Tag Archives: American Association of Individual Investors

Bill Gross leaves PIMCO…Should you sell your funds?

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Pimco1Dear Mr. Market:

They say all news gets priced into the stock market. Proponents of the Efficient Market Theory believe that there is “perfect information” in the stock market. Any information or insight that is available is there for all to see therefore negating any possible edge in beating the market. All that being said, no matter how clear your crystal ball is, nobody expected the shocking news we received on Friday.

Bill Gross, the co-founder of Pacific Investment Management (PIMCO) in Newport Beach, quit and packed his bags to join Janus Capital this past Friday. Gross has long been known as the “King of Bonds” and considered to be the nation’s most prominent bond investor. Until last year he was responsible for managing the largest mutual fund in the world – the PIMCO Total Return Bond Fund (PTTRX). That title now goes to the Vanguard Total Stock Market Index but PTTRX is still the world’s largest bond mutual fund. So…what happened here and was the writing on the wall?

As alluded to above PTTRX, and PIMCO in general, has been suffering for quite some time. PIMCO isn’t the only bond fund manager who has struggled with outflows but the sheer volume has opened some eyes. From May to August of 2014 PIMCO has had over $70 billion in assets liquidated and withdrawn. Over the past 72 hours (only 1 trading day including the weekend) the firm has already seen $10 billion bolt for the door! Continue reading →

Is Financial Engines right for you?

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financial enginesDear Mr. Market:

If you were asked to list two or three of the largest Registered Investment Advisory (RIA) firms in the country which ones would come to mind first? You’d definitely hear many of the names associated with Wall Street and the investment industry. Names like: Merrill Lynch, Charles Schwab, Fidelity and Wells Fargo – while these are certainly large firms none of them are RIA’s. We’ve written on several occasions what an RIA is and how they are driven by their fiduciary responsibility to their clients. A simple online search of RIA’s will show that the largest firm is nearly 40% larger than any its closest competitor. It specializes in assisting individuals in managing their company retirement accounts and has become a behemoth in the investment industry. Financial Engines, Inc. has risen out of relative obscurity and is quickly becoming a household name.

Financial Engines is based out of Sunnyvale, CA, is publicly traded under the ticker symbol FNGN, and currently manages over $90 billion in assets! To put this in perspective the second largest RIA firm is Fisher Investments with assets under management of just over $50 billion. Fisher Investments is a marketing machine and if you have a portfolio over $500,000 in value, you’ve most likely received one of their post card mailings or solicitation emails.

Financial Engines, on the other hand, is a relatively young company and is the creation of some of the brightest minds in the industry that made their mark in the late 1990’s. The founders of the firm are Nobel Prize winning economist William Sharpe, Stanford Law Professor Joseph Grundfest, Attorney Craig Johnson and Jeff Maggioncalda. While the firm went through some minor growing pains, they have certainly found their target market – working with individuals and managing the investments in their company retirement plans. Continue reading →

Dividend Investing … are you chasing yields?

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Chasing DividendsDear Mr. Market:

With interest rates at rock bottom levels many investors have gravitated to dividend yielding stocks over the last several years. Money markets, certificates of deposit and bonds simply are not delivering the rates that investors are looking for or have come to expect. It has left investors looking for other options to generate the income that they are counting on but what are the long-term ramifications? Are investors chasing yields with the risk of digging themselves into a deeper hole? What should investors look for and how can they manage their portfolios effectively?

It doesn’t take much effort to find a laundry list of stocks with very attractive yields. In fact if you simply run a screener on Google it will return a list of nearly 100 stocks that offer a yield of 10% or more! With the stock market continuing its upward trend investors have been moving to these stocks chasing the yields with little attention being paid to the underlying stock and the associated risks.

Before we jump into specific companies and industries let’s make sure we are all on the same page and understand what dividends are. Continue reading →

Alibaba – The next hot stock?

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Alibaba with chineseDear Mr. Market:

Every investor is looking for the next opportunity that looks like a ‘sure thing’. Throughout 2014 we’ve seen a plethora of IPO’s hit the market with the majority of them being well received. Currently there is a giant lurking out there and the markets have been licking their chops waiting to get a piece of it.   The stock is a behemoth based in China…Alibaba (anticipated to be listed as BABA).

Wall Street is expecting the IPO to hit the market sometime after the Labor Day holiday and this could certainly be an early Christmas present for the markets if it lives up to the anticipation. We have not seen hype like this surrounding a potential IPO since the dot-com era of the late 1990’s. Before you rush out in an attempt to participate in the IPO or buy through the open market, lets take a look at Alibaba to see if it warrants a position in your portfolio….

Summary:

It is challenging for the average U.S. investor to understand how large and diversified Alibaba is. Essentially Alibaba is: Amazon, eBay, PayPal, Cloud Services and much more wrapped up in one company. It has the fastest growing online commerce market in the world, last year it had transactions that totaled just under $250 billion! That is more than eBay (EBAY) and Amazon (AMZN) combined. To truly put the size of Alibaba in perspective let’s break down its largest components: Continue reading →

Are you allowing the “tax tail” to wag the “investment dog”?

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Dear Mr. Market:Tax tail dog 1

Not only do you toy with the emotions of every investor; you also have a partner that often surprises them and hits investors where it hurts the most… their pocketbook. Making money in the stock market is great but so many forget that eventually they have to reconcile with Uncle Sam come tax time. Look for example at some investments that we have recently discussed: Under Armour (UA) and InvenSense (INVN).   If you had purchased these stocks on the first trading day of this year (1/2/2014) you would be up 58% with Under Armour and up 20% with InvenSense. These numbers are impressive and would certainly make any investor happy but what happens when they are sold? How will they impact your tax return and how much of the gain will you have to pay?

“Nothing is certain except death and taxes.”

                            – Benjamin Franklin 

*** Before we move any further in this discussion it is important to note that we are not tax advisors. In this article we will be discussing general guidelines. Every investor’s situation is unique and deserves personal attention. If you have questions we would encourage you to talk with a qualified tax professional.

Let’s take a moment to go over some of the basics when it comes to investor tax issues. Continue reading →

Here comes the stock market correction…What should you do?

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Unknown-61Dear 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 →

Under Armour (UA) – Buy, Sell or Hold?

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ua1Dear Mr. Market –

Throughout 2014 consumers have proven that they can be extremely fickle, looking for superior products at the best possible price. They have been very selective how they spend their hard-earned money forcing companies to be both creative and resourceful. When looking at consumer discretionary companies returns have been all over the board, separating the contenders from the pretenders. For a company to be successful they must provide a superior product with quality service at a competitive price. When it comes to the sporting goods/apparel industry there is a relatively young company that has emerged as a leader and is playing ball with the big boys.

Under Armour (UA) has burst onto the sports/fitness industry scene over the last decade. With bold marketing and innovative products they have become a force and have caught investors attention. UA is up over 34% YTD and has left many of its competitors in the dust: Nike (NKE, YTD =-1.87%), Lululemon Athletica Inc. (LULU, YTD = -33%), Adidas (ADDYY, YTD = -24%) and Columbia Sportswear (COLM, YTD = +3%). With impressive numbers like this investors are forced to ask themselves if the stock still has positive upside or if it is too late to take a position? Continue reading →

3 Common Diversification Mistakes

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Dear Mr. Market:Diversification 2

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:

  1. Under Diversification
  2. Improper Diversification
  3. Over Diversification

Let’s take a moment to look at each and how investors can get their portfolios back on track. Continue reading →

What is the difference between Fee-Only and Fee-Based advisors?

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Compensation #3Dear 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 →

Update: March Madness: Final Four Investing Bracket 2014

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March MadnessThe 2014 NCAA Basketball Tournament certainly had an eventful weekend!  52 games have been played across the country with 5 of them going into overtime. The $1 Billion that Warren Buffet offered to anyone that had a perfect bracket is now a distant memory. Every year there are plenty of surprises and this year has been no different:

  • 3 of the 4 teams that were seeded as #12 in their brackets posted wins over teams seeded #5! The one team that lost was beaten by only 3 points in overtime!
  • #1 seed and ‘media darling’ Wichita State lost to #8 Kentucky in the 2nd round.
  • The 2 longest winning streaks in the country have both come to an abrupt end – Wichita State with 35 and S.F. Austin with 29.

 Here are some other mind boggling numbers to take into consideration with the NCAA Tournament:

  • The odds of winning Buffet’s $1 Billion prize was 1 in 4,294,967,296!
  • It is estimated that Vegas takes in over $100 Million from bets on the NCAA Tournament – experts think this represents only 4% of all the money wagered on games!
  • The NCAA tournament costs businesses $1.7 Billion in lost productivity during the month of March.

Continue reading →