Wall Street is notorious for putting analysts (or any individual) on a pedestal when they make a prediction that happens to be correct. As quickly as their ‘celebrity status’ is awarded it is often just as quickly taken away! The recent downfall of Meredith Whitney offers a lesson that everyone can learn from.
Whitney was awarded her ‘star status’ the fall of 2007 when she made a bearish prediction on Citigroup (C) as an analyst at Oppenheimer. Shortly after she made her call the stock tumbled and the CEO, Charles Swift, resigned. She was credited with predicting the financial crisis that followed in 2008 and became a regular with the business media. With her ‘celebrity status’ she resigned from Oppenheimer in 2009 to form her own firm focused on research and hedge fund management.
It did not take long for her shining star to become tarnished as she missed on several predictions that Wall Street followed her on. She called for municipal bonds around the country to default in 2010 and then in 2013 for the central U.S. to flourish economically while both coasts would struggle. Neither came anywhere close to becoming a reality and Whitney found herself struggling to regain the notoriety that she once enjoyed. Most recently she launched a hedge fund in 2013 that she shut down just last month. Continue reading →
October is historically one of your stormier months and it looks like you began to rumble a month or so early this year. We’re headed into the last quarter of the year but in case you’ve missed why we’re running a series of articles around the topic of a “60/40 benchmark”, here’s a refresher:
Click here to revisit the first edition of the MPG Core Tactical 60/40 Portfolio.
Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (October 6, 2014).
It’s finally happening. Yes…it appears the stock market is correcting. As a matter of fact for the second time this year alone the Small Cap asset class has endured a correction of -10% or more. What’s puzzling (and actually quite worrisome) is the divergence between what Large Caps and what Small Caps are doing. In a healthy and rising stock market, “as the tide rises so do all the boats”. We’ve had warnings before but the alarm bells are ringing louder since not all asset classes are moving in tandem as they once were. What we’re seeing now are perhaps the final signs of the rally peaking out.
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 →
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 →
With one of the strongest stock market years on record many mutual fund investors will end the holiday season by unwrapping a lump of coal. In January most mutual fund companies and the IRS (Internal Revenue Service) will mail out Form 1099-DIV. 2013 will bring mutual fund investors capital gains distributions ranging from 6% to 60%. It’s no secret that we’re not fans of most mutual funds and capital gains distributions are just one more reason. Today we will take a moment to address an issue that every investor (especially mutual fund investors) needs to be aware of – Capital Gains Distributions.
Capital Gains Distribution – The payment of proceeds prompted by a fund manager’s liquidation of underlying stocks and securities in a mutual fund. Capital gains distribution occurs when a mutual fund manager liquidates underlying positions that have made gains since they were added to the fund. Capital gains distributions will be taxed as capital gains to the person receiving the distribution. (Source – Investopedia.com)
When a mutual fund sells any position at a profit it creates a capital gain, these can be either short-term or long-term. By law mutual fund companies are required to distribute these gains to all of their shareholders. If the position was held for less than a year it will be considered short-term. These are distributed to shareholder as income dividends and taxed at their ordinary income rates. Long-term capital gain distributions (over one year) are taxed as follows: 0% for taxpayers in the 10% and 15% tax brackets, 20% for individuals in the 39.6% bracket and 15% for all others. The key thing to remember when looking at mutual funds is that the investor has absolutely no say as to when positions are purchased or sold within the fund and the taxable consequences that are incurred. Continue reading →
How is my portfolio doing this year? Am I on track for retirement? Why is the market up big but I’m not? What would my portfolio look like if the market tanked again like it did in 2008? I’m in cash right now because I feel stocks have moved too high but I don’t trust bonds because we all know where they’re headed.
These are some common and very typical questions many investors are asking themselves this year. If any one of these questions applies to you or feels familiar, don’t think you’re alone! One common thread among all these questions or concerns is benchmarking. What exactly is a benchmark and which one is appropriate for you?
Far too often investors compare themselves to other investors, strategies or benchmarks that are completely unrealistic. Investors need to take the time to truly understand who they are and what their goals are before they compare themselves to anyone or anything! Let’s put this in perspective…. Let’s say you decided you wanted to start swimming to get in shape. Would you expect to get in the pool and swim times comparable to Michael Phelps (winner of 22 Olympic medals) within a couple of weeks? Of course not… that would be ludicrous and clearly not the right athlete to try and compare yourself to! As crazy as this sounds many investors have similar expectations with their investment portfolio. Continue reading →
What if you, the investor, had all the knowledge and findings that it took to win a Nobel Prize in Economics? Would you be a better investor? Believe it or not…with the amount of news disseminated in today’s hyper-information and “data dumping” world…you likely already have all it takes to be a more disciplined and well schooled investor.
This past Monday (10/14/2013) the winners of the prestigious Nobel Prize for Economics where announced. All three winners were American, which marks a trend as at least one American has won the award since 1999. The winners: Eugene Fama, Lars Peter Hansen and Robert Shiller were recognized for their outstanding research and work in the financial markets. While their work does not perfectly align there are several similarities and the bottom line is that you can never trust Mr. Market!
Summary Of The Winners:
Eugene Fama’s research has revealed the efficiency of financial markets. If you’re a financial advisor who makes a living pitching expensive mutual funds or annuity products at clients you won’t likely have a framed portrait of Dr. Fama in your plush office. Fama basically states that the market absorbs information so quickly that investors simply can’t outperform it consistently. He is credited for popularizing the use of index funds as an investment option.
Lars Peter Hansen works strictly with data (econometrics), creating statistical models in an effort to test competing theories. His work has allowed researchers to focus on what truly drives the financial markets. Of the three winners Hansen is the least known and popular but he ironically helps connect the other two winners’ work into something investors need to be aware of; you simply need to derive conclusions from what you do AND do not know.
Robert Shiller is best known for creating the Case-Shiller Home Price Index Study and now perhaps for the fact that he is married to Janet Yellen, the next Federal Reserve Chairman. We’re huge fans of behavioral finance so the next time you hear someone talk about a “bubble” you will know who originally broke ground on the concept. His research has shown that investors are irrational and that markets develop bubbles that will eventually burst (he predicted both the Tech and Real Estate Bubbles). Continue reading →
How great would it be to have a job where you could constantly deliver results short of expectations and never have to worry about being fired? What if you could always simply blame your lack of performance on random external forces or global events? Imagine if you had a yearly performance review that went something like this…
“You missed your target goals by 28% and were wrong more often than you were right! Nice work, we are going to give you a bonus and a 10% raise!”
This doesn’t happen in the real world…or does it?! The financial services industry has become notorious for overpaying executives even when the company itself is struggling to survive or is even on the verge of declaring bankruptcy. For example, Richard Fuld of Lehman Brothers was one of the 25 best-paid CEO’s for eight years straight – right up until his firm collapsed in 2008. It has been called ‘”the largest bankruptcy in history”; it triggered a chain reaction that produced the worst financial crisis and economic downturn in 70 years! What about professionals in the financial industry that consistently underperform but are not at risk of losing their jobs? Continue reading →
Today we’re going to talk all about you and how you whipsaw investors into panic with stock market corrections. What exactly is a correction anyway?
To some this sounds like a simple question; to others, and judging on how they act with their investing decisions, it’s clearly not.
By definition a bear market is one that has stock prices falling by 20% or more and lasts for at least two months. A stock market correction is much shorter and is typically fast in nature. Corrections often come on the heels of investor pessimism or after a bearish story that later is found to be a relatively meaningless event. In other words, corrections bring a whole different sort of emotion to the game than a bear market.
How is it that through both bull and bear markets you are constantly able to create new products and services that entice investors to take on risk beyond what they need in their investment portfolios? Time after time we’ve seen investors rush to get involved in the next great investment opportunity. Just looking at the last few years alone we’ve seen the Facebook IPO, Leveraged ETF’s, Day Trading, Managed Futures… and the list goes on and on. Most recently we’ve seen a new “currency” hit the headlines and attract investors … Bitcoins.
This new digital currency has caught plenty of media attention with the price hitting extreme highs and lows. Just in the last two weeks Bitcoins were worth as much as $260 a piece and then within days they dropped down to $100 a piece. This decentralized digital currency allows for exchange without any regulations or protection. It is based on an online programming code written by a group or an individual that operate under the name “Satoshi Nakamoto”. If that doesn’t make individuals feel secure then knowing that they can never hold these ‘coins’ in their hands but instead can hold them in their online digital wallet definitely should! Continue reading →