Yale School of Management

International Center for Finance

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A Unique Approach Toward Investing

Andrea Baumann Lustig ’86 leads a firm that uses a 100-year-old strategy to beat the market

March 22, 2016
Andrea Baumann Lustig '86
MPPM, is an ICF Advisory
Board Member & President;
Director, Private Client Asset
Management at Stralem &
Company.

When she was a student at the Yale School of Management, Andrea Baumann Lustig ’86 took a course in managing a family business. At the time, she said, she didn’t think it would be of much use to her. But when the principals of Stralem & Company, which her father helped build and run, were looking to build the future, she decided to become part of a new generation carrying on the firm’s unique investment strategy.

Lustig, president of Stralem & Company, a registered investment adviser founded in 1966, spoke at the MBA for Executives Asset Management Colloquium on October 30. She joined the firm in 2002, after a career as a management consultant and financial advisor. From the start, she understood that working at Stralem would mean more than just following in the footsteps of her father, Philippe Baumann; she would be part of a team carrying on the firm’s sole investment strategy, known as the US Large Cap Equity Strategy (LCES). “The LCES is what defines Stralem,” she said, “and it’s been very successful for over 100 years.”

The LCES is built on a belief that there are four types of markets—two types of bull and two types of bear—that are each characterized by differing momentum and valuation factors. Stralem adjusts its portfolio structure depending on the current market situation so as to balance growth and preservation of capital.

“The idea is to participate when the market goes up and protect assets when it goes down,” she said. “We’re very disciplined, very concentrated, very conservative— and we have an outstanding long-term record. What people don’t realize is the power of not losing money. If you lose less, even if you go up less, you end up with greater wealth.”

While Lustig and other younger executives didn’t feel the strategy needed to change, they did set about overhauling other parts of the business. They modernized everything from bookkeeping to analytics to marketing, including having the performance record independently verified with an eye toward being more competitive in the current environment. Lustig even wanted to disclose the LCES investment approach in much greater detail in the company’s marketing materials, something that caused hesitation among her father’s generation. Their position, she said, quickly changed. “We had to eke the philosophy out of them and put it down on paper,” she said. “But as soon as we put our record into the first three databases, I kid you not, the phone started ringing off the hook—and it was a good thing we had a detailed presentation with which to respond.”

Stralem’s record has suffered relatively of late. During the boom of the last five years, she said, the firm’s portfolios have lagged its benchmark, the S&P_500 Index. The reason, she said, is that this bull market has exhibited a confluence of extraordinary events that Stralem isn’t willing to “go all in on” preferring instead to maintain an allocation to preservation of capital. The slump resulted in pressure from some to adapt the LCES to the “new environment”, something Stralem has resisted. “The only reason we have this long-term record is as a result of sticking to our discipline,” she said. “This has been the hardest test of that. But if we don’t stick to it, the moment we deviate our credibility goes out the window.”

Today, Lustig said, things are looking up. Recent stretches of volatility and uncertainty have normalized market conditions and played to the firm’s strengths permitting the LCES to outperform. “We just do best under real market conditions.”

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