'Culture of equities' misleading investors, says money manager

Don't be fooled by those who think stocks are the best asset for long-term returns, said David Wright, co-founder of Sierra Investment Management Inc., which runs more than $1 billion. Stocks "should never be a core holding," he told advisers today at an event hosted by the National Association of Personal Financial Advisors. "I know that's radical," Mr. Wright said, but he warned that the unique "culture of equities" in the U.S. is misleading investors and advisers to take on too much risk. "Your clients are going to lose a lot of money in the next 18 months" in stocks, he said. Mr. Wright runs the Sierra Core Retirement Fund (SIRIX), a fund of funds that since it's inception on December 24, 2007, has returned 35.69%, according to Sierra, compared with a loss of 13.61% in Morningstar Inc.'s world allocation category. Sierra's average customized separate account returned 194.6% over the 10-year period through June, according to the firm's website, compared with a loss of 15.5% for the S&P 500. The tough time for stocks will continue, Mr. Wright said. "Risk mitigation is the new normal," he told advisers at the event. "Job 1 is to keep clients out of trouble" by diversifying into more asset classes and maintaining tight stop-losses. The world economy and markets face a long list of problems, Mr. Wright said. "The debt bubble will take another decade to unwind," creating slow growth and persistent high unemployment. He also sees a "multidecade, head-and-shoulders" top forming in the market, from the shoulder of early 2000 to the peak of 2007 and another shoulder forming now — a bearish technical signal. The U.S. equity market has broken above the recent trading range, or shoulder, Mr. Wright said in an interview, but he doesn't predict that the current rally will hold. "There are way too many bulls," based on options volume, he said, "and the only volume in the market right now is from ETFs."