Monthly Archives: October 2014

Experts and Amateurs are Wrong on REITs

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REIT2Dear Mr. Market:

Well look at you! You’ve done it again…. haven’t you, Mr. Market? On countless past occasions you’ve managed to fool not only the average emotionally driven investor but also the seasoned professional. Now you’re doing it again with an area of the market that has fooled everyone; not just this year but for decades!

Investing in real estate may not seem like something you need to do within your standard “stock and bond” portfolio. Some may argue that your house is enough exposure to real estate and for most individuals it’s their largest investment so it should suffice. Your home is actually considered a “consumption good” instead of a pure investment. Although it’s likely to appreciate over time you will not receive income from it, it most likely has a mortgage attached to it, and if you need to sell 10% of it tomorrow you’re out of luck. Additionally there are many areas within real estate aside from what’s happening on your residential street. Commercial real estate, for example, makes up about 13% of the U.S. economy.

In 2013 almost every expert pounded the table and made intelligent sounding comments calling for investors to reduce exposure to REITs. These words of caution came after it was first announced the Fed would slow down its bond-buying program (Quantitative Easing). Conventional wisdom tells us that when interest rates rise REITs (and other asset classes like Bonds) won’t perform well. Unfortunately most of these comments came after the fact and REIT investors were hit hard in May of 2013. Those who listened to the stale news proceeded to sell their REITs as that “wasn’t the place to be”. Continue reading →

Understand the Herd…don’t follow it!

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Investor StampedeDear Mr. Market:

It is human nature to want to fit in or be part of the crowd. We all like to feel that we belong to a group and are not isolated. Take a moment and go back to your youth…everyone can remember a situation when someone asked us if we did something, “just because everyone else was doing it?” Another favorite that is asked of children and teens is, “would you jump off a cliff if everyone else was doing it?” Investors don’t often ask themselves these questions but as the markets have now crossed into negative territory and volatility is present they certainly should be before rushing into any decisions.

Behavioral Finance is a fascinating field and the better you understand it the better off you are as an investor. A central theme in behavioral finance is the “herd mentality”. Investopedia.com defines Herd Mentality as: “A mentality characterized by a lack of individual decision-making or thoughtfulness, causing people to think and act in the same way as the majority of those around them. In finance, a herd instinct would relate to instances in which individuals gravitate to the same or similar investments, based almost solely on the fact that many others are investing in those same stocks. The fear of regret of missing out on a good investment is often a driving force behind herd instinct.” Every individual has made a decision to fit in or be part of a group but should that include financial and investment decisions? We would answer that question with an absolute NO!  Continue reading →

Currency Markets: Not the Roller-coaster you think it is!

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dollar3Dear Mr. Market:

You’ve taken equity investors on a roller coaster ride this year with the Dow Jones now delivering negative returns year to date. Investors have been scrambling to find where to invest their money as they move out of equities. The fixed income markets remain an area of doubt as interest rates are near rock bottom levels and fear of rate hikes from the Fed continue to run rampant. With all these variables and negativity in the market where should investors consider looking to invest their cash?

We’ve discussed ‘Alternatives’ before and how they warrant a place in a diversified portfolio. Often investors become a bit skeptical when they hear the term Alternative Investment as thoughts of hedge funds and ‘ponzi schemes’ come to mind.   With new regulations and monitoring in place investors can feel confident when they consider adding these types of investments to their portfolios. The investments that typically come to mind when looking at this asset class are: real estate, commodities, futures and hedge funds. Today will take a look at one component of alternative investments that is often overlooked but investors interact with everyday– the dollar or currency markets in general.

If you turn on the nightly news or read any articles about the economy it is hard not to see headlines discussing the strength and/or weakness of the dollar. What does this really mean and how can an investor take advantage of these moves? Analysts and economists tend to use terms to make themselves sound like an authority while at the same time losing 90% of their audience. Below we will discuss some of the basics:  Continue reading →

MPG Core Tactical 60/40: September 2014 Performance Update

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Dear Mr. Market:

October is historically one of your stormier months and it looks like you began to rumble a month or so early this year. We’re headed into the last quarter of the year but in case you’ve missed why we’re running a series of articles around the topic of a “60/40 benchmark”, here’s a refresher:

Click here to revisit the first edition of the MPG Core Tactical 60/40 Portfolio.

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (October 6, 2014).

Click here to compare our portfolio against the benchmark.

It’s finally happening. Yes…it appears the stock market is correcting. As a matter of fact for the second time this year alone the Small Cap asset class has endured a correction of -10% or more. What’s puzzling (and actually quite worrisome) is the divergence between what Large Caps and what Small Caps are doing. In a healthy and rising stock market, “as the tide rises so do all the boats”. We’ve had warnings before but the alarm bells are ringing louder since not all asset classes are moving in tandem as they once were. What we’re seeing now are perhaps the final signs of the rally peaking out.

What adjustments did we make?

The following moves were made during the month of September: Continue reading →