Money manager rides out Wall Street’s wild week

August 14, 2011

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With the stock market careening like a pinball in the most volatile week since 2008, the Globe asked John Dorfman, chairman of Thunderstorm Capital in Boston, for his impressions on what it feels like to be a money manager at such a tumultuous time. Thunderstorm is an 11-year-old money management firm that oversees about $50 million, primarily for high-net-worth individuals.

Last week in the stock market brought to mind the pilot Yossarian’s cry in the novel “Catch-22’’: “Why are they shooting at me?’’ When his friends remind him that the enemy is shooting at everyone, he says that makes no difference - they are shooting at him.

Other impressions from an unforgettable week:

Pop-ups. I get pop-up notices from Bloomberg on my computer screen whenever a stock our clients own rises or falls more than 5 percent. The good ones are in green, the bad ones in red. Monday, I grow so annoyed with the parade of red pop-ups that I growl, “Why don’t they just say our whole [expletive] portfolio is down 5 percent?’’

Yet Tuesday and Thursday, the green pop-ups were as soothing as a Beethoven string quartet.

Self-doubt. Each time the market plunges I ask myself whether I am hallucinating or wearing rose-colored glasses. My idea has been - and still is - that after a slow second quarter, US economic growth would reaccelerate. As pundits on TV are talking about recession or depression, I agonize over whether I got the whole thing wrong.

Blaming Congress. If the Democrats and Republicans had been able to cooperate instead of acting like brats on the playground, would all this have happened?

Lunch downgrade. I had planned to attend a technology conference sponsored by Oppenheimer & Co., which would have meant lunch in the luxurious Four Seasons Hotel. But with markets heaving, I scrub the conference and rush to my desk, gobbling Thai takeout for lunch.

Gold shines. Since 2010, my firm has owned a sizeable dollop of gold mining stocks for all of our clients, with the choice depending on clients’ preferred risk level. We bought these stocks because we thought large budget deficits run by the United States and other major Western countries would undermine investors’ faith in paper currencies and increase their interest in gold. The mining stocks hurt our performance in the first half of the year. But now investors are flooding into gold and the gold-mining stocks are climbing. I breathe a sigh of relief.

Industry choices. In investing, we usually emphasize the more aggressive industries such as industrials, materials, energy, and technology. In August 2007, as the financial crisis was getting underway, we raised cash, increased health care positions, and added a utility stock to most clients’ holdings. But in the summer 2011 downturn we haven’t taken such defensive steps. Are we being pig-headed?

Nibbling. With the average stock now selling for only about 13 times earnings, I figured it was a good time to do a little buying. For several clients who had extra cash in their accounts last week, I bought shares of DreamWorks Animation, Brookfield Office Properties, Lam Research, and Magna International - all selling for less than 10 times earnings.

Was my heart in my throat? To a degree, but the idea is to buy low and sell high. At times when investors are scared, it is easier to “buy low.’’

Scare effect. Like most money management firms, mine saw assets flow out during the financial crisis of 2007-2009, and has had feeble inflows since then. I worry: Will the financial tumult scare away new clients? Prospects are eager to give us money to manage when the market is booming, but they keep it in the bank or a bond fund when the market acts badly.

Old friends. One good effect of a nerve-wracking period has been that I’ve gotten back in touch with old friends and mentors in the investment business to get their advice and counsel. It makes me wish I stayed in better touch with all of them in normal times.

Non-ringing phone. I thought the week would be full of anguished calls from worried clients. That’s what happened in 2008. Yet last week, I had only three such calls from a client group that includes about 150 people.

After searching for an explanation, I decided it’s simple. All the people who were not long-term investors were shaken out in the agony of 2008. Those who are left are those who know that it pays to ride out the bad times.