Jerry Jacobs, president of Atlas Capital Management Corp., is proof positive that being big is not necessarily better. His small firm of five people uses a couple of systems he developed over many years of researching for investing his client's money that consistently top the Standard & Poors 500 performance, as well as the market in general. Atlas has a proven track record that puts it among the top money managers in the country year after year. And that makes his clients very happy.
The giant Wall Street investment houses, however, contend that his market timing and rotational systems can't work. Jacobs, on the other hand, says they wish "they could use his systems of investment, but they're just too big."
The Ball State University graduate and his four employees invest their client's money in mutual funds, variable annuities, and variable life insurance contracts, With over 24 years of experience with Merrill Lynch and Paine Webber, he developed the two financial
management strategies (market timing and rotational) which he based his business on when he opened Atlas in 1994.
He first developed market timing, which he says "attempts to participate and grow assets during periods of rising markets by investing in better performing equity funds. We decrease investment risk during declining markets by moving to a money market position." At its simplest "market timing is seeking to buy and sell at the 'right' time to take advantage of market fluctuations," Jacobs says.
Though Jacobs makes it sound simple, he and his staff keep a very close eye on the ups and downs of the markets because the mutual funds are made up of stocks. He is not, however, influenced by what the Federal Reserve Board chairman might say, or if a company's
quarterly report shows a big increase or loss. He won't let emotion creep into his decisions, nor will he continue to keep money in a fund that is not a top performer. When a fund's performance begins to shift downward, he doesn't hesitate to exchange those investments into a better performing fund.
"Time is vital and I can't wait for a market turn around when my client's money can be earning in another fund or the money market during the interim," Jacobs says. "We have a list of rules or indicators based on fundamental and technical analysis of the market's movements and trends that we apply to all of the funds we monitor. This non-emotional approach allows us to catch trends slightly above market bottoms and exit shortly after market tops. It doesn't matter how old the fund is, its past record or that of the fund manager. We're completely objective. If more stocks are going up than down, we want to be a part of it. If the reverse is happening, we're out. Emotion is not part of the equation."
The same holds true for his rotational strategy, with the exception that funds never go into the money market. Instead, they go into a better performing fund. "With this strategy, we average about 60 days in a fund," Jacobs says. Though there are others around the country using similar systems, Jacobs is unique among financial management firms in this area. He's planning to introduce three new strategies in the next few months, further diversifying his business, for managing money in the market sectors, international funds, and high-yield funds.
Jacobs is so confident in the two investment systems, that he places 90 percent of his own investable money in the same accounts that he places clients' money.
"Our systems are not the Holy Grail, however," says Jacobs. "Every now and then they don't work, but we're right more than we're wrong and that's the important thing. I feel that the rotational program will grow to be bigger than the market timing program, and this year both are ahead of the S&P."
Atlas is an investment firm that offers its clients performance-based contracts where the firm's compensation is tied directly to the performance of the clients account. "We simply think our strategies are good enough to top the bench marks, and our record proves it," says Jacobs.
He developed his investing systems in 1988 and began putting them to the
test in 1990. He theorized that it seemed logical that there are times when you simply shouldn't be in the market. The system, however, didn't work out with stocks, so he began gathering data on mutual funds, started following their progress and applied the timing model based on his buy/sell signals. Though it required being in and out of the market from three to 12 times a year, he was satisfied with the performance, as were his clients.
Wall Street brokerages and mutual funds are quick to tell investors that market timing doesn't work. Jacobs points out that the reality is that "large investment firms cannot use timing because of the large amount of money they control. With billions of dollars under management, their flexibility is limited. Few fund managers even have the capability to move to large
cash positions, due to either the size of their fund or their fund charter. Since they can't do it, their attitude is that it can't be done.
"We may have from $1-$3 million invested in each fund and can exchange all of our positions to cash in less than an hour," says Jacobs. "This is a drop in the bucket compared to the enormous amounts the big Wall Street firms have invested. If they pulled out the billions of dollars they have in some funds it would ruin them. They're just too big to do what I do and they aren't flexible enough to act that quickly.
Jacobs doesn't regularly advertise his services, doesn't send out mailers or make cold calls, but gets a lot of referrals from satisfied customers and referrals from other brokers. They're usually people who don't have the time or expertise to invest.
"When someone comes to me, we first have a long talk about what they want to accomplish with their investment," Jacobs says. "We discuss the risks, their objectives and how to implement a program. I find out if they want their money to set up a retirement program or for some other purpose."
Atlas clients sign an investment advisory agreement that lists the risks and objectives, outlines the fee schedules, and grants Atlas a limited power of attorney to invest on their behalf with a goal of optimizing the riskadjusted performance of their mutual fund and maximize their return.
A national bi-monthly financial newsletter, MoniResearch, that lists the performance of managers throughout the country, regularly shows Atlas Capital in the top 10 percent.
"Every month when the newsletter comes out I receive calls from people all across the country inquiring about our services," Jacobs says. "I send them our brochure and have picked up many clients this way."
Atlas keeps its clients UP to date on the state of their money with a quarterly newsletter of their own. In the September issue of the newsletter, the "From the Desk of the President" column, Jacobs reported that the timing model had again proved its worth with Atlas accounts outperforming the buy-and-hold during the third quarter. Rotational accounts also registered outstanding results in the third quarter, with the accounts showing positive results. It stated that because of the timing method, funds timed by Atlas that were down, were down
less, and funds registering gains, showing more gain.
Atlas Capital never actually has access to its clients money. A trust company in Colorado is custodian for all the assets in the rotational accounts, and those in the market timing accounts are held by a trust company in Chicago. Jacobs has power of attorney that allows him to handle the investment for his clients. This enables him to move quickly to exchange one fund for another that is performing better or move their assets into the money market.
Many of those who come to Jacobs have tried their hand at investing either through a broker or on the internet. Some have found out the hard way that buying and selling stocks is a tough way to make money, and most of them haven't been very successful at it. They let their emotions get in the way. "When people are sick," says Jacobs, "they go to a doctor, if they need legal assistance they go to a lawyer and when they need dental work they go to a dentist. I can't understand why more people, when they want to invest their money, don't go to a professional financial manager who has the necessary information, knowledge and resources to do it right."
Jacobs' investment systems may be controversial, but as he says "this is not rocket science. My philosophy is that one of the best ways to make money is not to lose money in the first place. The market dictates to us and we make the decisions based on discipline, logic and rational thinking. It's a great business, and I really enjoy the management of money."
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