In Perspectives

My favorite way to pass the time on my daily commute between my home in Lowell and our office downtown is to listen to podcasts as I drive.  One of the best that I have found is Planet Money, a team at NPR that produces short stories about the global economy.  In my line of work I spend a fair amount of time consuming information about the financial markets and the economy from a broad range of sources, and I am continually impressed at how this team can take what is often regarded as a dry or very technical topic and make it fun and approachable.

In that vein, check out their recent series on short selling (see the link at the bottom of this post).  Most people have heard of short selling stocks but it’s such a counterintuitive idea that it can be a challenge to understand the mechanics.  If you think about it, even after the roller coaster ride that the economy has taken us on over the past ten years and the heightened level of apprehension with which many investors approach the stock market today, most of us are still effectively taking the optimistic view – by owning a house and a retirement account, we are betting that values are going to go up over time.  History has shown us time and again that this is a smart bet.

When it comes to individual companies, though, there are more sides to the coin.  Short selling comes into play when there are widely divergent views of a particular company’s stock.  Typically if you don’t feel confident about the outlook for a particular company, you simply would avoid holding the stock at all.  Investors that sell the stock short do so when they actively believe that something unique about the company will cause its value to decline, at odds with the broader market.  Short selling can be dangerous because there is essentially no limit on how much you could lose – the stock price could go up indefinitely.

While short selling is undoubtedly a risky tactic when viewed in isolation, it can play a useful role in a portfolio context as part of a long-short strategy that pairs short selling with traditional buy-and-hold “long” positions that are expected to grow in value.  Most long-short equity strategies still keep a net long position to the stock market, meaning the risk of losses from the long holdings is only partially offset by the short positions.  These characteristics make long-short strategies an attractive component of a diversified equity portfolio because they typically have lower volatility than long-only investing and can act as a partial hedge when the market declines.

Long-short equity strategies appear particularly opportune today when we take a look at the state of the U.S. stock market.   It has been over six years since the market bottom and three and a half years since the last short-term correction, and although the underlying economy appears solid, increased volatility and greater divergence from company to company seems likely.  A disciplined long-short strategy managed by a team of experienced stock analysts can be an effective way to take advantage of current market conditions while placing an emphasis on risk control.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.


Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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