May Gray turns into June Gloom

 

Dear Mr. Market:Unknown-3

We have discussed many times how emotionally driven you are. On some days you tempt us with your record setting high wire acts and on others we have our lips virtually wrapped around the barrel of a gun in desperation; the stock market is a wicked playground.

We don’t believe that computers or sophisticated investment algorithms can completely mitigate the perils of the stock market or protect everyone from getting out of their own way, but it can at least be used as a starting point. My Portfolio Guide relies on some very unique tools that assess the stock market each month with a fresh set of eyes. While our method of “reading the tea leaves” is not necessarily a crystal ball, it’s definitely not what most investment advisors use….which is the rear view mirror. Sadly enough, many investment advisors are just like you…they’re human and they chase recent returns and mistakenly look back in history as to what has done well. While this method of analysis is the easiest to sell clients (and themselves) it’s not as effective as taking a completely fresh look at what is happening right now and how that is statistically likely to play out in the near-term. Continue reading

There’s no YOU in UIT (Unit Investment Trust)

UIT CartoonDear Mr. Market:

Have you ever bought a product or service and afterwards felt like you had been taken to the cleaners? Consumers look for superior products and they also want a great deal. Imagine buying a top of the line computer only to find out that you need to buy another one every year or two and to top of it off you have to pay a commission to the salesperson each time…who would possibly want that scenario?!

It might be a very nice computer but at what point do you question your purchase and stop the sales/commission cycle? As we’ve discussed in several of our letters to Mr. Market the financial services industry is littered with products and services that do little for the individual investor but benefit companies and commission driven brokers by lining their pockets. We’ve covered annuities, life insurance products and loaded mutual funds, but today we will look at a product that is making a come back after declining in popularity over the last few years….Unit Investment Trusts or UITs.

The name itself sounds a bit intimidating but the product itself is fairly simple and easy to understand. Essentially a UIT is a fixed unmanaged portfolio with a set maturity in the future (usually one to two years). They are comprised of equities, bonds or a combination of the two with a focus on broad market, specific strategies or sometimes sector specific. At first glance they appear very similar to a mutual fund or ETF (Exchange Traded Fund) but when you pull back the covers the differences are glaring.  Continue reading

MPG Core Tactical 60/40: February 2015 Performance Update

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?

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

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

MPG Core Tactical 60/40: November 2014 Performance Update

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

Experts and Amateurs are Wrong on REITs

REIT2Dear Mr. Market:

Well look at you! You’ve done it again…. haven’t you, Mr. Market? On countless past occasions you’ve managed to fool not only the average emotionally driven investor but also the seasoned professional. Now you’re doing it again with an area of the market that has fooled everyone; not just this year but for decades!

Investing in real estate may not seem like something you need to do within your standard “stock and bond” portfolio. Some may argue that your house is enough exposure to real estate and for most individuals it’s their largest investment so it should suffice. Your home is actually considered a “consumption good” instead of a pure investment. Although it’s likely to appreciate over time you will not receive income from it, it most likely has a mortgage attached to it, and if you need to sell 10% of it tomorrow you’re out of luck. Additionally there are many areas within real estate aside from what’s happening on your residential street. Commercial real estate, for example, makes up about 13% of the U.S. economy.

In 2013 almost every expert pounded the table and made intelligent sounding comments calling for investors to reduce exposure to REITs. These words of caution came after it was first announced the Fed would slow down its bond-buying program (Quantitative Easing). Conventional wisdom tells us that when interest rates rise REITs (and other asset classes like Bonds) won’t perform well. Unfortunately most of these comments came after the fact and REIT investors were hit hard in May of 2013. Those who listened to the stale news proceeded to sell their REITs as that “wasn’t the place to be”. Continue reading