A half century in the investment advisory business is a long time. As the late Jack Benny would say, “It is really tough to do when you are only 39 years old.”
I started solo. Then in 1973, Sheldon “Shep” Goldberg and I formed a partnership called Cumberland Advisors. He left New York and the rat race after an already established career path through Bache & Co. and Hutton. We occupied a two-room office in Vineland, New Jersey; we shared an administrative assistant.
June 18, 1973, is our official anniversary date. Why? Because that is the date a clerical person placed on our SEC filing papers before he or she mailed them back to us. There is nothing magical about the date. Papers then were snailmailed; your official date was selected by a bureaucrat whom you never met.
In 1973, the investor class had firsthand memories of the Depression era and of World War II and of the Korean War and of the Vietnam War. Shep and I had both served in the US military. Many of our new clients had, as well. America in those days respected people who wore a uniform, though there was an intense political debate over the draft. Military service had been nearly universal, and the nation was phasing out conscription. A history lesson can be found here:
https://en.wikipedia.org/wiki/Conscription_in_the_United_States#End_of_conscriptio.
When Shep and I started Cumberland, the citizens supported the men and women who defended the country. There were parades on holidays. And people bought poppies to honor and help veterans on Memorial Day. The nation had a sense of patriotic dedication to certain American ideals.
Many, many families had been touched in some way by one of the wars. Many of our first clients were veterans. It was a connection we had with them as we launched a new business. At least that is how I remember it.
Shep and I had a model for our business. It was a simple one. We wanted to solve the conflicts of interest that we saw prevalent in the Wall Street world. We wanted to separate the investment advisory service into one silo, put the brokerage or product compensation into another silo, and put the custody and safekeeping and reporting into a third silo. The silos had to be separately identified and separately evaluated and separately transparent. We had already seen the damage done when such a format is not used. The modern version of the opaque single silo is Madoff. We rejected that model 46 years ago. I won’t take the time to name the earlier versions that led Shep and me to decide on a “no conflicts of interest” policy. Sadly, that list is a long one.
So we launched Cumberland in the summer of 1973. A few family members and friends gave us a chance with a few hundred thousand dollars. Our opening portfolio structures totaled about $10–15 million. There were no ETFs. We used single stocks and high-grade bonds and some specially researched junk bonds.
That is how we started in the summer of 1973.
Immediately, all hell broke loose. Egypt and five other Arab countries declared war on Israel. The Yom Kippur War started in October 1973. For that history see: https://en.wikipedia.org/wiki/Yom_Kippur_War.
The 1973–74 bear stock market was brutal. The Dow Jones Industrial Average plunged from about 1000 to under 600. That’s right, 600! I remember seeing it in 1974. Cumberland’s first stock market cycle was marked by a 40% drop.
The bond market fell apart. Fed chairman Arthur Burns was trying to fight a recession and inflation at the same time. Interest rates hit their highest level since the Civil War. Never did we think that we would see them even higher by end of the 1970s.
The price of oil went from $3 a barrel to $12. A severe recession was rocking the US. The US dollar was under attack. President Nixon closed the “gold window,” and the Bretton Woods fixed-currency exchange-rate regime fell apart. At the same time, Watergate and the Nixon impeachment proceedings infected American politics. The most famous question then was, “What did the president know, and when did he know it?”
My partner Shep and I had picked one hell of a time to launch an investment advisory firm. No one wanted to invest in anything. Everyone was scared. There were gas lines and shortages. Airlines couldn’t get fuel. Auto companies had no sales. Business confidence had collapsed. Investor confidence was nonexistent in 1974. Politics were a hateful mess.
In November of 1974, Shep and I became fully invested in the stock market. We bought names like Boeing and General Motors and ATT. These companies were selling below their replacement values, and they did not have earnings because of the oil price shock and the recession. We suffered for about three months, and several of our new clients fired us. Then, in early 1975, things reversed; the stock market took off, and Cumberland was launched.
We had a similar shock in the late 1970s with bonds. We held off from buying bonds for several years as interest rates were rising and inflation was intensifying. Patience was required on the bond side.
I remember the first corporate bond we bought. I did that trade myself. It was a telephone subsidiary bond issued by Pacific Tel, rated AAA. It was a 30-year bond with 10-year call protection. The coupon was 12.70%. The year was 1979. Paul Volcker was the new Fed Chair, and he was determined to break the back of inflation, which had reached double digits in the US. This was the first large post-Volcker bond sale.
Two clients fired us for buying that bond. “How could you buy any bond when inflation is in double digits and headed higher?” they said.
These and many other historical experiences resonate today. The list of issues is similar: politics, recession risk, Fed policy, trade, war risk, inflation/deflation, and many other elements populate the inventory. It reminds me of the famous line in the great movie Casablanca: “Line up the usual suspects.”
I’ve seen 50 years as an investment advisor and 46 years with Cumberland. We’re now 46 people. We have 17 series 65-licensed professionals. We are in over 40 states. We measure assets under management in the billions. We’re on several major platforms. Our largest institutional clients are measured in the 10s of billions.
I have 18 partners. Of the 19 Cumberland owners, 13 of them and the majority of the shareholders work for the company. We are an independently verified GIPS company (Global Investment Performance Standards). That is the highest designation established by the CFA Institute (see https://www.cfainstitute.org/en/ethics/codes/about-gips-standards).
Our basic philosophy hasn’t changed. We still believe in separate silos. We still are fee-for-service investment advice only. We still do not sell any product on a commission. We still do not hold client assets. We still use separate custodial reporting.
I want to wish a happy anniversary to our clients and referring consultants, our staff, and our readers. At Cumberland, two members of our staff have reached a 40-year employment milestone. Each of them is a shareholder.
We are based in Sarasota. You are welcome to come and visit us.
As for me, I love this business. It is as challenging today as it was 50 years ago when I started. Maybe it is even more challenging.
The aging of the physical body is unstoppable. We can try to manage it, and we do. But the clock always wins in the end. I believe, however, that as long as the mind is cognitively sound, the challenge is to keep learning and working and exercising the brain. And try to move the arthritic bones as well. I still ride the stationary bike that appeared in the Wall Street Journal on March 24, 2015 (https://www.wsj.com/articles/for-money-managers-a-daily-search-for-signs-of-trouble-1427145320). Many thanks to my friend Jim Browning for that wonderful story that put my photo “above the fold.”
In my kitchen is a memento baseball. Visitors have seen it. The inscription reads, “It ain’t over till its over.” Yogi signed it. The punctuation error is there on the ball, and the words are written in his own personal hand.
Happy Anniversary! It ain’t over until it’s over.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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