Thursday, December 30, 2010

Having an Advisor Who is Ahead of the Game

Why Is The Stock Market Continuing To Climb?
Financial markets have an annoying tendency to reach overvalued or undervalued conditions that can continue for several years prior to reaching a critical turning point. On a short-term basis, the stock market has been called a "voting machine," driven by either "greed" or "fear" as the source of direction. On a long-term basis, the stock market is considered to operate as a "weighing machine." In other words, the weight of the evidence of true valuation will eventually overtake the herd mentality of the voting machine. Recent examples include:

1. The Tech Bubble of 2000-2002

2. The Real Estate Bubble of 2008-2009

3. The current 2009-? "Artificial Stimulus" Bubble, where stocks are rocketing upward. I believe that this current rocket does not have adequate fuel to pierce through the atmosphere and will likely, run out and come crashing down to earth instead.

Feelings About 2011
As we entered 2010, I was on record stating many concerns that influenced how aggressive (or not) I have been in WFG portfolios that allow me the discretion to alter the allocation to stocks. I appear to have been early. That said, I have not changed my opinion and based upon the current economic landscape and stock market levelsm I am equally concerned as we enter 2011.

The Punishment For Being Ahead of the Game--But Right Nonetheless
In the past, investors have severely punished financial advisors who were perceived as too cautious as stocks and real estate kept growing towards the moon.

eremy Grantham Example
His world-class investment firm had its assets under management shrink 45 percent in the late 1990s as his pessimistic outlook for high-priced technology stocks spurred clients to buy better-performing mutual funds.
While ultimately being right, like all humans, he was unable to predict with precision the exact date that the earth would stand still. The 49 percent plunge in the S&P 500 from March 2000 to October 2002 proved Grantham, 72, was right to warn of overvalued U.S. shares.

The Herd is Overweight Emerging Markets
Investment strategists at Bank of America Corp., Credit Suisse Group AG and Societe Generale SA have all said in the past month that emerging-market stocks may climb above levels justified by companies’ assets and earnings because of surging economic growth and the Fed’s efforts to reduce yields on debt securities.

Investors poured more than $60 billion into emerging-market stock mutual funds in 2010. Professional investors are more bullish on emerging markets than any region, according to a Bank of America survey last month.

“Everyone and his dog are now overweight emerging equities, and most stated intentions are to go higher and higher,” Grantham, who helps oversee about $104 billion, wrote in his quarterly letter to clients posted on the firm’s Website. Developing nations’ faster expansion “will give a powerful impression of greater value,” he said.

Valuations are the “most stretched” in emerging markets, making them vulnerable to a selloff should global growth disappoint investors, Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura International Plc, said in a Bloomberg Television interview on Oct. 27.

Stocks, bonds and currencies in developing nations are likely to climb to bubble levels as the Fed has rolled out another round of bond purchases, Michael Hartnett, Bank of America’s chief global equity strategist, wrote in an Oct. 21 report.

Credit Suisse’s London-based global equity strategist Andrew Garthwaite says the combination of high savings rates, negative real interest rates and rising asset prices has made emerging-market countries including China and India vulnerable to speculative inflows.

“If ever the stage were set for an emerging market bubble, we think it is now,” Garthwaite wrote in an Oct. 27 research report.


“The headache posed by bubbles depends on the asset managers’ perspective,” wrote Grice. “For skeptics, the pain is on the way up; for true believers, it’s on the way down.”

I am still more comfortable at this juncture accepting the "pain of being early" vs. not safeguarding our client's wealth from what I believe is another bubble brewing.

Savannah Film Festival Review Summary

Below are my reviews of the movies I saw at the Savannah Film Festival this fall, followed by some additional comments.

Reg: Regular Hollywood movie with big budget.
Ind: Independent film with low budget.







Black Swan



Natalie Portman



The Conspirator


True story

Lincoln Assassination



Redford movie filmed in Savannah

Beneath Hill 60


True story WW I



A must see movie

Nice Guy Johnny


Modern day “The Graduate"

Ed Burns and unknowns


Very funny!



Documentary about people who turn cars into art



Very interesting

Night Catches Us


Objective story about the Black Panthers

Actor from the

Hurt Locker


Very informing

You Don’t Know Jack


The true story of Jack Kevorkian

Al Pacino, John Goodman, Brenda Vaccaro


Very good

Don’t Go Into The Woods


Slasher/Musical about teenagers



Very funny for a certain audience

The Kid


True story of boy that grew up with child abuse. Goes on to become best selling author




Gods and Monsters


True story of the H-wood director of Frankenstein

Ian McKellen

Brendan Fraser


Funny and interesting

Blue Valentine


Drama about poor relationships

Ryan Gosling, Michelle Williams


A downer

Made in Dagenham


True story about equal pay for women



Very informing

Another Year


Story about relationships



Too slow with thud of an ending

127 Hours


True story about hiker who cuts arm off to stay alive

James Franco


Tedious film about survival

Additional Comments:

Beneath Hill 60: Simply one of the best war films ever made. A true story about an unknown aspect of how WWI was fought. A drama with no core and a love story to boot!

Nice Guy Johnny: Made by Ed Burns on a $25,000 budget. Can download via iTunes. Number seven at the Apple Store at this time.

You Don't Know Jack: Regular movie with Hollywood budget but a must see.

Don't Go Into The Woods: Young people will like this movie. A "B" style horror movie that the actors sing songs through!

The Kid: A true story about how even with the worst upbringing, the human spirit can prevail. Also shows how big an impact positive role models can have.

127 Hours: Do not waste your money. If you think James Franco is hot, rent another movie he has been in.

In Closing

I will follow up this blog with some observations about various, powerful life learnings that impacted me by various films.

Tuesday, December 28, 2010

Mark Twain and Investing

Not only is sentiment wildly bullish on stocks and equally as bearish on bonds, but history says that when yields and equity values soar in tandem, as they did in the summer of 2007, we almost always see a reversal in both markets. On average, equity prices corrected 12% in the next six months.

On a similar note is Barron's Outlook 2011 ― none of the 10 strategists see a down market, the average forecast is for a double-digit advance and the range is 1,250 to 1,450!

To quote Mark Twain ...

“When I find myself on the side of the majority, I know it’s time to find a new place to side.”

Only by standing against the prevailing winds-selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising, based upon the momentum of the herd vs. fundamental valuations.

Friday, December 17, 2010

What Types of Stocks to Own in a Sideways Market

Vitaliy Katsenelson, a Denver-based money manager of whom I respect, just published a "bible" on investing. He asserts that he is looking for a “sideways” market and screening for “companies that have a lot of cash.” He has a ton of cash too — a 35% cash position and lays out the reason very clearly: Nobody “can win buying an overvalued asset and hoping it will appreciate.”

The above is 100% consistent with WFG's
Paid to Wait approach of buying companies that:
  1. Are cash rich
  2. Have low debt
  3. Have paid dividends over a long period of time
  4. Have a record of increasing their dividends
  5. Have a high return on capital
  6. Have strong competitive positions within their business sector
Investing Lessons

1) If you are going to invest in the stock market, why not get
Paid to Wait? Paid to Wait for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!

2) Investing is a marathon, not a race. The future winning professional money managers will be the current laggards of 2010, who continue to pursue the virtues of capital preservation and income-orientation strategies over speculation.

3) If you are sitting on the sidelines, you are missing out, regardless of the future ups and downs of the markets. Investors who make all or nothing, 100% in or out bets with the stock market, are proven over the course of time to have shot a large hole in their foot. If there were only "financial gun permits" to protect them from the emotions that lead to ill timed decisions based upon the news media and fear.

4) I personally have a very low overall exposure to stocks of 38%. This is about as low as any long term investor should ever go.

I Still See The U.S. Stock Market As Over Extended

From David Rosenberg:

"Market sentiment is wildly bullish.The latest Shiller P/E ratio jumped to 21.87x in November from 21.38x — we have not seen it this high since June 2008 (and recall that the market went down 45% from there to the lows of 2009). According to this metric, the U.S. stock market is overvalued by 33%. Yikes! And the typical Wall Street strategist thinks this market is cheap!"

Only by standing against the prevailing winds-selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising, based upon the momentum of the herd vs. fundamental valuations.

A contrarian style of investing is the ONLY method that has proven, over time, to reduce risk and take advantage of opportunities.

Saturday, December 11, 2010

Recent Stock Additions As We Enter 2011

The Christmas season is one of the times during the year that I devote substantial time to "shopping for stock bargains." To qualify, the stocks that make the buy list possess many of the following attributes:
  1. They are an out of favor stock, in an out of favor industry.
  2. Their recent performance has been poor (possibly over the last year).
  3. If they are smaller companies they need to have some ownership by insiders.
  4. They need to pass the analysis of various research providers that we value and trust.
  5. They should be owned by other value driven investment firms that we follow and trust.
  6. We have an expectation that they will hold up better in a stock market correction.
  7. We have an expectation that with patience, these stocks can make up lost ground in a flat or up market.
We "shopped for the following bargins" today in WFG portfolios: The following stocks were new additions: CFFN, COV, CSCO, IBKC, INTC, KMB, PBCT, PFE, SCHW, SYK, VPFG. The remaining stocks we already own and are adding to existing positions.

Only by standing against the prevailing winds-selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising, based upon the momentum of the herd vs. fundamental valuations.

Tuesday, November 30, 2010

Lockbox Investing: Actively Monitoring Performance

There has been the misperception that WFG's "lockbox" investing approach is a passive strategy where after conducting research on companies to invest in, we purchase our top picks, put them in the "lockbox" and throw the key away.

While we believe that the stocks of companies we purchase can be held for the long-run, we still actively monitor their performance. WFG will use the key to the "lockbox" to add or remove companies based on stock valuations and our economic outlook. For example, during 2008 as oil was on its way to $147 per barrel, we removed many of the energy names from the "lockbox." In the early part of 2009, we added most of those positions back into the "lockbox," as the price of oil fell and the stocks once again became attractively priced.

WFG will continue to actively monitor all the positions we are invested in and make changes as market and economic conditions change.

Investing Lesson: Buy and hold is not the same as buy and ignore.

Monday, November 08, 2010

401(k) Piggy Bank

In the first half of 2010, 17.5% of 401(k) participants had loans outstanding in their accounts and 2.1% of participants took withdrawals from their 401(k) plan paying a 10% penalty on top of taxes to Uncle Sam.

When taking out a 401(k) loan, you also run the risk of needing to pay the loan back in full within 60 days if you leave your job. If you are unable to pay back the loan, income taxes and the 10% penalty must be paid on the loan amount. To read more on this, click on the following link: Yahoo Finance.

INVESTMENT LESSON: Raiding a 401(k) plan will only serve to delay retirement! No amount of financial planning can overcome spending retirement funds prior to retirement.

Thursday, November 04, 2010

The Contrarian "Predictive Nature" of Magazine Covers

It has been well documented that, when it comes to searching for time tested, reliable indicators of where the stock market is headed, magazine covers predicting either a bull or bear market have been wrong the majority of the time.

One of the "professional" indicators I watch closely turned bullish over 30 days ago, but with so much on the line short term, combined with the massive quick run up in stocks, I had been "biting my lip of patience" a bit. As of today, I have released my lower lip and am comfortable being a bit bearish with the
latest from Barron's, dated 11/1/10:

Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the "momentum of the herd" vs. fundamental valuations.

Great Data From Fellow Contrarian, David Rosenberg

The quote below is from David Rosenberg's, "Breakfast With Dave," dated 11/01/2010.

"In any event, the survey of the Big Money Poll from Barron’s shows that 62% of portfolio managers see equities as the top performing asset class in the next 6-12 months — versus 15% for precious metals, 6% for cash and 3% for bonds.
You don’t have to be much of a contrarian to understand what it means to have twice as many investors more bullish on cash than on bonds. It’s otherwise known as a herd mentality. Fully 72% are bearish on Treasuries, only 5% are bullish (versus 60% and 15%, respectively, for equities) and yet 62% believe bonds are in a bubble.

How can bonds be in a bubble and at the same time be so detested? One of life’s greatest inconsistent thought processes at the current time!

Not only that, but 70% see little chance of another economic contraction. And, 70% favour the stock market on expectations of better jobs data, a stronger economy and rising profits. To top things off, BusinessWeek runs with this article to boot — Stocks and Bonds Are Bullish on the Economy (come again?) on page 47. At least we know where the surprise will be, if any!"


Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the “momentum of the herd" verses fundamental valuations. 

How To Avoid Losing Your Money, Part 3

Click on the blog title above for an outstanding article from, titled:

"4 Fraud Traps to Avoid"
Print and save my recent three-part blog series "How To Avoid Losing Your Money" and then place them in between you and "hucksters" that will try and separate you from your hard-earned money.

Wednesday, November 03, 2010

How To Avoid Losing Your Money, Part 2

Above is a sample of "financial lewdness" that passes as financial journalism to consumers that they use too often to make investment decisions. Please do not forget the following:
  1. 99% of financial information comes from organizations that generate 100% of their revenue from selling advertising.
  2. Just as entertainment, in the form of gossip and indecency, sells so do great sounding article headlines.
  3. A news organization is funded by advertisers, has no investment professionals, but too often portrays their "words" in such a way that it both sounds like advice and people actually use it as if it were reliable advice.
Let me expose what the above article contained:
  1. "They just get more attractive" is a great teaser headline. Just as effective as, "You'll never look better," from a plastic surgeon. It may sound good, but you better stay away or you will end up with irreversible results!
  2. Master Limited Partnerships, many of which have gone up over 75-100% in value over the past several years.
  3. REITs, many of which have already gone up over 75-100% in value over the past several years.
  4. Telephone company stocks, which operate in a vicious, dog-eat-dog business. WFG recently sold one of the stocks profiled, Century Telecom (CTL). They are suggesting you now buy it!
The S&P 500 index barely yields even 2%. WFG's Paid to Wait stock portfolio currently yields around 3.5%. So, am I stupid or smart based upon the above? I will let my 26 years of experience lead you to the right answer.


Never, ever use financial lewdness as the basis for making investment decisions. Just as freedom of speech is permitted, so is being unintelligent. Kind of harsh I know, but needed if I am going to make even a small dent in the armor of the billion dollar Wall Street and Madison Avenue marketing machines.

Savannah Film Festival Movie Reviews

This is my second trip to the Savannah Film Festival (SFF). It used to really upset me when the majority of the awards kept going to Indie movies at the Oscars. A number of years back, thanks to Ebert and Roeper constantly plugging independent movies that I had never heard of, I ventured out to my first Indie movie. I have been hooked ever since.

I quickly understood that Indie movies represent the exact opposite of big budget movies. They walk at a slower pace and often fill your heart with the fullness of what life is all about.
I knew I was really onto something when I was finally able to get my brother to go see a movie with subtitles and then have him turn around and suggest that I go see, "The Girl With The Dragon Tattoo."

Last year, I had the pleasure to see the final Indie film circuit screening of "The Hurt Locker." A then undiscovered actor, Jeremy Renner, took the the stage after the movie, along with the film's female producer and talked about how the movie came about. You all know what happened after that. At the Oscars, a movie America had never heard of came home with a number of the big awards. It is similar to what happened with my beloved Butler Bulldogs last year in the NCAA finals. You go from "nobody knows who you are" to worldwide recognition overnight!

I am now three days and six movies into the seven-day festival. For the coming week, I will, in addition to blogging about finance, also blog about some of the films I am seeing. We all need to live a full and balanced life.

The first film I will start with is one by Edward Burns. The "new normal" for the world is definitely making its way into the movie business. "Nice Guy Johnny" was filmed for $25,000 and will likely not make it into mainstream theaters. Instead, they are using viral marketing and social networking to launch the movie. It is currently ranked number seven on iTunes rentals and is available on Comcast via Video On Demand (VOD). This movie is a modern day, "The Graduate," and in my opinion a solid 8 out of 10.

Another "ah hah" moment happened Tuesday night while watching the first ever "slasher musical." It was a movie called, "Don't Go Into The Woods."
The concept that came from Mark Twain was quoted that you need to "kill all of your darlings." More on the personal and business use of this metaphor as the week unfolds.

At this time each year at the SFF, there is a treasure trove of both emotions created by the magic of film and actual take aways that will impact both my personal and professional life. Stay tuned for the reviews that will follow.

Tuesday, November 02, 2010

Kass: The Fed's Quantitative Easing 2 Is a "Con Game"

Click on the above blog title to read a vivid summary from Doug Kass regarding why he and I believe we currently have a very fragile U.S. economy and world stock market.
Cash is not trash!

How To Avoid Losing Your Money, Part 1

I recently met with a client that asked me to explain how bright people get sucked into Ponzi schemes and other high risk investments. My answers were very simple and straightforward:
  1. Humans are motivated by two primary emotions: Greed and fear.

  2. Greed is what leads to being swindled and/or losing money with an investment that had much more risk, but the only "song you wanted to hear" was how great it was going to be.

  3. Investors seldom read the fine print.

  4. Investors seldom request personal financial information from someone selling them an investment. Doing so would be very revealing, usually in a bad way.
In the last week, I also had the opportunity to write the narrative for a new Comprehensive Wealth Management client, who desires to find out what their retirement picture looks like. Below are some of the "hits" from their financial plan:

Avoid getting sucked in by any investments or people selling investments that seem to offer projected annual rates of return that exceed that of what WFG is projecting as safe, reliable returns.

  • Rule # 1, there is no such thing as a free lunch (IPM Realty, Madoff, Markman).

  • Rule # 2, there is no such thing as a free lunch (Oxford, Trevor Cook, Tom Petters).

  • Rule # 3, there is no such thing as a free lunch when it comes to annuity products. They promise the moon but deliver the lack of oxygen found on the moon.
We will take the first sentence back; there is such a thing as a free lunch (or dinner) as this is the number one marketing method for staging the annuity “pitch."

Jerry Wade sold annuities while at IDS/AEFA for 10 years.

He has not sold them the past 16 years. There is a reason!

Sunday, October 31, 2010

Does Your Mutual Fund Manager or Financial Advisor Invest Alongside You?

Morningstar believes that money managers should "eat their own cooking." They call it, "The Cooking Test." In other words, how much money does the typical mutual fund manager have invested in the fund they manage?

Answer: Not much.

Here are the shocking stats from Morningstar and Lipper:

-Average mutual fund manager age: 24

-Average mutual fund manager tenure on a fund: 4 years

-Number of complete economic cycles experienced while managing: 0.2

-Managers with at least $100,000 invested in their fund: Less than 20%

-Managers with over $1,000,000 invested in the fund they manage: 3%


In an investing world full of "look alike" investment options, Ponzi schemes and two 48% stock market declines in the past decade, the only way to invest is right alongside an experienced professional who has significant "skin in the game." With 26 years of experience, I have over $1.5 million invested in the no load mutual fund that I manage. Believe me, I pay pretty close attention to how "our" money is invested!

Thursday, October 14, 2010

Stock Buy Backs or Dividends, Which Is Better?

Companies often buy back stock and claim that it benefits shareholders. What you are not told is that companies often buy back shares with borrowed funds or are simply buying back shares to offset stock options exercised by employees.

Simple math tells us that if there are less shares and the same level of earnings, then earnings per share go up. Unfortunately, the value of a company is not determined by the number of shares outstanding, it is determined by how much a company actually earns. A company with only one share that is earning nothing will be worth $0. Just ask the shareholders of Enron, Lehman Brothers and Bear Stearns if share buy backs helped the value of their investment!

Dividends on the other hand are ACTUAL cash that is returned to the investor.

That is why I like to invest in high quality dividend paying stocks or Paid To Wait Stocks, as we like to call them here at WFG.

Wednesday, October 13, 2010

0% Rates Are Just Not Working

The FED has dropped short-term rates to 0% and is buying Treasuries to keep long-term rates low, yet economic growth is still very weak. Low rates will only spur growth if spending occurs. Unfortunately, no one is spending.

(1) Consumers are saving more and reducing debt. The consumer savings rate was at 5.8% in August 2010. Think about it: It was negative prior to the recession starting.

(2) Businesses are saving more and cutting costs (not hiring). Cash on the balance sheets of many companies is at record highs.

(3) Banks are holding onto cash as opposed to lending, due to uncertainty about potential changes to regulations.

Low rates only work if they cause consumers and businesses to spend. Low rates will not aid economic growth if everyone is just holding onto cash. Until spending picks up, continue to expect a weak economy.

Great Article on Two "PTW" Stocks Owned by WFG

Click on the blog title above to read about what has to say about two "Paid to Wait" stocks that WFG owns.

Investing Lesson

If you are going to invest in the stock market, why not get Paid to Wait for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!

If you are sitting on the sidelines, you are missing out, regardless of the future ups and downs of the markets.

Monday, October 11, 2010

What Does The Republican Momentum Mean For Taxes?

So much hinges on the outcome of the midterm elections: Will the balance of power in Washington change? Will Congress extend the Bush tax cuts? The most popular question we are getting from our clients is—what does all this mean for my portfolio?


The stock market
operates in a anticipatory fashion, meaning that the expected election results are already baked into prices of stocks already.

As a long-time, card-carrying Contrarian investor, I expect the following after the elections:

Do not be a bit surprised if the market sells off and ends 2010 in negative territory. I would place the odds of that outcome at at least 50/50.

Investing Lesson

If you are going to invest in the stock market, why not get Paid to Wait for the future appreciation of the stock(s) that you own to unfold over time and ignore the day-to-day ups and downs!

If you are sitting on the sidelines, you are missing out, regardless of the future ups and downs of the markets.