Tag Archives: Wall Street

Windhaven Portfolios: Is Schwab just blowing hot air?

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Dear Mr. Market:

The investment industry is notorious for not being transparent with investors.  The industry tends to be a shade of grey as opposed to being black and white. There are often hidden agendas or conflicts of interest that the average investor is never aware of or informed about.  Think back to some of the situations that have negatively impacted investors in just the last few years: Bernie Madoff, Insider Trading, the Mortgage Industry debacle and the meltdown of Enron!  Conflict of interest is essentially why the Sarbanes-Oxley Act is now in existence.

Conflict of Interest – Occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation. (from Wikipedia).

WindhavenToday we will take a look at an investment firm that has had incredible growth over the last several years: Windhaven Investments.

schwabIn 2010 Charles Schwab & Company (SCHW) purchased a small investment advisory firm in Boston named Winward Investments.  The firm’s strategies had posted impressive results for several years and didn’t use the industry standard ‘buy and hold’ type of approach.  They used primarily ETF’s (Exchange Traded Funds) and claim to invest in over 40 different sectors, participating in positive markets and protecting in downturns.  Schwab paid a hefty price for the firm, paying $150 million in cash and stock (source: WSJ). Continue reading →

How Should your Portfolio be Performing now?

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outside boxDear Mr. Market:

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 →

How to Add 3 Nobel Prizes to your Portfolio

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nerd money Dear Mr. Market:

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 were 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 →

Sorry Mutual Fund: You’re Fired!

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always done it that wayDear Mr. Market:

It has been said that eight of the most expensive words in the business world are: “Because we have always done it that way!”  How often have we heard these words in our personal or professional life?  Where would we be as a country if we embraced this phrase?  Isn’t it safe to say life as we know it would not be the same if generations before us didn’t challenge the norm and truly “think outside the box”?

For decades Wall Street has fought change and attempted to maintain a shroud of secrecy with investors.  Mr. Market has become very skilled at pushing aside information and research that questions the norm and in many cases proves him completely wrong.  In this article we will look at some facts and figures that simply can’t be argued with or twisted into something that they are not.  If you are an investor who owns any mutual funds you need to read this! Continue reading →

Looking Under the Hood of your Company Retirement Plan

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Dear Mr. Market:

401k under the hoodIf you ask any hard working American what their goal is the answer will usually have something to do with retirement.  While this common goal should be attainable through focus and discipline the market has certainly thrown its fair share of setbacks at investors.  For most Americans their home is their largest asset, and second is their retirement plan (401(k), 403(b), Simple IRA, SEP IRA, etc).  You have a limited amount of control over the value of your home but how can you manage and monitor your retirement plan to help make your retirement goals a reality?  In this article we will take a step back to the basics and look at factors that will have a profound impact on the performance of your retirement accounts and what you can do to control them.

Last fall legislation was passed requiring 401(k) providers to completely disclose their entire fee structure to participants. Investors will now be able to see what fees are associated with the various funds in the plan and what they are paying to participate in their employer’s retirement plan. According to CNN Money, a working couple will see nearly a third of their investment reduced by these fees over their careers– that amounts to nearly $155,000!! Schwab reported that nearly 30% of investors had absolutely no idea that they paid any fees for their retirement plan. Continue reading →

Is Jim Cramer Really Your Financial Advisor?

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Unknown-8Dear Mr. Market:

Many investors have made fortunes off you and others have of course lost their shirts. There is another tranche of folks that we want to bring to your attention and that is about the people who have made money regardless of how well they predicted your next move; let’s talk about the entertainers that you keep in business.

Anytime someone has made millions of dollars from investing we’re going to at least listen and try to learn what they’re all about. In the case of Jim Cramer, however, he’s made his money from Continue reading →

Are you really looking for horrible investment advice?

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Dear Mr. Market,

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!”

pay performance

 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 →

Why You Might want to “Sell in May and go Away”…in April

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Sell in May and Go Away?

Dear Mr. Market:

Are you finally about to let off some steam and come back down? Everybody has been talking about this market correction but until last week you’ve been awfully stubborn and just keep inching higher. It’s now April 8th, so albeit a few weeks early, can we at least ask you about this whole “Sell in May and Go Away” concept?

For those that may not be aware of the old Wall Street adage, “sell in May and go away”, it is a belief that the market performs better in the months of November to April. Those that follow this strategy ideally sell their stocks in May and stay in cash until about Halloween. Does this have any merit? We wrote about this last year and wondered if it was once again data mining and essentially a statistical fluke. Analysis by Ben Bouman and Sven Jacobsen (2002) actually confirmed about 10% percentage points of stronger performance in 36 of the 37 markets they studied for the November-April time period. These results were more pronounced in the European economies. Other studies also point to the Dow Jones averaging about a gain of 7.5% in the Winter months while the Summer months lost 0.1%.

There are a number of factors on why this trend seems to have been fairly reliable dating all the way back to 1950. Year-end bonuses and the proverbial “Santa Claus rally” can sometimes help bump the markets up in the Winter months. Barring any unexpected negative catalyst and a typically mild Spring, the “summer doldrums” set in after all the first-quarter results are announced. Like it or not the extensive media coverage can really amplify an earnings miss or a hit and it’s not inconceivable to see a company drop or rise by 20% during this time. Today will bring us Alcoa Inc.’s results and officially kick off the earnings season. Continue reading →