Robo-Advisors: What are they and why should you care?

RoboAdvisor4Dear Mr. Market:

The financial services industry is notorious for creating new terms and services in an effort to meet the ever-changing needs of investors. Often these ‘solutions’ are quickly adopted and become broadly used while others simply fizzle away only to be quickly forgotten. Unless you’re inside the industry you won’t hear the term “Robo-Advisor” but with advertising and slick marketing you will soon be solicited by one.

As with any new service or product there are many different models that companies are using as they rush to be part of a new fad. The basic definition of a Robo-Advisor is:  a class of financial adviser that provides portfolio management online with minimal human intervention. You might not be aware of these offerings but with several large firms introducing new strategies this year it is a safe bet that you will hear about Robo-Advisor’s in the coming months.

The vast majority of these firms have only been in existence the last five years but the growth they have experienced is dynamic and catching the attention of many large national firms. Currently there are over 15 established Robo-Advisor firms – the average account size is just over $20,000, each firm has over 20,000 clients and $200 million in assets. According to the research group Corporate Insight, they posted over 36% in asset growth in just four months last year (April to July). The growth of these firms has been impressive but should it really be that surprising? Continue reading

Target your sell discipline

Target arrow 1Dear Mr. Market:

There you go again Mr. Market … You’ve trumpeted your tempting sirens and lured in people who were deathly scared of the stock market to now jump in. The S&P 500 is once again flirting with all-time highs but is the music about to stop? You make it easy to buy a stock but why is it so hard for you share the catalysts that tell investors to sell? Mr. Market is famous for encouraging you to sell with emotion but isn’t there a better way?

In our opinion, there are three main criteria that should be used in forming a disciplined and repeatable sell decision. In order to be a successful investor you need to master and take them all into account before you ever buy a stock.

So…what are the three main criteria?

  1. Fundamental Analysis: There are a slew of fundamental issues that could warrant a sell decision. If you’re willing to buy a stock you’ll need to monitor fundamental metrics ranging from earnings, valuation, cash flow, and debt, among others. Lumped into this category should be a keen awareness of key changes in management and their effectiveness.
  2. Technical Analysis: Whether you believe in following the charts and trading patterns of a stock or not…you still need to be aware of them. Like it or not, many decisions from the bulk of the investing world are made or triggered due to technical analysis so even if you think it’s hogwash don’t be short-sighted and ignore them.
  3. Investor Sentiment: Ideally, you’ve kicked the tires and performed your due diligence (reasons #1 and #2 above) on what made you buy the stock in the first place. If the honeymoon phase is no longer there, it may be time to sell. Don’t get us wrong here…this is not about selling because everyone else is. The idea here is to analyze whether the trend is moving in a direction that is not going to help you as a shareholder. Of the three criteria this is perhaps the most challenging to master because it forces you to use your eyes and brain as opposed to your emotions.

Continue reading

Who told you the S&P 500 is your benchmark?

benchmark4Dear Mr. Market:

Everyone wants to be associated with a winner. We are all familiar with the famous quote, “the thrill of victory and the agony of defeat” from ABC’s Wide World of Sports. Imagine that you are at a sporting event, you glance at the scoreboard but it shows nothing … at the end of the game you have no clue if your team won or loss. Some people claim your team won while others are not so sure. Mr. Market does exactly this to investors with their investment portfolios on a consistent basis.   As an investor how do you effectively gauge how your investment portfolio has performed and if you are victorious or humiliated in defeat?

The media would have us all believe that investors should use the S&P 500 or the Dow Jones Industrial (DJIA) as a benchmark against their portfolios. Turn on the nightly news or open a newspaper and you will quickly spot what each index closed at and what percentage they are up or down for the year. While everyone would agree that it’s important to have a sense of how the market is performing, is this the proper measuring stick investors should use to gauge how their own investments are performing?

A quick summary of the indices the media force-feed us on a daily basis: Continue reading

MPG Core Tactical 60/40: January 2015 Performance Update

MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

Even if you didn’t watch the 49th Super Bowl on Sunday, you inevitably heard something about it. We admittedly did not have a dog in the hunt and took the side of “let’s at least hope for an entertaining game”; and guess what folks…that’s exactly what America got!

 

Regardless if you rooted for Seattle or New England, there was plenty of excitement and surprises. Even if you could care less and were in the “I can’t wait until half time camp” you got to see Katy Perry perform with eight outfit changes. (yes…eight)

How does all this relate to the stock market and the MPG Core Tactical 60/40 portfolio? Well…we’re only one month into 2015 and volatility has come back with a vengeance! During the month of January the Dow Jones had 14 of the 20 sessions end up with triple-digit days to either the upside or downside.

The broader market indexes are now down -4% from their December 2014 highs. The S&P 500 also dropped -3.1% in January, which by the way…was the exact same performance as in January of 2014! For those with short-term memories, allow us to remind you how the “experts” said the bull market would end due to how we started the year out. (that doesn’t quite line up with how 2014 finished as a whole…does it?) Continue reading