Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Thursday, July 5, 2018

Thank You Kimberly Clark Corporation!

Back in 2013 I sold a house, got a nice check at settlement and had to consider how to invest it. It was part of downsizing and the important objective was to generate income.

I looked at 3 possibilities: an annuity, the 10 year Treasury note, and dividend stocks.

The annuity paid about 4.5% but you lost control of the assets. For me, that was a non-starter. To be given serious consideration the yield would have had to been considerably higher.

The 10 year Treasury Note yielded 1.83%. It would pay a constant interest payment every 6 months for 10 years. The yield was considerably below the Fed's target rate of inflation of 2% and yields were widely expected to increase. An increase in yield would drive the price down, which did in fact happen - today it yields 2.84%. If that 10 year Treasury Note had been bought and needed to be sold today it would realize a capital loss.

The 3rd possibility was much more intriguing given the goal of generating income. At the time there were many really good stocks with yields of greater than 3%. By "good" I mean stocks that had a long history of increasing their dividend, had a low payout ratio (at least less than 60% of earnings), and a reasonable P/E ratio relative to the rest of the market.

Kimberly Clark was one that fit these criteria. At the time it was priced at $94.24/share and paid a dividend of $3.24/share to yield 3.43%. So, 5% of the portfolio was invested in Kimberly Clark. Today the stock is priced at $105.30 (+16.2%) and pays an annual dividend of $4.00/share. The dividend yield at cost is now at 4.24%! Thank you Kimberly Clark Corporation!

My thinking 5 years ago was to generate a nice income and I wasn't really concerned with the price. I considered it like Social Security or even the annuity - nobody worries about the principle value fluctuating because of the market for these 2. What is of concern is the cash flow or income generated. The risk is that the dividend is reduced or eliminated.

Thus, a big concern was to properly diversify. For example, look at Pfizer and Merck but only choose one.

Lest readers think I cherry picked, I chose Kimberly Clark just because it was the most recent dividend payer I hold. In fact, I have a couple of holdings that have more than doubled. But, again, the price increase is gravy, the dividend is the objective.

And, if I get hit by a truck (actually did in 2017 via bladder cancer but that's a whole different post!) my wife and kids will be glad I didn't hand the money over to an insurance company to buy an annuity.

Sunday, June 24, 2018

Be Careful With Statistics

Mark Hulbert recently published a post,

"This is what the stock-market indicator with the best track record is telling us.",

 on, based on Ned Davis research arguing against those who believe that high "sideline cash" could lead to a strong upsurge in equities.

Let me say right off that I don't know where the market is going.  I believe that over the next 10 years stocks will do better than bonds and bonds will do better than cash equivalents. I believe that stocks could do a lot better given that the information age puts all kinds of information at the fingertips of very smart, creative, energetic people around the world. But...I could be wrong. Furthermore. I will be the first to stand up and admit that Hulbert is a lot smarter than me and I enjoy reading his posts.

Still, I think one needs to be careful with time series data on stock investing and this post by Hulbert is a prime example.

I wasn't investing in 1951 but I was investing in the 1960s. In the 1960s the investing world was dominated by defined benefit plans and the defined benefit plans were the responsibility of Trustees. Recency bias dominated the the investment process. Trustees looked over their shoulders and saw the markets of the 1930s. As a result allocations to stocks were low.

As an individual my investment choices were actively managed mutual funds that charged a lot expense wise or individual stocks at a high commission. If I wanted to buy or sell I had to talk to a broker who inevitably tried to up sell me by pressuring me into high commission product. To see how my stocks did the previous day I went to the mailbox and got the newspaper.

Today of course I can buy ETFs with the push of a button that track markets around the world. Today we live in a defined contribution world. Today, according to the Census Bureau, 79% of Americans have access to a 401 (k) at work. Today the small investor can easily and economically  invest in the overall market, a choice that has been shown to outperform most active managers over the longer term.

The point here is that using time series data from the 1950s on up even to the 1990s compared to today is comparing apples and oranges. In effect, arguing for the "reversion to the mean" maybe misleading as  the mean could be changing significantly over the period examined.

So maybe you say "no harm no foul", the data just needs to be taken with a grain of salt. Unfortunately I think the harm is greater in the following sense. Many investors can be persuaded by slick talking advisors using this kind of information to alter their investment approach. Using terms like "mean reversion", R-squared, and performance by "quintiles" gives the report seemingly expert opinion.

Just saying!

Sunday, July 9, 2017

Investors Need to Do Homework

This week's Barron's (page L6) has an Oppenheimer ad featuring revenue weighted etfs. The ad implies that cap weighted etfs are out of date and weighting holdings by other measures are more sophisticated. They present revenue weighted efts. They say that weighting by revenue is "the smarter way to weight the index".

One example they give has the ticker symbol RWL.

They provide a website to provide info:

Oppenheimer Revenue Weighted ETFs

Click on this page and scroll down to come to "LargeCapRevenueETF" and click on it to get performance on RWL:

What do you think when you see this little table? You may think that the ETF, RWL, matches the market but this isn't the case. These are returns based on net asset values and market prices of the ETF, which over the longer term will be close as they are in the Table.

What is really of interest is how performance has been versus the old stodgy market cap weighted S&P 500. To get that you have to click the "Performance History..." link below the Table.

This tells an interesting story as shown below:

Note the 3 year average annualized return of 9.61% on the cap weighted S&P versus the 8.31% on the touted  "sophisticated" RWL.

The longer term 5 year superior results of 15.04% versus 14.63% on the S&P 500 indicate that RWL got off to a great start. Many times investors chase the hottest concept and then run into a brick wall. For those who jumped in 3 years ago this was the case.

Actually though many investors don't do their homework and are happy with their performance in an up market. In this case they be satisfied with 8.32% and not even realize they would have gotten 9.60% with a basic cap weighted index.

Choosing between these ETFs is challenging to say the least. I tend to stick with cap weighted as a personal choice. I just think the "disrupter" type of environment we are in at the present favors the larger companies. But frankly this could be changing as the rise in interest rates may be leading to a significant rotation.

The bottom line is that investors should dig in and do a bit of research to really understand their investment portfolio.

Friday, July 7, 2017

Portis ripped off

I know this is kind of gross and probably gets me in trouble with the SPCA but it is what happens to copperheads who come too close to my cabin.

Sadly, Clinton Portis the great Redskin running back, considered doing the same to his financial advisors who ripped him off to the tune of $11 million!

Clinton Contemplated Murder (USA Today)

This too often sad tale of professional athletes is difficult to get our head around. The clowns who ripped off Portis, who is one of my all time favorite athletes, were actually registered with the NFL Players Assoc. Financial Advisor program! Doesn't anyone know what's going on? These advisors are dangerous. They are absolutely top of the line at self promotion but have a reptilian part of their brain that focuses like a laser beam on separating people from their hard earned dollars.

Look I can help. I suggest modestly to put aside $2 million and invest it in low cost Funds. Such an approach would have grown to over $8 million over the last 20 years with an allocation of 65% stocks/35% bonds.  I would charge $6,000/year (0.3%) to manage the portfolio. $2 million generates $80,000/year for life. Most people can live comfortably on $80,000/year in retirement.
I'm glad that Portis's friends talked him out of killing the advisors but wish that advisors of this ilk would serve serious time in the slammer.

Don't think these kinds of advisors can't find the average investor . They can. As Woody Guthrie said,  Some will rob you with a six-gun, And Some with a fountain Pen.

Friday, May 12, 2017

Types of Orders

I frequently point out to new DIY investors that buying an index fund is typically simpler than buying something off of Amazon. Generally it is a matter of clicking a "trade button", putting in a ticker symbol and figuring out the number of shares. This merely requires dividing the dollar amount to invest by the share price.

The process is made straightforward and simple for a good reason. The brokers want you to trade.

But a part of the process that may seem a little tricky at first is the type of order. Most orders are put in "at the market". This means that whatever the price is at the time of the trade that is what the buyer or seller will get.

It is good practice though when getting set to do a trade to eyeball the bid and ask prices for whatever you're buying, whether it is a stock or an exchange traded fund. For example, as this is written the exchange traded fund SCHX, a Schwab large cap index fund has a bid-ask spread of $57.03 - $57.05. This spread is usually given as part of the info from the quote box.

This spread means you can buy SCHX at $57.05/share or sell it at $57.03/share. If you are buying a few hundred shares you'll likely pay $57.05share but if you have a few hundred shares to sell you'll get $57.03/share.

If you're thinking this is like a used car dealer you've got the idea. The used car dealer gives you $4,000 for your car and then wants to sell it to me for $6,000. Thankfully the bid- ask spread in financial markets are not this big!

Sometimes you'll want to buy for less than the ask price. For example, maybe you would like to buy at $57.00. Here you would put in a"limit order" at $57.00. You could leave it as an open order or make it good for the day. I always just do a day order. I don't want to be on vacation 6 months from now, long after I've forgotten about the particular Fund or stock and see the order get executed.

The big deal in putting in a limit order for the day or as an open order is that you may not get it done. This is worth thinking about because typically a few ticks are not a big deal. If you're a long term investor and you pay $57.05 versus $57.00 isn't really significant. In fact, you may not get the trade done and 2 days later you give in when the Fund is trading at $57.50.

Been there, done that!

Thursday, May 4, 2017

A First Pass Investment Test

We are responsible  for our own retirement. Defined benefit plans are going the way of the dinosaur. Now we manage our own IRAs, 401(k)s and taxable accounts to create a nest egg from which we will drawdown at some point in the future, hopefully when we are retired or semi-retired.

What is not well known, despite considerable publicity, is that billions are going into the coffers of advisors at the expense of the people who need sizable nest eggs to finance retirement. Literally, people are giving up a sizable chunk of their nest egg for a service that doesn't produce results. This has been emphasized by John Bogle (founder of Vanguard), Burton Malkiel (author of Random Walk Down Wall Street), and also Warren Buffett (arguably the top investor of our era).

So what is a fast test to whether we may be in the large group of investor novices being taken advantage of?

Actually, it is quite easy. Take a recent statement and see what you are invested in. You should see ticker symbols for each of your investments. But, even if the investment does not not have a ticker symbol just Google the Fund's description and you should find a ticker symbol.

For example, you may find your IRA holds the Davis NY Venture A Fund. Google "Davis NY Venture A Fund" and you'll find the ticker symbol is NYVTX.

Next, go to and type the ticker symbol into the quote box. The summary page you'll come up with shows that the Fund has a load of 4.75% and annual expenses of .89%.

This is an interesting Fund in that it has performed well over the short-term with an out performance of +3.98% over the past year which you can see by scrolling down on the summary page. It is the type of Fund that a "friend" would suggest because he has had good recent performance.

But, alas, your investment horizon extends over decades. And over the long term the performance has not been good versus the S&P 500 Index. Over 5 years, for example, it has underperformed the index by -1.26%/year.

An important factor in this sub par performance is a .89%/year expense charge in addition to the load referred to above. In contrast, the SPY,  S&P 500 Index ETF Fund charges .10%/year.

So, which will perform better over the long term? Obviously, we can't tell unless we have the proverbial crystal ball but my interpretation of considerable research is that the probability of NYVTX outperforming over the longer term is approximately 10%. In other words its like trying to pull a white ball when there are 90 red balls and 10 white balls in the urn.

Interestingly the odds are better than 50% when you ignore costs. These managers are smart and are skilled at picking stocks. The problem is the high fees.

Thus, if you want to get a quick feel on whether you are investing efficiently do this simple ticker test and see first hand the fees you are paying for the Funds you are invested in.

This. of course, hasn't even looked at the other aspect - that of what you pay your advisor.

If you follow the financial news you know that all of these fees - what Funds charge and what advisors charge are coming down because investors are proactively moving to the lower cost Funds.

The suggestion here is that it is easy to see where you stand and to avoid being the last one on the bus.

Saturday, April 29, 2017

Graduation Gift

Ok, so you're going to a graduation party and you need a gift. One thing you can count on is that the graduate is financially illiterate. Schools don't teach financial literacy. You may be financially illiterate as well. Or, in fact, you may have a slew of suggestions for the graduate on the financial literacy front. Forget about them and instead consider giving a book that explains systematically, in detail, what they need to know.

I know...they are graduating and the last last thing they think they need is something to read. Emphasize, when you get to talk to them on the side, that this is important reading...perhaps significantly more important than the stuf they crammed in to take their final exams.

The books can be read in one or two weekends, they are very well written and they will make a huge difference in avoiding lining brokers' pockets and getting on the path to a nice retirement. In fact, the books show that it is not that difficult to lead one's last third of life in really nice style.

Here are the books:

  • Millionaire Teacher by Andrew Hallam. Now in its 2nd edition this book illustrates clearly how to successfully invest over the longer term. It details Hallam's journey and how he on a relatively modest salary achieved millionaire status at a young age, and now travels the world leading a very envious life style. To be clear the journey he describes can easily be duplicated by following the basic principles he outlines. Full disclosure: I am mentioned very brirfly in the book.
  • I Will Teach You to be Rich by Ramit Seth. This book details the steps young people need to take to set up their finances and navigate the work world. 
Both Hallam and Sethi have excellent blogs:

Spending a couple of weekends reading these books could easily make a six figure difference in the size of one's nest egg at retirement.