The San Ramon, Calif. firm is getting down to the nuts and bolts of expansion and switching to a fee-only model

October 28, 2011 — 2:52 AM UTC by Steve Garmhausen

3 Comments

Name: John Valentine, principal of Valentine Capital Asset Management

Location: San Ramon, Calif.

Assets under advisement: $680 million

Years in the business: 25

John Valentine and his 20-person team have enjoyed success by focusing on what they love—managing assets rather than marketing. Yet their investment success has now brought a long line of prospects to the firm’s door, which is forcing it to expand dramatically. Valentine spoke with us about his gut-based investment approach, his enviable client base and his firm’s extraordinary philanthropic efforts.

Steve Garmhausen: For a company with a history of more than two decades, you have a modest asset total. Don’t you know you’re supposed to spend a quarter of your time marketing?

John Valentine: (Laughing) Somebody told me the other day we’d be a $3 billion shop if we focused more time on selling products and marketing. But my love — and that of the guys I work with — is more analytical. We’ve never really looked at how many new clients we have; the business has been all referral-based. With that said, though, last year we did 2,000 meetings with clients, and most were face to face. We see our more than 500 clients three-to-four times each every year. So we’re spending more time with clients than with prospects.

SG: But you have an aggressive growth plan now. Why?

JV: We’d like to double our advisors and triple our back office in 36 months. We’ve never had expansion plans before, but our referral base has grown from about 400 people to 3,000 in the last 24 months.

SG: Your firm has a strong niche in NFL and Chevron clients. How did you develop it?

JV: With the NFL, we just kind of fell into it: Friends and associates I’ve known through the years started to give us a lot of referrals. See: How the NFL Players Association brought financial advisors to Florida to better marry them to its members.

I’ve been working with Chevron going on 25 years. They’ve been my primary source of clients. Early on I had a permanent vendor badge. With that I was able to go down to [Chevron’s offices] and do meetings in-house. I think that relationship over time just developed and grew.

SG: Chevron and most other corporations don’t allow the vendor-badge arrangement any more. I’m pretty sure our readers who are earlier in their careers are going to be jealous.

JV: Yes. Well, looking back, I should have hired 10 marketing guys! But I didn’t—you didn’t want to abuse it.

SG: You are shifting to a fee-only model. Why?

JV: We’ll be there by the end of the year. For most of our career we’d been open architecture. We’re closing that to become fee-only. People I’ve talked to at conferences and so on see it as a cleaner, simpler understanding for the client. They feel there are really no conflicts in the compensation and they understand the process. We’ve had commissions in the past on buy-and-hold; we’re going to walk away from that.

SG: What about filling needs like life insurance, which involve commissions?

JV: In the past, we’ve done estate planning where it was necessary to own life insurance; we’ve referred some of that business out. But it’s not a major component of what we do. Bond ladders and zero-coupon bonds were big for us back in ’95. In today’s marketplace, we’re replacing them with dividend stock ladders, where we really try to capture those two times the S&P 500’s current earnings.

SG: Your firm is known for its philanthropy—which goes far beyond what’s typical. Tell us about that.

JV: We as an office have committed a million dollars over 10 years to juvenile diabetes. We started doing it because… the economy has really impacted a lot of these nonprofit organizations. The irony is that a year ago last October I found out our youngest son is a juvenile diabetic.

We also have a commitment, with another Chevron family, to Habitat for Humanity. In all, we’re now working with 70 different charities; usually every weekend we’re at some charitable event. There’s really no other reason than the fact that they need funding. By the way, it’s not client money; it’s company money.

SG: You have a very hands-on approach to investing. How do you go about it?

JV: First, we run asset models for clients based on risk tolerance. Then from the asset models, we run portfolios that have stated objectives, for example our income-plus portfolio. A majority of our clients own this portfolio, which is designed to pay income two times greater than what the S&P is.

One that’s more fun to talk about is our sector rotation portfolio. It’s really thematically driven, looking at what’s taking place in Washington, D.C., with say, food prices, the energy sector, what’s happening overseas. And the approach is really top-down. A lot of growth systems are bottom-up earnings driven, but we think it all starts with where money is flowing—into generic drugs instead of normal pharmacies, for example. (The approach looks at) whatever’s occurring in the world and the environment, so you’d pull out of Greece, keep money potentially out of the Ginnie Mae and Fannie Maes. It’s more an avoidance approach.

SG: You have said that gut feeling play a big part in your investing approach. What do you mean?

JV: It’s kind of a Peter Lynch approach. You start by looking under your neighbor’s sink: If you see the same product you use, then it goes from gut to more theoretical to practical. That practical approach [led to] our most recent buy, [Green Mountain Coffee Roasters], which started as a hunch and became very practical. In Stanford everywhere we went there was [Green Mountain’s] Keurig [coffee] machine. We went to Target and found they had run out of the little Keurig one-cup dispensers. I said, “Green light—if they run out this, it’s because people are buying it.” Then I started looking at the balance sheet; you see revenues and you ultimately get to earnings. Now Green Mountain coffee is one of the top stock buys we’re adding to the portfolio.

SG: What has been your worst day as an advisor?

JV: The worst was when my initial partner, Scott Burbank, passed away on the BART (Bay Area Rapid Transit) on the way to Chevron, at a very young age, in 1997. We had been childhood friends since third grade.

SG: And your best?

JV: Being invited listen to Ken Derr, the [then-] CEO of Chevron, give his state of the union address; this was around 1999. I was the only non-Chevron individual in the meeting of several hundred people, and it almost made me feel like I was like I was family.


Mentioned in this article:

Valentine Wealth Management
Advisory Firm
Top Executive: John Valentine



Share your thoughts and opinions with the author or other readers.

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Brooke Southall said:

November 1, 2011 — 3:13 AM UTC

To whomever left the comment about this Q&A. I took down your comment when your email bounced. I take seriously what you wrote but something this negative needs to have more than a bogus email.

If your concerns are genuine, please e-mail me at Brooke@RIABiz.com or call me.

Brooke

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Amanda said:

August 3, 2017 — 5:56 PM UTC

John Valentine's stock choices and picks are nothing short of amazing . He told everyone to buy Adidas before the big move and trend for young people in that sector and was having in buying tesla along with Netflix when they were both out of favor and talked about banks when everybody disliked the banks and they moved up to strong price momentum
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Newark Chief said:

August 3, 2017 — 6:05 PM UTC

John Valentine is the Tom Brady and Barry Bonds of the Investment Advisory Industry. Yes, controversial but the best of all time

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