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Financial adviser sets standard with 'advance and protect' strategy

NEW YORK — In times of market turmoil — like the stomach-churning third quarter — investors might wish they could sit down with the nation's leading professionals and pick their brains.

Here's your chance: Ron Carson, founder and chief executive of Carson Wealth Management, a wealth-planning firm in Omaha, Neb., has for five years been named the No. 1 independent adviser in the United States by Registered Rep. magazine, a top industry publication for financial advisers. (Turns out "the Oracle" isn't the only guy in Omaha worth listening to.)

Carson Wealth Management uses an investment strategy it calls "advance and protect" that actively reallocates portfolios according to market risk and reward. It's catching on — in 2008 and 2009, when many other firms were shrinking, Carson Wealth Management was welcoming record numbers of new clients. The Washington Post spoke with Carson about how he's adjusting his clients' portfolios in the face of market volatility. The interview has been edited for length and clarity.

You describe your strategy as "advance and protect." What does that mean, and how is it different from what a mutual fund or a hedge fund does?

We describe it to clients as a transparent hedge fund. You get information in real time about what our hedges are. And the term "hedge fund" used to mean that the funds were in fact hedged, but they've evolved into different strategies and are sometimes even leveraged up. We never use leverage. We specialize in what we call irreplaceable capital. As people grow closer to retirement, they don't have time to make back anything they lose; they cannot afford to lose a large chunk of their principal.

Based on your most recent market outlook, you don't think stocks have seen their lowest point yet for 2011. Are you buying equities, even selectively, at this point?

We went into full "protect mode" in April, and we're flat for the year. We think there are a couple of key support levels for the market. If the S&P 500 dips to 1,101, we think it'll go down fairly quickly to 1,000 or 950 or possibly 900. This goes back to the idea that a lot of people have never been through a bear market low. If you look at 1982, 1974, 1952 — all those bear market lows ended around a 7 multiple for the S&P 500. In 2012, we think the S&P 500 could earn $95 or $100 a share. Let's say we muddle through; you could easily get to a multiple of 7 to 9. Where you're going to make money is by not losing money now and then being able to buy good companies at a substantial discount later. We have puts in place now, but we are long on companies including Cisco, ConocoPhillips, Microsoft and Verizon. So we have selected areas of exposure to stocks. We also have gold stocks in the portfolio and ways we're tempering volatility.

You have $2.6 billion in assets under advisement. That money has to go somewhere, even if you're generally bearish on stocks. How do you decide where to put it?

You need to find powerful trends to throw yourself in front of. We have a four-step process. Initially we identify a trend we want to invest in, and then we determine the best way to play that — whether it's through an exchange-traded fund, an individual stock or an alternative strategy. Third, we run two separate technical models that reveal macro turns in the market and individual positions. And then we track insider activity: Who's been accurate? What's the noise? What's actionable? There can be big gains or big losses, small gains or small losses; at all costs we have to eliminate that one big loss.

When you say "insiders," you mean corporate executives?

Yes. Insiders aren't very good at calling turns in the market at the absolute point they change. But generally they are very accurate if you look six months out after they make a sell or buy.

Carson Wealth Management identified a few trends and areas that create potential for investors — the global food and water shortage, mobile consumers, infrastructure, alternative energy, health care innovations and Asian consumers. Can you share some of your ideas in those categories?

Starting with feeding the world, we are not currently long on Brazil, which is down about 20 percent so far this year. But Brazil fits into our theme. It has the world's largest arable land mass, plenty of water to grow food, and it's a back-door way that China is going to feed its population. In the United States, we are not investing in Monsanto, but the fertilizer companies are a way to play that. You can do it individually or by country.

How about mobile consumers?

This is where Cisco comes in. We love Cisco; it's a recent addition to our portfolio. We like the fact that it pared back its growth guidance to the point that we think it can surprise on the upside. We also think that, being the leader in routers, Cisco will benefit from the continuous migration to the Internet and cloud computing. And the stock is cheap.

The problem with all of it is that we think we're probably in a recession right now, and I wouldn't own any of these assets unless I had them hedged on the other side. Nothing is exempt to a general decline in the market.

Financial adviser sets standard with 'advance and protect' strategy 11/13/11 [Last modified: Sunday, November 13, 2011 3:30am]
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