March Madness: Final Four Investing Bracket 2017


Dear Mr. Market:

Is your bracket already busted? This year’s March Madness tournament opened up with very few upsets until this past weekend. Much like the stock market, we see a similar trend happening right now. What follows is how we see things panning out but first, here’s a little background on how one of the most famous sporting events in the United States correlates to the investing landscape.

Seven years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market! We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

CLICK THE LINK TO VIEW OUR Final Four Investing Bracket Picks 2017

Large Cap

Last year started off much differently than 2017 and as we wrap up the first quarter …some trends are emerging while others continue. If you eyeball the overall theme of this years bracket it will become clear that we’re picking some stocks that should continue to do well under the Trump administration. Whether you love him or hate him, ever since Donald Trump assumed office, the stock market has risen. The proverbial “Trump bump” is real and while we personally believe he needs to stay away from Twitter, there is no question that the stock market and certain economic sectors are primed to perform.

In particular we focused on sectors that should benefit from his proposed vision; stocks in finance, defense, industrials, materials, and energy could benefit from additional tailwinds the rest of the year.

Key Match-up:

#9 Ford (F) vs. #6 Visa (V)

In the earlier rounds of the Large Cap region we see some interesting matchups that follow the theme of sectors and companies potentially benefiting from a Trump administration. United States Steel (X) is in the Basic Materials sector and should continue to do well but has already had a tremendous 12 months with a return of 121%! Conversely, Aecom (ACM) has lagged the broad market (+9% relative to the S&P 500 at +14%) but it’s a leader in the Industrials sector and could become a value play. Some aerospace and defense companies like Northrop Grumman (NOC), or our overall winner from last year, Lockheed Martin (LMT), will continue to be solid but eventually lose out to two companies affected in different ways by another factor; interest rates!

We believe that both Ford (F) and Visa (V) will enjoy tremendous years in 2017. Even though some speculate Ford could be adversely impacted due to increased interest rates, we believe this stock is an absolute steal at these levels. Ford trades at only around 10 times earnings and currently has an incredibly attractive dividend yield of 5.09%. This is a very well managed company trading under $12 per share and we realistically believe it could finish the year at our $14 price target.

Visa (V) is a stock that will almost certainly benefit from higher interest rates. Some may argue that Visa is a bit rich in its valuations after running higher almost 14% year to date. This may be true but the company is managed extremely well, has a tremendous business model and a market share that absolutely trounces all of its competitors.

Small and Mid Cap

The Small and Mid Cap region could be thought of as the area where an investor hopes to find a “Cinderella” team. If the way the NCAA tournament opened up is an indication of how the stock market may play out…tread carefully!

We actually are quite bullish for Small & Mid Caps in general but see some risks in trying to pick one stock over another. This is one of those years when playing the entire field is likely much more lucrative than trying to find the one stock that upsets all the favorites. In similar fashion, midnight came early for Cinderella in the tournament. For the third year in a row no mid-major colleges (in prior years it was George Mason, VCU, Davidson) survived to see the Sweet 16.

To follow-up on our analogy as it relates to picking stocks in this asset class, go with the field and take advantage of good odds that smaller sized companies should perform quite well in this business environment. From Election Day to the end of 2016 small caps jumped 14.6% relative to their larger peers (S&P 500) at 4.6%. With the hopes of corporate tax cuts and a focus on infrastructure spending we still believe that small and mid-sized companies will outperform. All that being said, you can expect a bit of a slow down as the group enters a consolidation phase and we see what policies Trump and the administration can actually implement.

Key Match-up:

#3 Masco Corporation (MAS) vs. #5 Vanguard Small–Cap Index Fund (VB)

As we noted earlier some companies could flourish with increased interest rates. In the first round we purposely match up #8 Zions Bancorp (ZION) versus #10 PacWest Bancorp (PACW) to showcase two smaller regional banks that were each recently dinged by about -6% but have had huge run-ups since the election. You can assure yourself that when interest rates rise, banks won’t necessarily increase the rates they give consumers. Banks will earn more on the loans they make and the interest they pay on deposits will increase at a slower rate which all leads to a net positive for profitability.

What stock might surprise them all in this region though? How about our #3 seeded Masco Corporation (MAS) which we actually have going right to the final. Granted, here’s a company that has trailed the broad market but we believe it’s in the right sector and positioned to benefit at the right time. Masco markets and distributes home improvement and building products and will do well with increased spending, new-home construction, and a stronger housing market. We see this company as having strong management and with some recent cost reduction initiatives, profitability will continue to improve.


We will never claim to have a crystal ball or break an arm patting ourselves on the back, but our winner in the International bracket should come as no surprise to our regular readers. In last year’s investing bracket we had Emerging Markets (VWO) seeded low as a #10 but they clawed their way to the Final Four. The premise there was a common theme for us in that everyone was sour on Emerging Markets and we saw an opportunity to pick up an investment that was cheap, out of favor, and one that could benefit from a reversion to the mean. What happened?

Although Emerging Markets was the worst performer in 2015 (-18%) it came back to gain over +9% in 2016 and currently leads all equity asset classes with a +12% YTD return!

Key Match-up:

#4 China Fund (CHN) vs. #1 Vanguard Emerging Markets Index (VWO)

Last year the Vanguard Emerging Markets Index (VWO) was the Cinderella of our investment bracket. It was the lowest seed in the Final Four and made us look like we could pick a winner! This year VWO comes in as the #1 seed and we see them going all the way to win the whole tournament. Are we attempting to ride this winning horse too long?

Before we touch on emerging markets, let’s not ignore some other companies that could surprise people this year. For example, a fantastic way to insulate a portfolio from potential worries in Europe is to buy Japan. On an absolute basis, Japan may not be appealing but #2 seeded Sony Corp (SNE) could truly benefit from a strong dollar. Also look to buy European equities on weakness once the French elections are past us. We not only include a French exchange traded fund with iShares MSCI France Index (EWQ) but some French companies playing in the right space. Total SA (TOT) is a France based oil and gas leader that sports a huge 5.33% dividend. Prepare yourself for some shocks, like a potential “Frexit”, and even though the French economy is beaten up, there are some tremendous multinational companies based there which could prove to be immense bargains.

Even though there are some interesting countries to watch, and a couple that are receiving plenty of press with Trump as President (Russia and Mexico), we believe it will be China and its emerging market peers that drive markets in the International region of our bracket.

China initially looks to be a loser under a Trump agenda. He has not been shy about taking an “America First” stance on everything and has blamed unfair trade practices and gained considerable support from people who believe we’ve lost too many U.S. jobs to them. Fixing everything overnight with our connection to China and its immense economy won’t be as easy as waving a magic wand.

Ironically enough, emerging markets were rattled more than any other asset class after Trump won the election. There was quite a bit of initial doom and gloom amplified with worries over protectionism. Even if emerging markets cool down we see this area attracting more inflows from investors who have sat out some of the rally. Lastly, even though emerging markets come with more volatility and some very real unknowns with Trump’s trade stances, they are still cheap relative to other equity asset classes.

Bonds and Alternatives

We view this area of the bracket much like basketball analysts may have looked at the Atlantic Coast Conference (ACC). For those not in the know…the ACC has traditionally been the best conference in basketball and this year looked like it would be no different with nine bids in the field of 68.

After another positive year in the stock market, there are plenty of experts who constantly expect the worst. With no shortage of worrisome news it’s natural to wait for the other shoe to drop and go to areas that are historically safer than stocks. Bonds in 2017, however, will most likely perform much like the ACC after the first week of the tournament. The ACC only has one team left with North Carolina still alive and we simply see a similar result potentially panning out within the Bonds & Alternative asset class.

Key Match-up:

#9 Powershares Commodity Index Tracking Fund (DBC) vs. #3 SPDR Capital Barclays High Yield Bond ETF (JNK)

While it’s wrong to completely negate any asset class…even if it’s predicted to be a loser, we couldn’t be more clear with our advice on being cautious with traditional bond weightings. This is not a “stay away” warning but what we’re driving at is that even if Bonds have an outstanding year, it’s highly unlikely that it will be anything north of 3% returns. Over a rolling 12 month period bonds have basically lost -2% and are flat year to date.

All that said, we suggest keeping your bond exposure at the lower end of your recommended allocation but do not abandon the entire asset class. For example: If your portfolio model dictates a 40% weighting towards bonds, our suggestion would be to tap the brakes down towards about 30%. You may now likely ask where should the proceeds get allocated to?

Our answer for this is towards solid dividend producing blue chips in the sectors we covered earlier and towards the one asset class almost every investor needs but has minimal exposure or idea on how to implement. We are still huge proponents of increasing exposure to Alternatives. We’ve touched on this numerous times and most recently in the last edition of our free newsletter, “the Guide”.

Commodities in particular have huge promise in 2017. After a terrible 2015 commodities just enjoyed their best year since 2010 and it shouldn’t surprise you that most of the “weak hands” (including professional advisors) were not able to enjoy those returns. We see gains extending into 2017 and would keep a particular eye on industrial metals and energy commodities outside of oil. Natural gas was the top performing commodity in this space last year and still looks to be one of the leaders.

Final Four Summary:

The fun part of producing this article each year is that it allows us to share some of our thoughts, strategies, and the investment themes we believe will likely play out in the months ahead. It’s all done with the caveat that we may only own a handful of the 48 investments listed on our bracket. Truth be told…most experts who pick stocks are no more successful than you would be doing the same job! The real winners are the ones who are able to pick enough stocks in the right areas and maintain the proper asset allocation relative to their investment goals.

Obviously every tournament (in the case of March Madness) only has one final winner. With this exercise, however, we are able to build an intelligent portfolio that will have a number of “winners” along with some stinkers. As an investor you actually have the opportunity every year to own multiple “teams” in different “regions” (asset classes).

Long story short, don’t fixate on the one stock that wins it all; take a look at the whole picture. Looking back at our bracket from last year we had the following in the 2016 Final Four:

(1) Lockheed Martin (LMT) +21.96%

(2) Merck Absolute Return Currency Fund (MABFX) +2.71%

(3) United States Cellular (USM) -13.61%

(4) Vanguard Emerging Markets Index (VWO) +16.51%

This is a small sample size but it serves our point perfectly; you end up with two winners, one loser, and one that was fairly flat.

Granted, investing intelligently is a bit more complex than this but the majority of people make it far more stressful and confusing than it ever needs to be. 2017 will bring you so many worrisome headlines that you will always be on edge. We inevitably will see at least one correction where the market dips more than -10% from its peak but by the time the ball drops in Times Square on New Years Eve…2017 will most likely end up positive again.

Always expect the unexpected but don’t be surprised if we end up with over +9% returns on the S&P 500 this year. Lastly, to be fair to our loyal clients and assure them that we don’t give away the “secret sauce” to all readers of “Dear Mr. Market”…there is one stock that didn’t make it to the Final Four but almost every one of our portfolios will own it in the next few weeks. There are never any guarantees on an investment but this is one where we’re putting our money where our mouth is!

If you’re curious to know which one it is and if it’s a fit for your portfolio…feel free to reach out to us! Otherwise…good luck in your own brackets and enjoy the rest of the Big Dance!

‘Twas the Day of the Election…Stock market rally or sell-off?


img_59101Dear Mr. Market:

It’s that time of year again….here comes the holidays. One of the most famous Christmas poems ever begins like this:

‘Twas the night before Christmas, when all thro’ the house

Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care,

In hopes that St. Nicholas soon would be there;

What if we changed a few words to reflect what Mr. Market will be thinking about instead of sugarplums and Christmas stockings? What is he thinking on Election Day?

‘Twas the day of the Election, when all through the nation

Every citizen was encouraged to get to a voting station;

Constant stories of Wikileaks and groping

Had every American and the stock market moping;

The media was franticly filling their time with endless chatter

All in hopes that our eyeballs would think a new President would matter;

Whether you’re liberal or conservative we all want a sound future for our girls and boys

As it relates to the stock market it simply prays for an end to this noise;

So goodnight to all and may you wake tomorrow

Knowing full well that some will be joyful and others in total sorrow.

We’ve obviously abbreviated our stock market poem to center on the real question so many investors have: Will this election result drive the markets higher or lower?

If you’ve studied the stock market long enough you’ll know that the one thing that makes it nervous is uncertainty. Prior to yesterday’s strong market rally, stocks logged a nine-day losing streak, which was the longest consecutive slump in 30 years. For months the market had baked in an almost guaranteed Clinton victory but with the advent of another FBI probe into her email practices, the possibility of Trump winning began to create uncertainty again and rattle the markets.

As we noted in the most recent edition of our newsletter, the Guide, we believe the way we search and interpret the news will have an impact in how weak hands play their cards at the table. In other words, if you came into this election as a hardcore fan of Trump or Clinton and the results don’t go your way, you will naturally be more inclined to think doom is lurking around the corner. The reality is that with the absolute circus and divisive lead-up that this election has brought us, we’re bound to see about half of the country in tears. Will that impact the stock market though?

Yes…of course it will, but not in the way you may expect. In the short-term you will see a fairly sharp rally or sell-off so your best play (if you’re a trader) would be to take advantage of the volatility. If Clinton wins you will see the markets bump up nicely but then flatten out towards year-end as the reality of four more years of similar economic policies get extended. If Trump wins, it’s our opinion that the market will sell off in a fairly sharp manner but that you’ll see a rebound that will negate much of that. Like him or not, one thing that his potential presidency would bring is change. Lastly, once the short-term effects are played out, the other main guarantee is that whoever wins will face political gridlock. (you can take that to the bank!)

Over the longer-term you will see Mr. Market adjust to what he is given. As alluded to previously, the one thing that will be alleviated is uncertainty. If your investment time horizon is longer than the end of this week, however, you should be allocated properly in advance of any unforeseen event. We’re currently positioned to take advantage of surprises we don’t know about but also very aware of the reality that the markets will eventually gravitate to focusing on actual economic growth or lack thereof.

We believe the market has pleasantly surprised most investors this year. Although we predicted a low to mid-single digit type year back in January…most of the investing world was on the other end of that spectrum. After steep corrections in late 2015 and the worst start to any year in history, it may have understandably been difficult to listen to our advice. So, what’s the advice now?

We’ve lowered exposure to both stocks and bonds as we wrap up this year. Many of our portfolios have at least 15% (and many upwards of 30%) allocated to assets that have low to zero correlation to the market.

Lastly…what if neither win? Albeit an unlikely scenario, there are some that want to hang on Trump’s vague allusion to “keeping the country in suspense” if he loses and doesn’t want to concede. In our opinion this was more of his brash and not too polished debate skills and there would be someone in his ear to settle down his ego with the reality of a loss.

i_voted_sticker-r9e8abad0ab5d4e9fbe7d9321b3b15060_v9waf_8byvr_324We’ll have a “winner” of some sort tomorrow and that will allow Mr. Market to digest what
he’s dealing with over the next four years. Give him some certainty, so get out and vote!

Cheers to a stock that beats the market and its peers!

Dear Mr. Market:

We find ourselves back in earnings season, which always brings several surprises with well-known stocks…both positive and negative. Analysts and the media will tempt investors to chase returns as quarterly earnings are dissected and trading ‘advice’ is thrown around like a hot dog vendor working the crowd at a baseball game.

Our world is currently swimming in uncertainty which pushes investors to hunt for stability and returns that will enable them to reach their financial goals. Imagine if there was a stock that has posted impressive returns in both up and down markets and all the while you most likely have been supporting it yourself without even realizing it!

Constellation Brands (NYSE: STZ) is an international beverage producer and marketer with operations in the U.S., Canada, Mexico, Australia, New Zealand and Italy. They own iconic brands like: Robert Mondavi, Svedka Vodka, Ballast Point, Corona and Modelo to name just a few. In total they currently have over 100 brands in their portfolio with sales in 100 countries, 40 facilities and approximately 9,000 employees. In 2015 Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Continue reading

Who does Mr. Market vote for…Donald Trump or Hillary Clinton?

Dear Mr. Market:

160323171742-hillary-clinton-donald-trump-investors-780x439How dare we put you on the spot like this?!? What an awful question! How will you (the stock market) react if Trump wins or if Hillary wins? By the way…as an aside….a great client of ours recently asked why everyone refers to Trump by his last name and Hillary by her first name. Why is that?

Depending on which side you’re on, this question may initially seem like simple semantics but it’s not. Are you “presidential” if you roll with a campaign based on your first name? Do you “feel the Bern” or did you “Trust in Ted”? Whether you’re a proponent of Hillary for President or Hillary for prison…it’s still Hillary. Where are we at America?

At My Portfolio Guide, the one thing we typically don’t shy away from is having a clear opinion. There are some great firms out there that simply can’t give you one! You’ll hear what you want to hear. They fear losing your “vote” or ruffling feathers. Yes…we understand that balance too, but as much as our job is about deciphering news versus noise…it does become important to take a stance. Continue reading

Q1 is in the books – how does the rest of 2016 look?

Dear Mr. Market:

2016 #3The first quarter is in the rear view mirror and what a wild ride it was! The stock market started the year with the worst first 10 days in history and we finally experienced a ‘textbook correction’ of over 10%. Perhaps the most shocking part is when it was all said and done, Mr. Market rallied in March to finish out Q1 just above break-even. Volatility like this is typically played out over a 12-month or longer cycle, not in one quarter.

The question that investors are currently asking is … how does the rest of 2016 play out? Turn on your television or open any printed material and you will quickly be overwhelmed with the various talking points. Just look at a few of the headlines that have popped up last week:

  • Housing starts declined -8.8% in March.
  • Auto sales fell at a -14.6% annual rate in Q1.
  • Business investments in equipment fell -8% the first three months of this year.
  • Large declines in military spending by the government in Q1 will add 0.1% percentage points to the real GDP.
  • Industrial production dropped -0.6% in March coming in below consensus of 0.1%.
  • Production of high-tech equipment increased +0.5% in March, up +2.1% versus a year ago.

These are real economic data points that have driven financial headlines over the last few weeks. In our opinion here’s what they mean (or don’t) and how we think the rest of 2016 will play out in plain English: Continue reading

What stock market volatility?!?


Dear Mr. Market:

How crazy has this market been? As always the stock market has been very volatile, right?

Not even close…. The stock market is essentially in a coma right now and you need to ignore whatever news source or preconceived notions that tell you otherwise. The irony is that some of the “smart money” could not have got the volatility prediction more wrong.

In January of this year Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute, predicted dramatic swings in many areas of the market. He summarized this sentiment by saying, “I don’t see this volatility going away anytime soon.” We’re not out to point fingers but it’s blanket statements and unaccountable predictions like this that paralyze people or simply clutter their investment strategies and overall mindsets.

We’re actually in an extremely low level of volatility. It’s been eight weeks since we’ve seen a move of at least 1% or more in the S&P 500 and that hasn’t happened in 21 years! We also just wrapped up the first half of 2015 and there wasn’t a gain or loss of 2% which marks the first time that has happened since 2005. (Click here to see 2015 volatility relative to recent years)

As the stock market inches higher it all comes without a healthy and much needed correction. As of this writing we haven’t had a correction (-10%) for 1,359 days! You can look to our previous articles on how often corrections and pullbacks should be occurring to put this flat environment into perspective.

As an investor you actually should be doing what we would call a “volatility rain dance”. Bring it on! You want volatility. If your long-term belief is that the economy will improve and inflation seems to remain very much in check, you want a pullback in the market in order to put some money to work. Cash sitting in a bank earning “zero point zilch” needs to work harder and smarter but without a material pullback in the market it makes it somewhat uninviting to deploy cash.

Low volatility doesn’t necessarily equate to the “quiet before the storm”…although it’s certainly easy to think that way. The market is not a weather system but rather it needs a catalyst to move strongly up or down. Unless we slip into a recession you can expect the stock market to meander along for a while. If we do indeed continue to trade in a range bound fashion don’t feel the urge to make changes just for the sake of it. Lastly, turn off your television because every sensational interview with an analyst needs to grab eyeballs and predicting low volatility doesn’t fall into that category…

March Madness: Final Four Investing Bracket 2015

basketball on cashWelcome to the fifth year of our March Madness Investing Bracket! This series of articles is always one of the most popular investing articles on the internet! We’re proud to admit that we were one of the first investing nerds to combine our love for the markets with the passion that college basketball brings!

It’s common knowledge that people love excitement and surprises. It’s also human nature to root for the underdog and many times those two themes can certainly play out on the basketball court as well as on the stock market floor. Much like two college basketball teams that never play each other our imaginations are swept up in wondering who will “win” between a relatively unknown investment or a popular stock that has the media in a frenzy.

You may be asking what does a basketball tournament have to do with managing your portfolio or the investment world in general? At first glance there might not be much but we thought we would have a little fun and couple it with some asset allocation parallels. After all, there are many folks who have simply thrown their hands in the air at one time or simply succumbed to the notion that investing is like educated gambling. There could be some truth to that depending on your approach…

For those of you that are not familiar with the NCAA and its annual basketball tournament there are 68 teams selected and each is seeded according to their results throughout the regular season and their relative rankings. Every March the NCAA holds a single elimination tournament to crown an undisputed champion. Part of the appeal of such a tournament is that theoretically any team that makes the “big dance” has a shot at winning it all. Each and every year there is a proverbial “Cinderella” team that surprises everyone including all the ‘so-called’ experts. Prior to the tournament there is always plenty of banter and opinion on who wasn’t invited or further arguments around the seeding of the teams that did make it. That’s where we see a parallel of sorts to investing and having to make decisions among the multitudes of investment choices. With so many investment choices available, there are also as many differing opinions.

In the “real” March Madness tournament this year there appears to be a hands down favorite with the undefeated Kentucky Wildcats. Hardly any office pool or basketball analyst is betting against such a heavily favored team. If they win it all it will be the first time in over 30 years that a team stays unbeaten the whole season. Our own version of this (using investment themes and choices) shares the premise that we have four very decent #1 seeds but there is no slam-dunk pick that everyone agrees on. For this reason, our 2015 bracket is perhaps as important as ever to understand that a dark horse could win it all…

Before we begin digging into each “region” of our bracket, let’s revisit something everyone claims they know but so very few actually follow with consistent discipline. (Asset Allocation)

If you have ever looked at a chart of all the different asset classes and how they perform year to year…there is rarely a pattern or consistent way to determine next years “winner”.

For the purposes our annual investing bracket we have “seeded” or ranked four major asset classes (like the regions) and chosen several individual picks within each. There is some basic science applied to this process. We consider how the “pick” did over the past 12 months and also how it has trended over the past three months. In some cases we gave a lower performing investment a higher seed if it was trending well with recent strength or was more consistent over a longer period of time.

Each asset class (Large Cap, Small Cap & Mid Cap, Bonds/Alternatives, and International) was ranked and seeded, then corresponding seeds were assigned to “picks” that we are either adding to the portfolio or establishing new positions in. Note that we’re not highlighting 68 new investments and will only discuss some investments that we are either actively involved in or looking to add to most portfolios.

OK…Let’s dig into some of the key match-ups and explain why our Final Four going into Q2 2015 looks the way it does (CLICK HERE to view our 2015 Bracket):

Large Cap

This is typically viewed as the ‘efficient’ asset class. Continue reading