Good Company: Richie Rich approved
Investment advice for the average Joe from Fred Taylor
Hometown: Littleton | Age: 56
Assets under management: $610 million as of Feb. 28, 2017
What he’s reading: “Success and Succession,” by Erich Hehman, Jay Hummel and Tim Kochis
What he’s watching: Showtime’s “Billions”
Investment advice for the average Joe: Any large cap U.S. company that pays a meaningful dividend of 2 percent to 5 percent and increases dividends annually two to three times the rate of inflation.
As a kid, he’d blow his allowance on Richie Rich comics. But these days, Fred Taylor thinks much more carefully about the way he’s spending his money — and the millions of his 315 clients. The president and co-founder of Denver-based Northstar Investment Advisors majored in history and education in college, but it was only natural that he’d pivot to finance eventually; it’s in his blood. He’s a descendant of Moses Taylor — Fred Taylor’s father and son share the name — a New York banker who was one of the wealthiest men of the 19th century, with a fortune at his death estimated at $1.7 billion in today’s dollars.
When Taylor’s not investing, he’s golfing, skiing, playing tennis or reading, or working with his favorite philanthropic venture as the Children’s Hospital Colorado Foundation board treasurer and chair of the hospital investment committee. Under his stewardship, the endowment has grown from about $40 million to $850 million in 18 years.
“Our goal is to hit $1 billion in three to five years,” Taylor says.
Richie Rich would no doubt approve.
CB: How much wealth do I actually need to be your client?
FT: $1.5 million.
Let’s just pretend I might ever actually have $1.5 million. Why should I give it to you?
We have a very unique model in the sense that we don’t manage money to beat the market every quarter or every year. Instead, what we’re trying to do is create a cash flow. Seventy percent of our clients live off the income that we generate. And we can generate cash through individual stocks. We only buy stocks that pay dividends that yield 2 to 5 percent. The most important thing is they have to increase those dividends every year, two to three times the rate of inflation.
If you were to interview 10 different registered investment advisers, nine of them would try and convince you your money should be managed in more of an endowment model and copy what Yale and Harvard and Princeton have done, which worked extremely well from 1990 to 2007. But since then, because of diversification and hedge funds not performing as well as the S&P 500, clients have not done that well.
How did you get your clients through the recession?
That was the time we actually performed best. One of the reasons we did so well during the recessions was, we didn’t own any U.S. banks, because they had kept increasing their dividends, and their stock prices kept falling, and there was no way they were going to be able to sustain the dividends. And as we all saw, sadly, in 2008 and 2009, those companies had to eliminate their dividends, and their stock prices went practically to zero.
We equally weight the companies in our portfolio, so no one company going down can destroy it. And not many money managers do that. They have big egos and think they can pick their five best picks, and they’re going to put 50 percent of their money in those five picks. We’d rather have more defense in our portfolio for our client. We don’t have all the answers, but I think we have a good strategy.
You started Northstar with your dad (the late Moses “Tony” Taylor). How did that happen?
I started working on Wall Street right out of college, and I had moved back to Denver in 1986, and was trading bonds. The stock market crashed in October 1987, and I lost my job right after that. I went to my father, and I was only 26, I said, ‘Dad, we’ve got to start our own business.’ And he goes, ‘No, you’re not ready yet.’ So I got a job, worked another seven years, then went to my father in 1994, and said, ‘Look, I’m tired of working for other people, Bob (Van Wetter), one of my best clients at the time, he and I got together with my father and a person my father worked with, and the four of us started Northstar in 1995.
I had to move into a smaller house, and we lived off a line of credit for the first six months. And we didn’t know if we were going to make it or not. I got to work with my father as an equal partner, which I think was probably one of the neatest things about it.
The bottom line was, I had the energy and my father had the experience. He was way ahead of his time not only in estate planning, but also in dividend-paying stocks. He was buying WalMart in 1982, and Philip Morris, and things like that, and he kept them forever. And he made our clients — his clients — a fortune.
You were a history major at Middlebury College. How does that background inform the way you invest and the way you think about finance?
I think being a history major was actually a great background, because you’re not only interested in what’s going on around you, you have to have some historical knowledge about what has happened in the past. For me, I love politics, I love economics, I love history. What gets me up every morning is that every day, something new is happening. And you listen to the news, and you almost have to be a generalist and understand the relationships between politics and economics and companies’ earnings. How does one thing impact the other?
You’re interested in everything. And you can put all that together and translate it into market movements. I hope that’s made me a good investor.
So what else makes a good investor?
Certainly, time makes you a good investor. You need to live through market cycles. You need to know why the market reacts the way it does, and you have to be able to tell your clients, ‘Look, don’t panic. We’ve lived through this before. This is what’s going to happen.’ No one can predict the future, but Warren Buffett’s right: The United States’ capitalism is still the best system. You should never bet against America.