Financial advisor Scott Magnesen has reached the top ranks by catering to “Ma and Pa America.” His advice: Buy and hold for 10 years or more.
“We fill the niche for ‘Ma and Pa America,’ ” says Magnesen, 55.
What Magnesen lacks in assets per client, he makes up in volume. He and three fellow advisors at his MPW Group, a unit within Morgan Stanley, manage a combined $3.2 billion for more than 3,000 families.
Magnesen has found a straightforward way to manage all of those investment accounts: He and his team build each client’s portfolio from the same 70 to 80 investments—and simply adjust the amount of each holding to fit a client’s age, goals, and risk appetite.
Gung-Ho on Blue chips: “I try to own the very best name in each industry,” Magnesen says. Photo: Bob Stefko for Barron’s
Magnesen’s background is as unconventional as his approach to the advisory business. A musician who plays seven instruments, he earned a music scholarship to Northwestern University, where he played snare and ran the drum line for the Northwestern Wildcat Marching Band. He earned a bachelor’s degree in music with a minor in economics.
These days, Magnesen plays drums in a rock cover band, and has even taken up competitive ballroom dancing with his wife, Lynn. With a love of numbers and comfort in front of audiences—whether a music crowd or a wealthy family—Magnesen says he landed in the perfect career.
MAGNESEN’S DECIDEDLY UNFLASHY investment philosophy was influenced both byWarren Buffett and investing guru and University of Pennsylvania Wharton School professor Jeremy Siegel. Magnesen met Siegel while attending an advanced securities program at Wharton in the late 1980s as an advisor with Dean Witter. “What I preach to people is to buy high-quality stocks for the long term,” says Magnesen, who holds stocks for an average of more than 10 years.
Two-thirds of Magnesen’s typical equity portfolio is composed of blue-chip stocks whose high dividend growth can buoy them through volatile markets. “I try to own the very best name in each industry,” he says. He complements the blue chips with mutual funds that provide easy exposure to foreign stocks and smaller companies.
Magnesen hasn’t run from fixed income as many others have. He hews to a traditional view that investors should own more bonds as they near retirement in order to reduce portfolio volatility. Using the “age minus 20” rule, he typically uses a 20% bond allocation for a 40-year-old investor, 40% for a 60-year-old, and so on.
His current investment thinking is rooted partly in demographics. The U.S. population of 320 million, he points out, is dwarfed by the global population of seven billion. And the next two decades are likely to mint as many as three billion new consumers, he says.
“These are people who before now have never bought a cotton shirt, or even three meals a day,” he says. “That’s where [U.S.-focused investors] are going to miss the opportunity.” Magnesen has invested about 15% of his clients’ money in international equities, either through American depositary receipts or international mutual funds. He also likes domestic stocks with solid overseas exposure.
ONE OF THE BIGGEST services that Magnesen delivers to clients is talking them out of ill-conceived investments. In 1999, he dissuaded them from loading up on tech stocks. In 2006 and 2007, he talked them out of buying real estate in Florida. And two years ago, he kept them from buying gold at $1,900 an ounce. It’s now at $1,300 an ounce.
“That doesn’t ever show up in the performance numbers, but what you keep clients out of is sometimes as important as what you let them do,” he says. And that’s music to our ears.