Web. 04 Sept. 2016.