Investing in Value

Eric Hanson of Hanson Investment Management in Burlington focuses on the big picture in client portfolios

by Larissa K. Vigue

Investment manager Eric Hanson sometimes feels like a psychologist on the job. "Money is loaded -- ranks right up there with sex in terms of sensitivity and emotionalism," he says. "When everything's rosy and going up, people tell you different things than when things are down and they're fearful and scared. You have to listen and hope you're catching what people need."

Eric Hanson says the glut of investment information available through the Internet and cable television makes the need for businesses such as Hanson Investment Management in Burlington greater than ever.

His disciplined and patient approach based on value investing (See sidebar) have paid healthy dividends for his Burlington firm and its clients. Hanson Investment Management specializes in equity and fixed income portfolio management for individuals, retirement plans, corporations, and endowments.

Started in 1995 when Hanson left Fraser Management Associates in Burlington, the company handles approximately $75 million in accounts for more than a hundred clients from the Maltex Building on Pine Street. Fees start at 1 percent of the first $500,000 for equity portfolios and 0.5 percent of the first $1 million for fixed-income securities. The firm also consults in a financial advisory capacity at $100 per hour. The company's average account is $400,000.

Credit professionalism if that keeps Hanson in league with, as the president says, "the Bostons, the New Yorks, and all the competitors here." Hanson and vice president Anne Williams Doremus, who joined the firm in 1996, hold the chartered financial analyst (CFA) designation. Hanson is also a certified financial planner (CFP), while Doremus has a master's in business administration from Dartmouth College's Tuck School.

For more than 10 years through early 1999, Hanson contributed regular columns on personal finance to The Burlington Free Press. His annual "Hanson Index" column, a partly tongue-in-cheek read on inflation in the Burlington area, tracked everything from the cost of a gallon of gas to a one-hour massage. In doing so, it highlighted the difficulty of measuring and predicting prices.

Hanson and Doremus have taught finance and investment courses at Saint Michael's College; Hanson has also taught at the University of Vermont. Both are members of the Boston Security Analyst Society and founding board members of the Vermont chapter, and both sit on the board of Champlain College's Institute for Financial Services. Combined, the pair boasts 44 years of money management experience.

This breadth of knowledge paid off last summer when the state awarded Hanson one of three contracts to manage funds from Vermont's tobacco settlement, Higher Education Trust Fund, and small bequests. In choosing the Vermont-domiciled firms -- the other two are National Life of Vermont and Prentiss Smith & Co. -- state Treasurer James Douglas looked for solid track records and appealing leadership. Hanson fit the bill because "Eric's personality is infectious. He's energetic and fun to be around, and good at what he does," according to Douglas. "Sometimes the smaller firms aren't as competitive, but their fee is -- and their performance has been good."


Three schools of money management

• Growth stock investors latch onto companies with consistently skyrocketing sales and are willing to pay high prices for that certainty

• Momentum investors ride the market roller coaster, climbing aboard when stock goes up and out when it dips down

• Value investors adopt the longest and widest view

Value investors know the stock market is "only indirectly related to economics," says Eric Hanson. "It's human fear, greed, and apprehension overlaid on a business cycle."

Applying that psychology, it follows that most people avoid declining stocks, but value investors take advantage of what their growth and momentum colleagues overlook. Value investors buy during a company's down time when its price-to-earnings ratio (PE) -- the stock price divided by the company's earnings per share -- is low. Since there are few expectations of low PE stocks, successive bad news doesn't tend to deflate the price. Good news, however, potentially sends the stock higher.

Assuming the value investor has done his homework, "fallen angels," as Hanson calls them, "where earnings and sales have tumbled, but where you think management can put the house back in order," are good bets. Clients benefit because "a recovery in results often leads to a sharp recovery in the share price."

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On average, the company grows 30 percent a year, but large, institutional accounts like the state's aren't the primary reason. In the beginning, "we thought we'd be (handling) endowments, pensions, rollover 401-Ks, whatever," says Hanson, "but it turns out the biggest demand is from individuals." Eighty percent of his clientele are individuals, often referred to the company by lawyers, accountants, or other clients.

That's due to an "enormous transfer of wealth," explains Hanson. "Ten trillion to 15 trillion dollars is supposed to pass from one generation to the next over the next 10 to 20 years. People are coming into more money than they're comfortable handling. They're looking for management, but also some basic financial planning -- whether saving for college or retirement, estate planning, home financing, allocation of assets between real estate, stocks, bonds."

Keeping with Hanson's head-shrinking analogy, the firm's modus operandi sounds like a first psychological counseling session. "Typically, we'll sit down with somebody and spend an hour chatting," explains Doremus. "We find out whether there's a good match between what we offer and what they're looking for." That conversation, which takes place in small offices that resemble tastefully decorated living rooms appointed with overstuffed couches and chairs, uncovers a client's "risk profile." How much is an individual willing to speculate and what are his or her objectives concerning return?

Part of the challenge is the constant deluge of data, "like a waterfall of information hitting you that just keeps getting bigger and bigger," says Hanson. "The democratization of information has made it even more important to have someone grounded and focused looking at the situation continuously."

Hanson and Doremus share that responsibility because they trust each other's abilities and generally see eye-to-eye. "We don't assign clients to one person," says Hanson. "We try to do the analysis, the client communication, the marketing, jointly. If Anne's making changes in a particular account, she doesn't consult with me (right then), but we're consulting on broad strategy."

Anyone who knows Hanson, or reads the firm's monthly newsletter, understands his firm's strategy is broad. It's global -- taking into account the emerging international, as well as domestic, market. "Since the fall of the Berlin Wall, everybody is playing in the same game. It's fascinating for investments because it means you have to take a global view -- not just by investing (overseas), but by following U.S. companies trying to take advantage of all that's going on."

Incorporating that into a client's portfolio is still in its infancy, with 75 to 80 percent of investor focus on domestic markets. Hanson acknowledges that makes sense since emerging markets have not done as well as the U.S. market in recent years, "but you can still follow a value strategy by picking stocks when the whole emerging market is out of favor. For instance, when Asian markets collapsed in 1997, that was an excellent time to buy cheap in emerging markets."

As the international scene broadens the playing field, Hanson suggests U.S. investors become less provincial. The U.S. has "such an enormous economy that you could say, 'Why do I need to know about Taiwan when I've never even done any business in Tucson?' But we are tied to the rest of the world.

"The average Fortune 500 company has over 40 percent of its sales abroad today. Foreign stocks make up about 50 percent of all world equities," he says. "Many of these countries where these stocks are -- like China, India, Brazil, and Mexico -- will have the fastest growth rates over the next 10 years. This is all happening at warp speed -- the train cannot be derailed."

Such long-term prognosticating appeals to long-time clients like Hackett, Valine & MacDonald, an insurance brokerage firm in South Burlington. "Eric's a careful analyst of both securities and the economic environment, looking at companies that interest and intrigue him," says company president Luther F. "Fred" Hackett, who has maintained a working relationship with Hanson for 15 years. "He's a natural-born student who always wants to learn more."

That tendency began in childhood, when the world was Hanson's classroom. Born in Washington, D.C., Hanson spent the majority of his adolescence overseas, thanks to his father. A newspaper reporter who covered China's Army in the 1930s, the elder Hanson later published a book about the experience in which "you could find quotes that were complimentary to the Communists," says his son.

Although that was before the McCarthy era, Hanson's father nevertheless lost his State Department position with Point Four -- the U.S. Agency for International Development's predecessor -- and worked as a farmer in Virginia for eight years. When he was hired by a friend to provide economic consulting in Burma, the family began an international trek that eventually took them to Iran, Pakistan, Nigeria and Mexico.

Vice president Anne Williams Doremus hasn't found the traditionally male world of investment management especially difficult. "If you're good," she says, "it's in the numbers."

Today, mixing business with pleasure, Hanson travels overseas annually with his own family -- significant other Mara Coven, who runs a Waldorf School-affiliated Morning Garden preschool in Burlington, and her daughter, Lillian.

Connecting the adult Hanson's attention to international markets and ability to understand people with his global upbringing seems straightforward, but his career in investment management wasn't planned.

After graduating in 1971 from New York's St. Lawrence University with a degree in political science, Hanson followed a friend to Vermont. The friend's father, Howard Bank president Leighton Johnson, offered Hanson a job in the bank's trust department "because that's where they needed the help. That's how life develops a lot of times -- by happenstance, and then you move on." When he decided to do so in 1980, it was to Fraser Management as an investment counselor.

When Hanson incorporated his solo venture in 1995, he hired Marykay McCarthy, whom he'd met at Fraser, as office manager. Still with the firm, McCarthy also oversees portfolio accounting and securities trading, and relies on assistant Kristen Audy to keep things running smoothly.

Doremus, a Burlington-area native, likewise hails from Fraser. She also benefited from globally minded parents, who have operated Lake Champlain's Camp Kiniya since the late 1950s. Staffed by foreign counselors and with international attendees, the girls' camp was Doremus's "pretty wonderful" summer playground.

She graduated in 1982 with an economics degree from the University of Vermont, where she met her future husband, Greg, now National Life's senior vice president for new business and customer service. Doremus worked at the Bank of Boston and, after earning her master's, at the National Life-affiliated Sentinel Advisors. She joined Fraser in 1992, leaving three years later to have her second child.

Other than the standard difficulties of balancing family and career, Doremus hasn't found the traditionally male world of investment management especially difficult. The discipline attracts a lot of women because of its objectivity: "If you're good, it's in the numbers," she explains. "You can't refute them, so if they're there, you get ahead."

Office manager Marykay McCarthy (left), pictured with assistant Kristen Audy, oversees portfolio accounting and securities trading.

Doremus finds time to enjoy outdoor activities like skiing and biking, and volunteers with organizations in her hometown of Jericho. Hanson has served on the boards of the Vermont Symphony Orchestra, the Vermont Nature Conservancy, the Baird Center for Children & Families, and the Champlain Valley Agency on Aging -- and he's a member of Rotary. Fellow member Greg Peters, of North Atlantic Capital Corp., has known Hanson for more than a decade. Peters calls him "a solid citizen professionally and personally. Eric's a first-class guy, giving of his time and effort."

Hanson describes the necessity for volunteerism much as he might the global marketplace and his role as an investment counselor. "If you don't give back to the community, the community isn't going to grow -- it's going to wither," he says. "Everybody has to pitch in, and when you do, it's rewarding -- and fun."

Larissa K. Vigue is a free-lance writer living in Shelburne. She completed her master's degree at Middlebury College's Breadloaf School of English in August.