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.

Tuesday, September 16, 2014

What are you getting for that 1%?

Call up 10 advisors, tell them you got $1.0 million, tell them you need help managing it.  You'll find they will be glad to manage it for you at a fee of 1% (or more).  That's $10,000/year  TO START WITH!

On average, the market has doubled every 9 years or so.  That's what an 8%, average annualized return will do for you.  Thus, the management fee your advisor extracts will average 50% above the starting fee or $15,000.  At the end of the 10 years, it will likely be north of $20,000/year.  That's assuming your advisor performs pretty much in line with the market.  You're probably wondering if he or she gets this raise even if he or she underperforms.  Of course!  This is Wall Street !

But that's not the total impact on you--because every dollar that stays in your nest egg versus drifting over to your advisor's pockets would be earning at a compound rate in the market.  Over decades, this adds up!

The evidence shows that 70 to 80% of investment advisors who time the market, pick stocks, and look for buy and sell signals on price charts actually under-perform the market indices.  And, in truth, it might not even be them.  They may be putting you into mutual funds that themselves take a goodly slice off the bottom line.  Your investment advisor, in other words, may be charging you for his or her "expertise" in picking mutual funds managed by others.

The good news is they won't be getting the fee mentioned above.  The bad news is that this is because their returns lag the market.

Wealthy people can afford to throw around $10,000 or multiples thereof.  After all, the bottom line is merely a reduction in the inheritance they leave.  More modest people on the path to retirement, though, can hardly afford this luxury.  The 1%, or greater, per year will eat up their nest egg and, after a couple of decades, will impact their standard of living in retirement.

The bottom line ends up being that the seemingly modest fee of 1%/year puts a serious dent in the ending portfolio value which, in turn, typically produces sub-par performance--performance that could be achieved at a much lower cost.

Thankfully, today these less expensive approaches (based on evidence showing the futility of seeking market-beating performance) are proliferating.

Thursday, September 11, 2014

How to Find a Killer Stock

Hirschhorn Exhibit
Investment research is a widely discussed topic.  Formally or informally. After all, searching for that goose that lays the golden eggs has always been one of human's most popular endeavors.  Here's my version; but, in case you're  expecting something else, let me tell you right off the bat that the goose has eluded me as well.  Let me be clear.  I'm not complaining at all about how the markets have treated me.  But, still, there have been opportunities missed; and they present learning opportunities.  As you'll see, this isn't a science and takes patience and staying power.  If it was easy,  I would be off collecting golden eggs rather than expounding on the subject.

Before we start, I  can  save you some time and tell you what not to do.  Forget the penny stocks, the CNBC pundits, the data mining/back testing stock screening approaches.  Forget speculating stock options, trading frontier markets, or even heading to California if they announce a gold rush.  Ooops! That was over 150 years ago, and that was a total bust for those who made the trek.  All of these will likely drain your funds so you are left empty-handed, or gun shy, when the real opportunities arise.

As a matter of fact, the above have eventually even underperformed the boring ol' market itself!

If you've been here before, you would maybe expect me to shout out a big FERGETABOUTIT!!!!!! After all, I'm an indexer.  But I won't and don't.  Although I believe 90% of retirement assets for most people should be indexed, I do leave 10% leeway for investing in individual stocks.  And this 10% can have some potential, if you have the aforementioned patience and staying power.

And, to prove its potential, I present you 2 of my biggest misses.  This is from the "opportunities on the end of my nose that I missed" file.

The misses aren't easy to admit because I have always felt that I was the perfect person to uncover a gem.  I have the perfect qualities.  First of all, I am the average man - the "man in the street."  If I see something and like it, the masses will like it.  I'm not the guy standing at the Hirschhorn Museum admiring a photograph of a mop standing in the corner.  Instead, I'm the one walking away muttering "I don't get it!  Not one bit."

Secondly, I'm cynical; so I need evidence.  When I first heard about the internet, the first words out of my mouth was "a fad!"  But when an email came into the office from Australia, sent 5 seconds earlier, congratulating the firm's economist on a quote in the Wall Street Journal, I went "Whoa!!!!!!" Sometimes my brain is quick, and I saw it was the real thing.

Before I jump into my first miss, some of you young people will think that you won't get these kinds of opportunities.  Don't believe it.  You'll probably get more.  You just need to be patient, recognize them, and be ready and able to jump on them when they come along (with 10% of your nest egg).

OK.  Let's go back a few years.  I'm sure some of you have guessed this one.  I'm wrapping up my Economics class; and one of my students is standing at the back, and the others (instead of bolting to the door as usual) are gathered around him, chattering excitedly.  I approach them and ask what they are looking at.  You guessed it - it was an iPod.  They were each trying the ear phones, asking about how many songs he had on it, where he bought  it, how much it cost.  I heard over and over "this is da' bomb" my generation's version of "cool."

I held the iPod and it got Jobs'es desired reaction:  it just felt and looked awesome.

There is an ongoing question in the field of investment research on the value added in visiting companies.  Few people raise the significance of seeing customers with a new product.  Here, in front of my nose, was a corollary of famed investor Peter Lynch's advice to invest in "what you know." Those students were future customers for Apple and (think about this!) marketers - they were going to push the iPod to their friends!

If I would have gone out the next day and put 10% of my assets in Apple stock, I would be writing this from the beach on Maui because we know the history of the stock.  Another clue came later when I visited an Apple store.  At the time, stores on either side in the mall were empty; and yet the Apple Store was elbow-to-elbow with the so-called geniuses answering questions and customers excitedly trying and talking about the products.

The second example took place in College Park, Maryland.  Again not traditional stock research.  My daughter:  "Have you ever eaten at Chipotle?"  Me:  "No, what is it?  Mexican?"  Her description of the layout left me thinking I'm going to have a headache eating fast food with hyped-up college freshmen. Two bites and I knew this was the real thing.  Since then I've eaten at Chipotle throughout Maryland and Virginia.  Today, several years later, I go out of my way at lunch time to find a Chipotle.  In every single instance, there is and has been a long line, many times winding out the door!

The story with the stock was the same as with Apple.  It was a "I need a swift kick" for missing this one.  There were others, of course.  A bit more difficult but arguably pretty easy to see, even for ones who weren't searching for investment opportunities 24/7.  For example, Under Armor.

Something to keep in mind is that these companies are not easy to hold on to and to get their full upside. After stocks double, there is a tendency to translate the gain into real terms - i.e., the number of flat screen TVs the gain equals, etc.  When you start to reach this point, take out your Buffett book and read over and over the value of holding over the long term!

Wednesday, September 3, 2014

Take This Job and Shove it?

This Friday is the first Friday of the month.  That's an important day in financial markets.  It is the day that Bureau of Labor Statistics releases the monthly unemployment report for the U.S. - arguably the most important macroeconomic data point reported monthly.

It will report that employment increased by 200,000 plus.

Immediately, some pundits will make a "glass half empty"argument and say that the jobs created aren't good jobs.

This brings to mind my visit to Chipotle in Charlottesville.  I have been to Chipotle in Charlottesville, throughout Virginia, and in College Park, Maryland.  I have been at various times of the day.  This goes back a few years.

In every single instance ,the experience has been the same.  The line is out the door, and fast food establishments next door are half-filled or practically empty.  It reminds me of visiting an Apple store where there barely is elbow room and yet the stores on either side are empty of customers.

What is interesting to me is that Chipotle is looking for workers.  They would rather you have no experience.  Is this a good job?

Think about it like this.  This is a company that has literally disrupted the fast food industry.  Its stock has skyrocketed.

Source: Yahoo! Finance
Sure, you start near the minimum wage; but you get an inside look at what it takes to be at the top!  If I was in my 20s, I would run down there as fast as I could and get on the line.  I'd like to learn how they cook, how they order food, who does their menus, how they figure out pricing, etc.  To me (and, by the way, much of rest of the world!) this looks like a super opportunity.

Just so you know that I know when a job isn't attractive, let me tell you about my 20s.  I reached a point where I needed to take whatever I could find at the highest wage.  This led me to the laundry department at the National Institutes of Health in Bethesda, Maryland.  In other words, I collected the hospital's dirty laundry and delivered it to the laundry room in the basement which was basically a sauna.  I know a bad job when I see it, thank you.

Since I'm on a pretty good rant here (at least in my own mind), let me present one more anecdote.  It was my practice as an Econ instructor at Howard Community College in Columbia, Maryland over a 12-year period to question students near the end of the term about their plans.  Most responses were cookie cutter similar.  Students were headed to a 4-year school, some were taking more classes to get an AA degree, and so forth.

But one student had a surprising answer.  He said this was his last class.  He said he and his buddy had worked at Ledo's Pizza for 5 years, saved everything they made, and now were going to buy a Ledo's franchise.  He said they knew how to make the pizzas, how the menus were made up, how to set the prices, how to hire and fire people, and even how the financing of the ovens worked.

For him, community college classes were for finding out things he needed to know to run his business.

I would be willing to make a blind bet that he is enjoying working more than the pundits in their ever-critical roles they play.

Monday, September 1, 2014

What to do with cash?

With shor- term interest practically zero, investing cash in today's market is problematic.  Getting any kind of yield means giving up liquidity and/or taking risk.

The issues facing investors are nicely laid out by Beverly Goodman in The Cash Conundrum in this week's Barrons.

One of the examples she covers is worth going over specifically. Pimco's cash alternative exchange traded fund (ETF), with ticker symbol MINT, has a SEC yield of 0.46%:

Source: Morningstar

It also has, as shown, an expense ratio of .35%.  The net yield, then, is a measly .11% which could easily be wiped out by a drop in the price of the Fund.

The bottom line is investors need to be careful investing cash that is necessary for emergencies, expected expenses like a down payment, or college tuition.