Dear Mr. Market:
You’ve been messing and toying with the brightest minds since 1792, when the New York Stock Exchange was created under a buttonwood tree on Wall Street. Your latest bull market run has as many investors as puzzled as it does nervous. The longer we go on without a stock market correction the potentially worse it will be when it eventually hits. At this point, it’s clearly not a matter of “if” but “when” it is coming. Continue reading
Dear Mr. Market:
You need to hear about another mutual fund like you need a new hole in your head. That being said, however, how about we talk about one that’s been around for a long time? They must be doing something well….right?
We’ve certainly not held back with our opinion in the past when it comes to mutual funds. While they certainly can warrant a spot in many portfolios, they need to be reviewed and compared carefully to their peers and other investment options. Today we are going to take an in-depth look at a fund we see in many portfolios but very few individuals actually understand what it is. The Fidelity Contrafund (FCNTX) is one of the largest actively managed equity mutual funds there is with assets just under $110 billion! Continue reading
Dear Mr. Market:
Whether you handle your portfolio or hire a professional to manage it, there is no way you have not heard of the importance of diversifying your investments. The reality is, however, most investors fall prey to one of three major diversification mistakes; which of the three is your issue?
First and foremost, let’s briefly review what diversification is:
Investopedia defines Diversification as: ‘A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.’
At first glance this makes sense and doesn’t appear to be complex, right? We find that investors typically appear to be in one of three different camps when it comes to diversification:
Let’s take a moment to look at each and how investors can get their portfolios back on track. Continue reading
Dear Mr. Market:
Where have you been? Whenever you get quiet like this it makes us even a bit more nervous.
Hopefully you didn’t succumb to the alluring sounds coming from those in the “bear camp” last month. If you were tempted to “sell in May and go away” it still just wasn’t meant to be. As cute and trendy as that old investment adage is, we must remind you that it doesn’t necessarily have a specific date in mind. Proponents of this theme merely imply that the summer months are the ones to avoid and if there ever was a month of May to make this move…it was now. Or was it?
Now that the “sell in May” adage looks flat out stupid, you can perhaps resort to a “June Swoon” for the eye candy headline of the day. After all, June is the 10th worst calendar month of the year. Since 1950 it’s basically been a flat month but more recent history points to June losing an average of -1.33% over the past 10 years.
It’s not so much the market or serious investors that love catchy phrases but it’s those that feed you the news who are the perpetrators. If this article were being written in November we would have many of the same concerns as we do now. Many of the catch phrases will be stale by then but in the interim…much like a broken clock tells time correctly twice a day…eventually the bears will be right. Contrarian investors will point to this immediate period as the market climbing the proverbial “wall of worry”… or is it now a “slope of hope”?
Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (June 9, 2014).
Click here to compare the MPG Core Tactical Portfolio against the 60/40 benchmark.
What adjustments did we make? Continue reading
Dear Mr. Market:
Technology is a bit like true love. You have to believe in it but it can also bite you in the ass.
Read through this article and you’ll see how this relates to a particular investment!
The technology Industry can be a challenging sector for investors. Perhaps the best way to describe it is with a popular saying … “the one constant is change itself.” Plenty of analysts and investment firms scour through stock ticker symbols looking for the next Apple (AAPL), Amazon (AMZN) or Google (GOOG).
We couldn’t help but notice the Motley Fool’s recent …shall we say, “stock pitch” about a company that could be your next homerun! If you’re a die-hard Apple fan, wouldn’t you like to know who their next HUGE inside supplier is? Rewind the clock and take for example the desktop computer or the cell phone you have within inches of your hand right now…
Put Apple, Sony or IBM on the shelf for a minute and think about investing in the next company that has a stake in every sale regardless of the brand you choose? In other words, buy the “chip” or technology that’s inside of each device instead of trying to figure out which phone or computer manufacturer is going to win the battle. Continue reading
Dear Mr. Market:
Unless you’ve never picked up a financial magazine or read the business section of any newspaper, you have undoubtedly heard of the old investment adage “Sell in May and go away”. Many financial “experts” and journalists do their best to paint the summer months as those that are primed to underperform. Does history always repeat itself in exactly the same way? Nope. It’s not hard to find investors who sold last spring (or even the one prior) in anticipation of a nasty summer and they are still in cash or underweight equities. If you’re in that boat and don’t trust the stock market, you may sleep better at night for now but in the interim you’ve lost opportunity cost and missed another bull market.
The flip side to this is that bearish investors will eventually be right! The S&P 500 has not had a correction of -10% or more since October 3, 2011. Like many investors out there we firmly believe a correction of -10% to -20% is coming this year but we don’t think it will be the start of a bear market. The challenge behind all of this, however, is that the longer we go without a healthy correction the deeper and more severe the inevitable sell-off will be. Continue reading
Dear Mr. Market:
Nobody likes traffic but it’s without question a part of our daily lives. Being stuck behind a long line of cars and seeing nothing but red taillights is even more aggravating when you are short on time and need to be somewhere soon. Many of us try to do whatever we can to avoid traffic; whether it be leaving earlier, taking side streets, carpooling, or relying on tools like GPS apps that show us the best routes to take. What does this have to do with investing? Everything…
If you haven’t yet learned or heard why the freeway is perhaps the most important analogy for the success of your portfolio…you need to commit this article to memory. Your local freeway can teach you why 90% of your portfolio’s performance is dependent on what lanes you choose to drive in and only 10% on how fast your car is.
Take for example, Interstate 405 in Los Angeles…which happens to be the busiest stretch of highway there is in the nation. Let’s say you need to get from Long Beach to LA in what normally takes about 30 minutes. You hop in your car and hit the fast lane and seem to be making great time averaging 65 mph. No sooner than about 10 minutes into your drive your lane comes to a screeching halt. After about almost a mile of grinding away at five mph you decide to switch into the lane to your right which is now flowing much faster. Almost within seconds of doing this, the lane you were just in passes you by! Your 30 minute trip to LA will now take you at least an hour and possibly more at this pace.
This simple but nightmarish traffic scenario happens daily to over 400,000 drivers along the 405 but it also absolutely ruins millions of portfolio every year! Pretend each lane of the freeway represents an asset class. (ex: Large Caps, Small Caps, International, and Bonds) On any given year one “lane” (or asset class) will lead the markets but the likelihood of it doing so the next is rare and if you look at historical returns there is no discernible pattern. CLICK HERE to review how asset classes have performed each year from 1994 to 2013:
One of the better examples of this is Emerging Markets in the early 2000’s.
The BRIC’s (Brazil, Russia, India, and China) were all the rage from 2003 until 2007. Hardly any investors had the courage to step in until late 2007 because they were still licking their wounds from the “dot com” crash. Many people hid in cash or gravitated to Bonds which turned in a +10.26% year in 2002.
Over the next four years Bonds Continue reading
Dear Mr. Market:
Last week I had lunch with an old colleague of mine. It’s always good to catch up with others in the same profession but sometimes it also truly helps you understand why so many consumers are confused. Here’s a brief background and then a summary of an actual conversation between two financial advisors:
Both financial advisors began their careers working for major wirehouse firms (think Morgan Stanley, Prudential, UBS, Smith Barney, etc…). They each then worked at Charles Schwab as part of the Retail Branch Network and Schwab Private Client (SPC) group. Thereafter, Advisor #1 (who we will call Fee-Based Advisor) left Schwab to join one of the advisors that is in their Schwab Advisor Network program. This is a network that has made certain firms wildly successful as Charles Schwab branch representatives get compensated to vector investors and Schwab account holders to meet with advisors who pay to be in their program. Advisor #2 (who we will call Fee-Only Advisor) is not part of any network and is not affiliated with any brokerage firm, mutual fund company, or insurance company. “Fee-Only Advisor” is a Registered Investment Advisor (RIA).
Fee-Based Advisor: So…how are things out there?
Fee-Only Advisor: Good…I keep plugging away but sometimes it’s frustrating to see how undereducated the general public is about this industry. Continue reading
Dear Mr. Market:
The markets are constantly moving from one headline to the next – some of them having a profound impact on the markets. Last Sunday night “60 Minutes” aired a topic that has been lurking in the shadows for years, suddenly it jumped up and grabbed headlines raising concerns and paranoia with investors. High Frequency Trading (HFT) has dominated headlines over the last week prompting a federal investigation and hours of debate.
Michael Lewis, author of “Flash Boys”, has been on a publicity tour claiming the U.S. Stock Market is ‘rigged’. Is the average investor at a disadvantage, on the outside looking in at the security exchanges? This week we encourage you to view a letter being sent to our clients and friends of the firm (High Frequency Trading letter) Continue reading
Dear Mr. Market:
March has turned in another month of stubborn market defiance as the investment world is waiting for a correction yet it never seems to come or fully develop! It’s without question that many of the warning signs continue to lurk below the surface but the S&P 500 has still managed to tack on about another +1%. Year to date we’re just about 1% of where we started 2014 but it sure feels uncomfortable for many.
If this is your first time reading about our MPG Core Tactical Portfolio please refer back to our first post. (click here) In short you will see what adjustments we make throughout the year on a $1 million dollar portfolio and how that performs relative to a portfolio that is rebalanced once per month with an allocation of 60% Stocks and 40% Bonds. Continue reading
Dear Mr. Market: 