Ram Kolluri was 22 years old when he first arrived at JFK International Airport one hot summer afternoon, clutching a single small suitcase and the one-way ticket that had just put more than 11,000 miles between him and everyone he knew back home in Hyderabad, India. As a university graduate, he'd easily procured a professional visa, and he'd chosen the Big Apple as his new hometown because–he chuckles today at his youthful logic–"Well, gosh, it sure had looked like a cool place in the movies." Now, here he was, standing alone in the bustling terminal, waiting for what came next. "I kept waiting for someone to stop me, or to ask me more questions, or for something else to happen, when it dawned on me that I was already through customs and inside the United States," recalls Kolluri with a laugh. Welcome to America… but now what?
Kolluri found his first job by literally pounding the pavement, trudging up and down every street from First Avenue to Seventh Avenue between 34th and 57th Streets, heading into every decent-looking building to ask for work. Fluent in English and trained in accounting, he soon landed an interview with a CPA firm, but quickly realized that he had a rather odd problem for an aspiring accountant: He didn't know the value of money–at least not in dollars and cents. When the interviewer asked him for his salary requirements, Kolluri responded with a blank look; when his new employers took him out for lunch, he simply held out a handful of bills and let the waitress take the proper amount. The dollars seemed like play money–as foreign as rupees or kroner to an American–and he didn't know how much was a little, and how much was a lot. "I had no idea what anything was worth," he says.
More than three decades later, as an advisor who manages more than $150 million in client assets, holds an MBA in finance from an American university, and is widely quoted in the financial press regarding his quantitative investment research, Kolluri today has no such problems. He clearly knows the value of American money: He's conducted extensive research aimed at properly valuing equities, and served as a subadvisor of an international mutual fund for Navellier Funds. He's also successfully founded a planning firm in Princeton, New Jersey, merged it with another, and split it off again when circumstances required. Still, in the face of the ever-changing markets and the still-evolving profession of financial planning, Kolluri, 54, is modest about how far he has come in his professional knowledge, and how far he has left to go. "If 20 years [in the planning industry] teaches you anything," he says wryly, "it is one word: humility."
Lessons Learned
One of the toughest lessons came only recently, when the financial markets took a nose-dive, and pulled Kolluri's clients' portfolios at least part of the way down with them. Prior to 2000, Kolluri had based his investment choices on quantitative information that included forward-looking earnings estimates put forth by Wall Street analysts. What he hadn't counted on was the herd mentality of the analysts, and the level of inertia surrounding any change in analysts' opinions. "These analysts are group thinkers: When the markets are euphoric, they're euphoric, and they keep on projecting all these rosy earnings," he says. "Now it's the other way around: Now that the bust has occurred, they're singing a chorus of blues, despite the fact that earnings are increasing." In mid-2000, Kolluri took a hard look at his investment models, and by early 2001 had revamped all of his client's portfolios with a more conservative bent. He removed the forward-looking earnings estimates from his calculations altogether, and now puts trailing 12-month earnings front and center instead. "It is a conservative way of doing things, but this is the client's nest egg, not a stake of money to be taken to a betting parlor at a race course," he says. "Risk has become a much more overriding factor in our minds these days." To paraphrase Peter Bernstein, he says, prudent investors should build half their portfolios for "What if things go right?" and half their portfolios for "What if things go wrong?" Unfortunately, he'd previously been building them mostly with the expectation that things would go right–and they didn't.
Kolluri says the prolonged bear market has made him a better advisor, but he admits that if he'd had to choose between "building character" and saving his clients' money in the first place, he'd have gone easy on the character-building and let his clients keep their money–or at least swallowed the bitter medicine in smaller doses. "I wish that this bear market had not happened all at one time; I wish we had had reality checks off and on throughout the late '90s," he says. "Five years of back-to-back performance really spoiled us all."
Yet the bitter pills of the market downturn don't seem to have inoculated everyone against future irrational exuberance. Indeed, some advisors–and many investors–seem to have already forgotten the hard lessons that the past three years have (or should have) taught them, says Kolluri. "Amazon.com is trading at 100 times the price/earnings ratio, and there are pundits going around saying that this is justified, that this is a pure growth stock–just within three years," he says. "It's interesting how short memories are. We're back to the same old story."
While the past few years have taught Kolluri to keep a cool head in tumultuous markets, he says he's also gained a deeper understanding of client psychology. "You can tell the client, 'Hey, the market is down 33%, and you're only down 30%,' but that's small solace, since the fact remains that he's still down 30%," he says. The real question for an advisor, he says, is whether that client can afford to be invested in a portfolio that can fall that far, that fast, in the first place. Relative performance is irrelevant if the client is no longer going to be able to reach her financial goals. "That's why the correct investment policy setting and correct asset allocation are crucial," he says.
Fortunately, Kolluri hasn't had to learn all the lessons the hard way. Throughout the bull and bear markets, he has encouraged his clients to pay off their mortgages by the time they reach age 59, thus essentially investing in their own homes rather than in stocks, bonds, or mutual funds. As a result, many clients sailed through the tough markets happy as clams; with their homes paid off, they didn't need to sweat the bear market's every growl. Kolluri has also encouraged clients age 55 and over to build an emergency cash reserve equal to at least one year's gross income, something they were more than happy to have on hand in the uncertainty of the past three years.
These days, Kolluri is casting his investment nets a bit more widely, looking for ways to combat the rising inflation he predicts for the future. "We think that the wonderful days of disinflation and low inflation are behind us, and the ship is slowly turning toward inflation," he says. "I'm talking in terms of decades, not just next month or next year, but we believe that in the process the dollar will be subjected to weakness." International bond funds are high on the list of investments he hopes will help him "inflation-proof" client portfolios; he's also got his eye on inflation-protected securities, such as the Vanguard TIPS funds. And what about hedge funds? "We've looked at alternative investments, but there are too many fees, and too many complications, and many times the clients are gunshy–we just couldn't make the mental leap," he says. As for real estate, "we have entertained the idea and attended presentations, but it's still not as clean as putting money into, say, an index fund of large-cap equities," he says.
Coming to America
