Tag Archives: Asset allocation

March Madness: Final Four Investing Bracket 2015

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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 →

MPG Core Tactical 60/40: February 2015 Performance Update

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MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

For a guy who is usually full of surprises you’re scripting 2015 like a boring rerun of last year. As you’ll recall we had a rough start to the year with the S&P 500 dipping -3.1% in January but then February came around and erased all the negative returns for the year with a very strong month. As a matter of fact the S&P 500 had its best month in almost five years with a gain of +5.5%. The Nasdaq bubbled up (pun intended) even higher at +7%.

Everything is fine and dandy, right? The media is as giddy as they’ve been in ages. They’re showing us charts and comparisons of Nasdaq 5,000. Nothing could go wrong from here, could it? Is this another perfect backdrop for the four most dangerous words in investing?

“It’s different this time”. Continue reading →

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

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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

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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?

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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

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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 →

MPG Core Tactical 60/40: December 2014 Performance Update

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MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

We’re already two weeks into the New Year and want to make sure we wrapped up any loose ends with how you finished up 2014.

We finished up last month’s edition of the MPG Core Tactical Portfolio series by saying that oil prices could continue dropping to even under $50 per barrel. We’re not in the business of peering into a crystal ball and prognosticating, however this “prediction” was mentioned simply due to all the noise surrounding oil and its dramatic plunge. A multitude of experts began making statements that oil prices “are very near if not already at a bottom”. Mind you, this was just last month when oil finally dipped under $65 per barrel. The problem with these “experts” predicting bottoms (or anything for that matter)…is that not a single one knew that oil was near a top back in June or that it would fall as fast as it has. As of this writing oil has dipped again and now sits just under $45 per barrel!

What does about a 60% haircut in oil prices mean to the stock market? Simply put, the bulls believe that it is a positive for economic growth and is basically like a huge tax cut for consumers and therefore acts much like fiscal stimulus. The bears will opine that falling oil prices mean that the risks of global deflation are real and that the “kick the can down the road” mentality of a market that has been propped up for over five years is about to come to an ugly end. Continue reading →

Is the energy sector spOILing your portfolio?

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OIl#2Dear Mr. Market:

The price of oil has been dropping like a rock! On Monday (12/8/14) the price of oil hit a new five-year low at $63.05 per barrel; earlier this year it was trading at over $100. We haven’t seen prices this low since October 2009!   The press and media can’t stop talking about oil prices lately and that has many investors thinking that the sky is literally falling around them!

Many investors portfolios are over allocated to energy stocks as the sector has delivered impressive returns along with some very attractive yields the last several years. This decline is impacting many well-known energy stocks like: ConocoPhillips (COP), Exxon Mobil Corp. (XOM), Marathon Oil Corp. (MRO) and Chevron Corp. (CVX) as they are all posting negative returns this year and several of them are down -20% or more in the last 3 months alone.

The media is quick to point fingers as to who or what is to blame for causing this drastic price decline. When you look at both domestic and international factors it is challenging to figure out where to even start! Is OPEC (Organization of Petroleum Exporting Countries), ‘fracking’, shale production, simple supply/demand imbalances, global economies or countless other factors to blame? Our answer might actually surprise you… it doesn’t matter! Even if you knew what was causing this volatility, would it make the situation you currently find yourself in any better? This is the perfect example of a time when listening to the financial media will not help you or your decision-making; especially if you have too much exposure in the energy sector. Continue reading →

MPG Core Tactical 60/40: November 2014 Performance Update

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MW-BB798_sm6040_20130422180557_MDDear Mr. Market:

Are you scared of flying? Even if you’re a seasoned traveler and airplane turbulence never fazes you, there are certain flights that would get your attention. If the stock market behavior in October was an airplane flight you undoubtedly survived a violent voyage. It would make the month of November seem like the smoothest flight ever, although anyone in their right mind didn’t trust in a safe landing until the wheels actually touched the runway.

After October brought triple-digit moves for the Dow Jones in 16 of the 23 trading sessions, we only experienced one such day in the entire month of November. Even though the Fed announced the end of its bond-buying program, the markets yawned and continued to stretch out to new highs. Small caps were also on a tear for about six straight weeks until literally the last trading day of November and they ended up sputtering in for a negative month. Continue reading →

Avoid Holiday Stock Envy!

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holiday5

Dear Mr. Market:

The holiday season is upon us!  We will soon be spending time with friends and family at gatherings as we celebrate this time of year. Let’s take a moment to look at a conversation that commonly takes place this time of year:

John – “How are you doing? I heard you moved on to a new job a couple of months ago, how is that going?”

Jane – “I am great! Yes I did start a new job and am really excited about it, the company is doing great and I am excited about the future.”

John – “I’ve heard it’s a great place to work – their stock has been doing really well! How about the stock market this year, crazy huh?” 

Jane – “Their stock is amazing! It’s helped my portfolio a ton, I’ve also got a couple of stocks that got me back on track and might make retirement come much faster than I thought!”

John – “Really? I haven’t invested much in individual stocks. Do you do this yourself or have somebody that helps you out?”

Jane – “I read a lot and buy some newsletters but basically I do it myself.  It really isn’t that hard.”

John – “I just don’t have the time for that. What has worked out so well for you?”

Jane – “Well here are a couple of names you should look at that have been doing really well for me this year…”

And so the story goes… John writes a few stocks down on a cocktail napkin and puts it in his pocket with a smile as he thinks about the incredible growth his portfolio will soon experience. On Monday he signs into his online brokerage account and without doing any research or due diligence he buys large positions in 3 different stocks with the blind assumption that they will go nowhere but up…but do they?! Continue reading →