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.

Wednesday, November 30, 2011

Can You Manage Your Own Assets?

Source: Capital Pixel

Here's an excellent article for those considering the DIYer route which I highly recommend:  "Should I Hire a Financial Advisor or Go it Alone?" by Walter Updegrave.

Thinking about becoming a DIYer is something I promote.  IMHO ( as well as Warren Buffet's and many other respected market practitioners) many people are throwing money away by paying professionals to time the market or pick stocks.

Yesterday I had coffee with a lady who explained that her portfolio consisted of three issues:  a total stock ETF, an international stock ETF, and a total bond market ETF.  Here's the thing:  there is voluminous evidence supporting the thesis that a three issue, low expense ratio, low trading cost, broadly diversified portfolio has historically outperformed most professionals over the longer-term (10 years and longer) after all fees are accounted for.

There are some things to know going in, though.  First you need to understand that controlling emotions is important.  The article points out that those who do not use an advisor actually underperform by 3%/annually on average due partially to emotions - see the study by Financial Engines cited in the article. Secondly, asset allocation is important.  Most people get some experience in this by making decisions for their 401(k).  The scary part for some is when they get assets outside their 401(k) by rolling over assets when they change jobs or retire.  Having more choices and less structure can get some to throw up their hands and pay big management fees to advisors.  They assume that investing is complicated and consumes a lot of time.  I believe, with a bit of help in the beginning along with some instruction, many can become DIYers as the article suggests.

As an aside - when it comes time to roll over assets, etc., I think just about everyone should at a minimum get some hourly professional advice.  It is trickier than most people know.  I've written before about trying to wire the dryer in my house and almost burning the house down.  You have the same kind of situation here.  There are nuances about not taking the rollover as a check to be deposited, rolling assets in kind, the type of account to roll company stock into, etc. that can have a big tax impact.

The article also lists numerous tools to help the DIYer.  I find that most major discount brokers offer these tools to analyze funds, allocate assets, track investments (and in the case of Charles Schwab, which I use, track performance relative to a well-defined benchmark) for free.  Understanding how to use these tools is the key for the DIYer.  One of the services I offer is to set up potential DIYers by doing the initial investing after the assets are rolled over, accounts combined, etc., then explain the investing process, and, when the client feels they are ready,  hand it over to them - at which point they are a true DIYer.

In fact, I would encourage those with larger portfolios to consider peeling off a part of their portfolio and give the DIY approach a shot.  They will be surprised how little time it takes to manage a portfolio of low-cost index funds.  As an added benefit, they will have a means of really assessing their high priced advisor!

Disclosure: the information here is for educational purposes only. No investment returns are implied or guaranteed.

Monday, November 28, 2011

An Interview With An Investment Guru

Seth Klarman is a legend in a league with Warren Buffett. In this interview with Charlie Rose I found on The Biz of Life site, he first talks about his non-profit organization and then gets into his investment approach.

No matter what style an investor chooses, it is always valuable, I think, to listen to those who have mastered the game. He notes that it takes a certain, rare gene to invest in line with the Benjamin Graham style. He talks about his book Margin of Safety. He lists the 3 stages of investing followed by Buffett. Interestingly, he humbly claims that he is only good at the first: "buying cigar butts at good prices."

You can follow Seth Klarman and his holdings as derived from 13f filings at guru focus.

As shown,CLICK IMAGE TO ENLARGE, he takes some big positions.

As readers of this blog know, I believe investors should index at least 80% of their retirement assets and invest at most 20% in individual stocks. I would also argue that one should be careful following the top hedge fund managers. You may find you don't have that "special gene" at exactly the wrong time ;)

Disclosure: This post is for educational purposes only. Investors should do their own research before investing. I may hold stocks mentioned in this post.

Sunday, November 27, 2011

Long-Term Care Insurance

As one who concentrates on investments and portfolio management, I am very much aware that the process is carried out within the context of an overall plan. Plainly put, the investment program can be the exact fit for a client in terms of overall assets, risk tolerance, retirement goals, etc. but something else can be totally out of kilter - sort of like a well-fitted suit with a long loose thread hanging from the jacket sleeve. Such a thread for the DIY investor can be that taboo of subjects - Long-Term Care.

The issue here is very simple. It has to do with "...The best laid plans of ...." Again, everything can be in place; but then a need for long-term medical assistance can throw everything out of whack. The problem is that long-term care is expensive, as will be detailed in the following video. Think about it like this: suppose you move into the house of your dreams but you don't have homeowners insurance. Then, the house burns down. That could be the situation if you work hard to build the nest egg to the appropriate size and then need long-term care.

Long-term care is expensive. One thing some creative families have done is to have  children or other potential beneficiaries pitch in to pay the annual premium.  After all, in many cases, it is potentially an insurance on their likely inheritance.

I recommend watching the following excellent video by Christine Benz, Morningstar's Director of Personal Finance. Ms. Benz has a talent for explaining complex topics.

If you need specific info (and live in the Baltimore area) on choices available for you and their costs or even whether LTC is appropriate in your specific case, I would recommend meeting with Sharon Kreiger.  (223-275-1764). Ms. Kreiger's philosophy is to start with a meeting to basically educate a potential client on LTC.

Wednesday, November 23, 2011

Movie Recommendation

For those who get overdosed on cheer this holiday season, I recommend the DVD Inside Job . It will quickly bring you back to reality.  It proves what most people know - there is no upper bound for greed.  Still, to see how it has played out to bring us to where we are today is sobering.

We have paid a heavy price for assuming that those in charge know what they are doing and that they are operating in the nation's best interest.

Many want the bad actors in the film put in jail--which is easily understandable. The problem is that a lot of bad things can be done without it being criminal.  It is easy to not do one's job in the pursuit of greater riches, which will be seen over and over in the film.  This isn't a crime under the criminal code.  Most viewers will get that.

What is unfathomable is that the leading institutions of the country continue to employ many of these people at the highest level.  The Federal Reserve, Columbia Business School, the various think tanks should be ashamed.

I, for one, am deeply ashamed for the economics profession.  Watch the film and see why.

Tuesday, November 22, 2011

How to Find Release Dates of Earnings Reports

Source: Capital Pixel
The most important firm specific date is usually when earnings are released.  If you invest in individual stocks, you are interested in when the report is coming out and the expectations of the market.  A disappointing report or a surprisingly good report typically will move the price significantly.  Those who follow Apple stock closely know exactly what I mean.  When Apple reports, its stock moves sharply in after-hours trading.

So suppose we are interested in finding, for example, Pepsi's release date and analyst expectations.

For this, we turn to the "Earnings Calendar" available at most major financial sites.  We'll use the Yahoo! site.  At the site, just type in the ticker, PEP, to find the release date of February 6, as shown:

Source: Thompson Financial Network

 CLICK IMAGE TO ENLARGE  Note the other useful items available, especially the conference call link.  At this link, you can listen to the last conference call.  If you stay on until the end, you usually can hear questions from analysts and the company's response.  To me, this is one of the best ways to identify issues with a company.  For example, analysts will want to know why sales in South America are down slightly or, if it's the Apple conference call, why phone sales were below expectations.  Questions will come up about the all-important revenue projections, etc.

Scrolling down the list for earnings releases for February 6 brings you to:

Source: Thompson Financial Network
 CLICK IMAGE TO ENLARGE  As you can see, analysts expect Pepsi to earn $1.14/share for the quarter.  Also note that you can add the event to a Yahoo! calendar, so it is easy to track a portfolio of stocks.  Clicking on the PEP link and then on "analyst estimates" (on the left-hand side after scrolling down) will give you even more info on earnings history and expectations--including the all-important number of analyst who are providing estimates.

Disclosure:  I agree with Warren Buffett et al. that most investors will be better off by buying well-diversified low-cost index funds tailored to an asset allocation model.  This information is for those who find buying a few stocks an enjoyable and challenging undertaking.

Saturday, November 19, 2011

Average Joe's Retirement Fund

  • Assume: Joe has worked for 20 years at a company that matched  the company 401(k) by 50% up to 6% of salary. 
  • Joe contributed 6% of salary and being risk averse allocated his contribution and the company match to 50% bonds (aggregate exchange traded fund, AGG) and 50% stocks (S&P 500,SPY).
He was 45 years old when he started and today he is 65 years old. How much was his portfolio  worth at year end 2010?

Data sources: Average Joe made the average wage during his career. This data was obtained at . The market return data was taken from the "20 Year Periodic Table of Returns" produced by BlackRock. Here's the data and results:

CLICK TABLE TO ENLARGE The table shows that an average person, continually making the average wage over his peak earning years, at a company that offered  basic retirement benefits, accumulated $113,000 using an extremely conservative investment approach. This despite waiting until he was 45 years old before he saved a dime.

It is not easy to understand sometimes why people constantly complain.  Suffice it to say that the human race has not always had it so easy and that billions would trade places today with Joe in the blink of an eye. And they wouldn't be stuck at an average wage for 20 years.

Friday, November 18, 2011

A Good Source of Investment Information

Source: Capital Pixel
One of the challenges today for DIY investors, who actively manage their own assets, is handling the vast amount of information at their finger tips.  A key is to find good sources.  One worth checking out is "Market Currents" at Seeking Alpha.

Scanning recent lists you'll find many reports on the troubled Europe region.  This, of course, is where investors are presently focused.

Other reports will grab your attention as well.  For example, from yesterday's items, we find this tidbit worth thinking about if you are contemplating buying or selling banks' stocks.

6:50 PM Fitch has it wrong, U.S. banks could actually wind up benefiting from Europe's debt crisis, says Rochdale's Dick Bove.  He cites two reasons:   first, U.S. banks have a relatively low level of exposure to European banks.  Second, the problems facing European banks could actually drive business to seek healthier institutions in the U.S.  His top picks: PNC Financial (PNC) and Fifth Third Bancorp (FITB).  Both get hit when Europe erupts, but neither are heavily exposed to European banks.  [Quick Ideas, Global & FX, Financials]
The reports, as you can see, have numerous links making it easy to further research the information presented, if necessary. 

You'll also notice the search box in the upper right of the page.  Here is where you can type in a ticker symbol and get recent stock specific reports.  Do this today for Intel (INTC) and you'll find reports ranging from Buffett's 13F filing showing he bought chip companies (which is news because he previously has famously avoided tech altogether) to industry projections on the inventory and profit outlook.

If you buy individual stocks or make general market bets, this kind of information can be invaluable.  Not that long ago it would have taken days to garner the information now available at the click of a button.

Full Disclosure:  I recommend that at least 80% of retirement assets be invested in index funds aligned with a carefully selected asset allocation model reflective of risk tolerance.

Monday, November 14, 2011

America's #1 Personal Finance Book

Source: Amazon
Andrew Hallam's book Millionaire Teacher has deservedly reached #1 on Amazon's best seller list of personal finance books.  It's not hard to figure out why - it is readable, witty, and provides a desperately needed message to individuals on how to become financially literate.  If it was up to me, it would be required reading in all high schools and colleges; and Human Resources departments would do well passing it out to employees.  At least then we would know that students and workers had one real-life case put in front of them of someone who has figured out how to build wealth on a modest salary.  Millionaire Teacher spells out this valuable information.  It gives people a road map with the lessons it teaches.

But for most readers, this won't be all.  There is an added bonus... Andrew produces one of the top financial blogs in the world.  Readers will be impressed with the trips he takes and adventures he has.  It is clear that getting one's finances in order provides the means to live an interesting life.  Readers of his blog will also be inspired by the head-on battle he has fought with serious medical issues.  Not only has he fought back but he has continued as a world class distance runner.

I was honored in being asked to endorse the book.  Seeing my name in print next to the heavy hitters in the world of finance has been a thrill.  I hope that this book finds its way into the hands of the financially challenged this holiday season.  It truly has life-changing potential.

Thursday, November 10, 2011

Observations on "Conventional Wisdom"

Kim Clark offers some interesting points on so-called "conventional wisdom" in "Investing: Throw Out Conventional Wisdom."  Many have to do with the all-important subject of asset allocation.  IMHO, this is where investors should focus their efforts rather than spending the bulk of their time picking stocks and trying to figure out which "guru du jour" to follow.

From this perspective, Clark's overview of "broad framing" is worth thinking hard about.  It really isn't as simplistic as she presents it, though.  For example, people have to view their own housing situation and whether they would be willing to downsize, take a reverse mortgage, etc.  This will determine if it definitely is part of their portfolio and should be taken into account as a negatively correlated asset with equities.

Her thoughts on individuals reaching peak financial capability in their mid-50s is worth thinking about, as well.  It definitely emphasizes the importance of working through and setting up the retirement process early on.  It is interesting that many become responsible for their rolled over 401(k)s, etc. just as their financial acumen is decreasing - a phenomena little discussed.

Wednesday, November 9, 2011

Jury Duty, Investing, and Warren Buffett

At some point in a jury trial, you get to credentials.  In the jury trial I was on, a "first responder" was getting equipment off a firetruck in a cordoned-off area when he was sideswiped by an elderly lady whose car had somehow made it into the area.  He rolled down an embankment and damaged his knee.

I was hoping the trial would go into analyzing how the lady got her car into the area, but instead it veered off into discussing the problem knee.

With a damaged knee, the defendant couldn't do his second job - roofing.  After some background in what roofers go through, we took a much-needed break.  Next, they brought the credentialed experts in - in this case, the knee specialists.  As Warner Wolf used to say, "Let's go to the tape!"

Both sides took 20 minutes to present the credentials of their experts.  They have gone to prestigious schools, written the most widely-used text books on knee surgeries and reconstruction, invented a knee brace or two, and performed one zillion surgeries.  They have been on Presidential Commissions and one even performed knee surgery on the moon, if I remember correctly.  After a while, it all started to blend together.

All of this, and time to be a professional expert witness!  You can't help but be impressed.

The testimony on each side took 20 seconds.  "I examined the x-rays and with this knee injury the defendant can do/can't do roofing."  

When you think about it, though, expert witness is many times the best.  Especially when it comes uncompensated.  Many people understand that this isn't the case in the world of financial services.

In this world, it is easy to impress with colored graphs and fancy promotional materials.  It is not uncommon to find prospective clients overwhelmed by bulky analysis and jargon.

This is exactly where  the best approach is to put all of that aside and ask the uncompensated expert witness.  We go to the tape and see what Warren Buffett has to say about the best way to invest:

Better yet, I like to go to a direct quote from  his 1996 annual report:

Most investors, both institutional and individual, will find that the best way to own common stocks  is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) of the great majority of investment professionals.  

This sentence is worth parsing.  He mentions both "...institutional and individual...."  Institutional includes the large pension funds and others whom hire the best and the brightest from the nation's best business schools.  If anyone could beat the market by stock picking, timing or voodoo even, it would certainly be this group.  Yet Buffett says they, too, should use low-cost index funds.  And, they do to a surprising extent; but that is the subject of a future post. 

Sunday, November 6, 2011

Hedge Your Portfolio

Source: http: Capital Pixel
Sometimes when I talk with potential clients about the fixed income portion of their portfolio, I find that they are thinking "cash" à la money markets, etc.  They see cash as their defense against a falling market.

Me:  "Maybe you should consider the asset allocation model that has 50% in fixed income."
Them:  "I'm pretty much there.  I have 3 certificates of deposit (CDs) and 20% in money markets."

Ooops!  CDs and money markets are not what asset allocators mean when they say "fixed income."  Fixed income means bonds.  The huge difference is that, when yields fall, bond prices rise and money markets and CDs, etc. don't.

To see this clearly, take a look at  the "Callan Periodic Table of Investment Returns."  This table shows 20 years of returns, on an annual basis, for 9 asset classes, including the 2 we want to focus on - the S&P 500 and Barclay's Aggregate Bond Index.

The table shows there were 4 years where the S&P 500 (the light blue box in the table) dropped. The following table shows these returns along with the returns on the Barclay's Aggregate Bond Index (shown as the gray box in the table).

Year          S&P 500         BC Agg
2000             -9.11%          +11.63%
2001           -11.98%            +8.63%
2002           -22.10%          +10.26%
2008           -37.00%            +5.24%

Given the anemic yields of CDs and money markets today, the hedging property of bonds is obvious.  It's worth noting that an even more effective hedge in down markets would be U.S. Treasury notes and bonds, but they could be costly in a rising rate environment - there's no free lunch here!

To bring bonds into a portfolio on a cost effective basis has never been easier.  The AGG is the most widely-traded bond exchange traded fund, and it has a management fee of .22%.  It pays to also check with your broker.  For example, Schwab offers SCHZ which tracks the same index, has a management fee of .1%, and is commission free.

If more hedging is desired, long-term put options (LEAPS) could be considered.  These were discussed previously.

Disclosure:  This post is intended for educational purposes.  Investors should do their own research or consult with an advisor before making investment decisions.  I own the exchange traded funds mentioned.

Thursday, November 3, 2011

Shameless Promotion

Source: Amazon
Yesterday I gave a pitch to the Howard County Public Schools Academy of Finance board, of which I am a member, for Andrew Hallam's book Millionaire Teacher.  The book is highly recommended for anyone interested in learning the appropriate way to invest for the longer term and how a person of modest salary can attain a sizeable nest egg.  Andrew's humor and talent for explaining complex topics make the book extremely readable and, a rarity for this genre, highly entertaining.

The basic message in the book, for young people to start investing early, diversifying, and paying attention to costs, is lost on many as evidenced by the report described by Shawn at Watson Inc in his post "Young People Avoiding Investing in Record Numbers."

The Wells Fargo report Shawn reported on found that those in their 20s prefer CDs rather than investing in stocks.

The customer reviews of Millionaire Teacher speak for themselves.  Andrew's book is a giant step in the right direction for attaining financial literacy.

Full disclosure:  RW Investment Strategies is mentioned in the book.

Tuesday, November 1, 2011

Trying to Understand Greece

It's hard to understand why someone would try to pull a foot off the brakes of a car careening towards a cliff.  That's the puzzle facing investors as they get the latest news out of the European Union on Greece's call for a referendum on last week's agreement.  Some people and nations make agreements and then live up to the agreements.  Some don't.  A useful source for understanding Greece, as well as the overall European crisis better, is Michael Lewis' readable and entertaining book Boomerang.   I quote from page 47:

" October 2009, the Greek government had estimated its 2009 budget deficit at 3.7 percent.  Two weeks later that number was revised upward, to 12.5 percent, and actually turned out to be nearly 14 percent.  He (talking about Papaconstaninou - the new finance minister) was the man whose job it had been to figure out and explain to the world why, "The second day on the job I had to call a meeting to look at the budget," he says. "I gathered everyone from the general accounting office, and we started, like, this discovery process."  Each day they discovered some incredible omission. A pension debit of a billion dollars every year somehow remained off the government's books, where everyone pretended it did not exist, even though the government paid it; the hole in the pension plan for the self employed was not the 300 million euros they had assumed but 1.1 billion euros, and so on, "At the end of each day I would say, "Okay guys, is this all?"  And they would say, "Yeah". The next morning there would be this little hand rising in the back of the room: "Actually, Minister, there's this other one-hundred-to-two hundred-million-euro gap."
That's the cost side.  Then there's revenue.  Tax collection in Greece would probably make even Grover Norquist take pause.  Lewis talks to a tax collector " estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year - which meant, because incomes below that amount weren't taxable, that even plastic surgeons making millions a year paid no tax at all."
"If the law was enforced ," the tax collector said, "every doctor in Greece would be in jail."