Mc Caffery Continues to Believe in the Market

By Joanne M. Haas

Wayne Mc Caffery

Wayne Mc Caffery is a long-term investor, a dedicated saver and a believer there will be an end to the vicious bear market that has gouged pension funds.

This longtime Stevens Point Area High School micro- and macro-economics teacher doesn’t have a crystal ball showing when the market mayhem will end, but he is convinced the state retirement system remains a pretty good place to be.

“This down market will pass,” said Mc Caffery, who since March 2001 has been the only teacher representative serving on the State of Wisconsin Investment Board. “It might take five years, and it might take longer.”

But the key is not to panic, nor to allow “fear and greed” to control how retirement accounts are handled through this bear market that has cost the state $11 billion in state pension funds. The specific effect will not be known until the end of 2002 when the dividend payments are calculated.

“It doesn’t look good,” Mc Caffery admits of the current state of the market, which has analysts and investors alike at a loss to predict what may come next. Still, Mc Caffery -- who since 1989 has served as an elected member of the Teacher Retirement Board and for the last four or so years has served on the Employee Trust Funds Board -- has optimism for the market, the state investment team and the future of pensions.

“For the people in the fixed retirement fund, there is a smoothing process,” he said, “where gains and losses are spread over a five-year period.” However, before a law change, that smoothing period was 14 years.

And for those in the Wisconsin Retirement System (WRS), Mc Caffery said: “They really can’t do much. . . . But it is a good place to be.”

If nervous investors pull their funds from the system, “then you only get half your money.”

Speaking personally and not as a board member, Mc Caffery said he has heard of a “growing number of people who’ve stopped their contributions to their 403(b) accounts. The 403(b) is a tax sheltered annuity available to employees of school districts. “It is very similar to an IRA except you make deposits with your paycheck, and it is an excellent way to accumulate a retirement (fund).”

While Mc Caffery said he can’t tell them that now is the time to buy, such financial decisions do amount to “buying high and pulling out when it is cheap.”

When the market was high, he said, people were pouring in contributions. Now that the market has dropped, “they don’t want any part of it,” he said, again referring to the “fear and greed” factors.

“The market is a better buy now,” Mc Caffery said, adding it’s at least a 20% better buy. “Bought high and sold low – that’s not a winning strategy.”

What is? “Buy good companies and keep your eye on them.”
“As for me,” he said, “I like bank stocks. . . . I hate doing business with them, but I love owning them.”

Mc Caffery walks the walk
Mc Caffery practices what he preaches, and that makes what he tells his students all the more credible.

“I’ve been a saver, an accumulator of wealth,” he said. When he came out of college, his salary was low where he taught and he knew it would be difficult to accumulate sufficient income for retirement.

Mc Caffery set a savings goal and started saving early on to build wealth.

“And that really takes a small amount of money,” he said of what’s needed to start saving. “So I’ve been accumulating through 403(b).

“The kids (students) see it is a good idea to save and invest, and they see that I’m doing it and it is believable.”

Another credibility factor for Mc Caffery is that he is one of nine trustees who meet once per month to share the duties of managing the more than $58 billion in assets of the Wisconsin Retirement System. Mc Caffery, a Stevens Point teacher since 1978, is one of two trustees who represent the more than 478,000 Wisconsin Retirement System participants on the State Investment Board.
Mc Caffery also serves on the Teachers Retirement Board, which is one of several that provide oversight of the Department of Employee Trust Funds -- the agency in charge of administration of pensions and benefits for public employees. Participation on all the boards requires time away from the classroom.

Mc Caffery said he remains grateful for the support from his district as well as his wife, who is a nurse.

“This is fabulous education for me,” he said of the meetings and presentations he is exposed to as a trustee and board member. “Every meeting, I bring back a half dozen papers that I use in class.

“This has improved my classroom -- particularly the money management class,” he said. “The school district is getting its money’s worth.”

The Investment Board appointment came at a time that seemed to cap years of preparation for Mc Caffery.

“I’ve been taking various courses over the last 15 years. And if you look at it, (you’d think) these don’t make any sense,” he said. “When I got on SWIB (State of Wisconsin Investment Board), it all makes sense now. It is a position I feel like I’ve been preparing for for 20 years.”

Answering the criticism
According to Investment Board literature, investment earnings account for more than 85% of the cost of benefits paid to retirees. More than $2.4 billion in benefits is paid to retirement system participants each year. Nearly 90% of the system retirees remain in Wisconsin, where they help strengthen local economies.

But the State of Wisconsin Investment Board has not been without criticism. A November 2001 Legislative Audit Bureau report criticized the board for being 10th among the 10 major state-operated investment groups in five-year returns by mid-2000.

Mc Caffery said that was because the board didn’t “chase overvalued stocks.” When the market subsequently stumbled, the board’s losses weren’t as great. In fact, the following year, the Audit Bureau reported the investment board was top among the 10 for its one-year return as of Dec. 31, 2001.

And, according to an Associated Press report, Wisconsin also took hits with some of the big company downfalls. The report shows Wisconsin lost at least $40.1 million in Enron bonds, $29 million on WorldCom bonds, $15.5 million on Qwest stock and $24.1 million on Qwest bonds.

So, it’s no surprise Mc Caffery sometimes gets questions at the local coffee shop about the bear market that has investors scrambling to predict the unpredictable.

“Wayne is my name and math is the game,” he said with a laugh.

Posted August 23, 2002