“The following conversation was conducted over email and edited for flow and clarity.”
We actively seek out members of our community who are doing important things in personal finance. We want to give you examples of different paths to creating your own wealth. Each story uncovers valuable insights to help shape your personal wealth journey.
Today, we have Phillip Washington, Jr, founder of Stone Hill Management in Dallas, Texas. Years ago, he decided to go into finance as a way to change the financial trajectory of his family in the future. Now, he decided to start his own business and make entrepreneurship a part of his wealth journey.
Damien at Wealth Noir: Phillip, can you tell us more about yourself and what you do.
Phillip Washington Jr. of Stone Hill Management: My name is Phillip Washington, Jr. I’m the founder and Chief Investment Officer of Stone Hill Wealth Management (a Registered Investment Advisory Firm (RIA) I own). I’m basically an independent investment manager. My clients set up an investment account with a reputable big well known brokerage company and I manage their investment account (or accounts) based on their goals and financial plan.
WN: What prompted you to get into finance and how did you get started working in Financial Services?
PW: Since high school, I wanted to run my own business. I read “Rich Dad Poor Dad” my freshman year in college and my mind was opened to the idea that true financial freedom comes from having enough income coming from your investments to maintain a comfortable lifestyle (as you define it).
I changed my major to finance and begin exploring every aspect of finance and investing. After 3 years of exploring, I decided I wanted to help people invest their money to become financially independent one day. That led to a few internships and a full-time position with a large well known financial services company.
I worked at this large financial services company for 8 years, and then a boutique independent money management firm for 2 years before starting my own firm, Stone Hill Wealth Management.
WN: I love how you went into the industry first to gain skill experiences and earn some money before starting your own firm. It’s advice I’ve given time and time again to budding entrepreneurs.
Can you take us back to your first investment?
PW: My very first investment was a mutual fund I bought inside of my Roth IRA my first year in the business.
I told my mentor I wanted to open my first investment account and he told me what fund I should buy and to put it into a Roth IRA, so I did exactly what he told me to do. I didn’t know much my first few years so I relied heavily on the advice of my mentors for my investments and the investments I recommended my clients. I didn’t start with much. Around $100 per month. But I built up my investing program over time. The amount wasn’t important. It was the fact that I just got started with something because I had seen first hand all the excuses people have for not investing.
First, they are too young and have no time. Then they have a family and “no money”.
After using that excuse for 20 years or so, they look up and realize they are 10 to 15 years from when they actually would have liked to be financially independent and get discouraged because they are so far away from having enough saved up to make that a realistic goal.
I didn’t want that to be me so I got started.
Plus, for me, the best way to really learn something is to not just read about it but to take action and let the mistakes you make along the way teach you something you would have never known without taking action.
WN: That is so true. Too many people let their fear of failure hold them back. In truth, those early mistakes can teach you the most and never hurt you as much as you think. Getting started is the hardest, but an important step in mastering money.
What is the greatest lesson you learned from a lifetime of investing?
PW: Investing is less about I.Q. and more about E.Q.
It’s about battling greed and fear. There is the opportunity for you as an investor to make lots of money over time by taking advantage of the when the masses get too greedy and too fearful.
To me that means, staying diversified and not taking any big bets until I see a principle that is true, but everyone else thinks isn’t true and then bet big.
It equally means, not betting big when others are betting big on the “next big thing” that the old fogies (the investment professionals who have made money in the markets for decades) are ignoring.
Here are a few examples of battling fear and greed.
Fear: Late 2008 and early 2009, markets were in a panic around the world.
It seemed like everyone I talked to thought the world was going to end.
My thoughts were, “Well this looks extreme. We have been in this position plenty times before throughout the history of stock markets and the world hasn’t ended. And even if the world ended, the money I would take out of the market and put them in the bank wouldn’t be safe anyway, so the best bet for me is staying aggressively investing and recommend that to my clients.”
You know how that turned out (This actually wasn’t a big bet. It was a stay the course bet. I didn’t know enough to know that the odds are in your favor to increase your position in small value and emerging market stocks when markets are in a bear market and people really begin tapping out. Those stocks have historically performed the best the first year after a bear market bottoms. I know for next time though.)
This other example is not a big bet either. It’s an example of when not to bet big when everyone is being greedy.
In 2014 everyone watched oil and natural gas spike up with the Shale boom and those who owned oil and gas companies made tons of money.
All of a sudden, many of my clients and prospects (potential new clients) wanted to concentrate most of the investments into oil and gas companies.
My advice was to stay diversified. It wasn’t a time for big directional bets. (Side note: an easy way to know where not to invest a big bet is to ignore any asset that EVERYONE is talking about. When people who have never invested are asking to invest in an asset they know nothing about, I can pretty much be sure that’s not where I want my money).
That ended up being great advice. Oil and gas tanked through the end of 2014 and all the way through 2015. The same thing happened with gold in 2015 and 2016 and now (in 2018) everyone is asking about Bitcoin 😐.
It’s not that I have a crystal ball. I just know human nature doesn’t change and there are certain principles that work in markets and certain principles that don’t work, but people believe will work.
Whenever the masses are chasing an asset out of greed (or running away from attractively priced assets because of fear), it doesn’t turn out well for the masses.
WN: So true. Buffet has been giving that advice for years. Some of the best ways to make money are basic, easy to follow, but just aren’t sexy enough to make headlines.
In a slightly different direction, can you tell us about how you made the decision to go into business for yourself?
PW: Since high school, I wanted to own my own business, as I mentioned before.
After running a franchise business in college and failing miserably, I knew that I didn’t want to be a “franchise operator”. I wanted to create the system and sell the franchise.
I had a plan to work in the financial services for 10 years, learn it, get my experience and then create my own business.
Almost exactly at year 10, I started Stone Hill Wealth Management.
I would be lying if I said I orchestrated my plan on purpose. I just said it at the beginning and things lined up right about that time for me to go out on my own.
That’s the power of having goals and belief in yourself. Things work themselves out if you do the work necessary.
WN: That’s so true. Even when I think about my own path and starting Wealth Noir, I predicted how I eventually start my own, but it took a while until I knew how I was going to achieve that goal and what it would look like.
Going back to finance, what is the one biggest mistake you see your clients making that you wish they would avoid?
PW: Not investing enough. It’s not just my clients, but lots of people I meet think that one day the sky will open up and make it easy for them find money to invest.
Most people who aren’t investing enough say, “When I make more money I will invest more.” Maybe they will, but very likely they won’t.
It’s as hard for the person I meet that makes $500,000 a year to save 10% of her or his income as it is for the people I talk to who make $50,000.
The only way to do is to just do it. Or at least start small and work your way up over time.
WN: Preach! I struggled with this and I know many others do. It always feels like next year or the year after is a better time to start investing. But, once you start, begin to see success, and understand what the &$^# you’re doing after pushing through mistakes, it transforms your relationship with money.
With your new firm and company, how exactly do you craft investment strategies for people?
PW: The strategy starts with understanding my client’s goals, current balance sheet, need for cash flow, time frame, and current psychology.
With that information, I’m able to put together an asset allocation (or multiple allocations for multiple goals) uniquely for them (i.e. how much should be in stocks and how much should be in bonds).
Then I use my macroeconomic analysis (analysis of currencies, interests rates, stock markets and economic data around the world) to decide which types stocks and bonds to overweight or underweight in the world relative to the benchmark we are using for their stock and bond mix.
For example, if I believe emerging markets is the better play for the foreseeable future and the benchmark we are using has 8% in emerging markets. Maybe I will use an allocation model that has 12% to 15% in emerging markets that pulls money from a less favorable part of the world.
That’s it. We just rebalance, review their plans and watch markets and economic data.
WN: Right. I’ve always told people investing in stocks doesn’t have to be scary or involve watching tickers all day. A good asset mix that makes sense for you, and just update and adjust for personal needs and the macroeconomic trends.
When it comes to what you suggest, are there assets outside of equities and bonds do you have experience with or recommend to others?
PW: None really.
There are lots of ways to invest and make money. I just don’t think it’s necessary to go outside stocks and bonds if you don’t want to.
You can make all the money you need to make in stocks alone to reach your goals (and use bonds for shorter-term goals or help with psychology). I do recommend everyone own a home and maybe the place they do business if they own a business and can eventually afford it.
I never tell them to not invest anywhere else if they feel they know what they are doing and have a leg up. I just don’t do it for them.
Here’s a perfect example of why I don’t really need to go outside of stocks.
Let’s say you want to bet that commodity prices will go up over the next 10 year. You can go the futures market and buy commodity contracts or, you can buy energy stocks and emerging market stocks (which are typically natural resource-rich countries). They both move with commodity prices. Or, what if you want to invest in commercial real estate. Well, there are tons of liquid REITs you can invest in and get great returns over time without the headaches of being a landlord.
This is just me though. I don’t think it’s wrong at all to make other investments as long as you understand what you’re doing and not just speculating.
WN: Well, you know I love my buy & hold real estate. But, I am a big believer that personal finances are personal and everyone can find the best way that works for them to build wealth.
To end our time together, tell us a little more about your firm and what an ideal client looks like for your particular firm?
PW: I basically have two types of clients.
Investors who don’t have much money, but have disposable income, a long time frame, and are ready to start aggressively putting away money. The second type of client is one who has a lot of money ($500,000+) and wants an independent money manager, not a salesperson who gets paid to sell the products they companies tell them to peddle.
Many people are waking up realizing the difference between a sales representative (most financial professionals out there) and true financial advisors.
They love the objectivity and transparency that comes from that kind of advisor-client relationship.
WN: Well Phillip, thanks for taking the time to share your story in financial services and taking control of your finances. I’m always happy to see and share the story of another person who is a part of changing the look of wealth in America.
Damien is a Personal Finance Nerd and former Facebook Product Manager who started Wealth Noir to help others find wealth. He actively invests in stocks, robo advisors, and cryptocurrency … but loves real estate investing. He holds an MBA from MIT and a Comp Sci & Econ degrees from Unv. of MD. He’s a proud dad, which is his biggest accomplishment.