Wednesday, October 05, 2011

Are You Living Above, At, or Below Your Means?

Why is it that there are families with household incomes of $40,000 comfortably making ends meet and saving for retirement with no debt or at the worst, with one outstanding mortgage, while others, that make hundred of thousands of dollars, are having trouble keeping their heads above water? The answer: Living outside your means.

Though many individuals feel the need for the finer things in life, it is possible to live at, or even below, your means to improve your life after retirement. Read the article, "The Secret to Living Well on $40,000 a Year," published this week in U.S. News & World Report to see how a father of two was able to support his family at a comfortable level.

Investing Lesson: Though changing your lifestyle may not be ideal, it can and at times should be done. A dollar that you save today, will be a dollar, plus more, that you have for tomorrow.

Wednesday, September 21, 2011

The Role of "Alternative" Investments

Members of WFG's portfolio management team attended an Alternative Investments forum in Minneapolis this week representing managers from across the country.

Alternative strategies (Managed Futures, MLP's, Commodities, Hedge Funds, etc.) have been available for years but are often both misunderstood and misused by financial advisors. They are too often "sold" as a stand-alone investment vs. part of a well-designed portfolio strategy. In the majority of cases, Alternative Investments carry high initial and ongoing costs and can have sketchy track records.

WFG has been researching Alternative Investments for our 17 years of managing wealth. We pan through all the "sand and dirt" looking for nuggets of gold as part of our ongoing ConVal® investment research process.

We use these strategies both offensively and defensively. The common misperception is that they are only used for offense- to produce greater returns. WFG generally uses these strategies on a defensive basis. In other words, they are used to protect and reduce volatility in our portfolios while generating a given level of target return with a reduced level of risk by their skillful use.

In several WFG models, as well as in our No-Load Mutual Fund, we hold a variety of these assets, such as Managed Futures, Commodities, and MLPs.

INVESTING LESSON: Don't forget that defense wins championships!

Wednesday, September 14, 2011

Grade Yourself on Your Personal Finances

Failing can be a part of life. That said, the most detrimental place to fail is your personal finances. Jerry Wade is known for stating, "You end up with what you end up with." Let's make a checklist of things that you can do to improve "what you end up with."

  1. Do you have an emergency fund. Unfortunately in life we have to expect the unexpected. The last thing that you want to do is get caught off guard needing to pull money from your investment accounts, high interest rate credit cards, etc. when something goes wrong or the market is already down. We recommend that you have an emergency fund with at least six months to a year's worth of expenses liquid.
  2. Know what's in your bank accounts. Overdrawing a checking account by just a few cents could result in a lot of expensive and unnecessary banking fees. Run your household finances like you would run that of a business.
  3. You don't understand the difference between a want and a need. One of the biggest impediments to getting your financial house in order is the inability to properly distinguish between a want and a need. When taken down to the most basic level, all of us have only a few primary needs: Food/water, clothing (not high-end designer clothing), shelter, transportation and health care - high-end cars, boats, luxurious vacation homes, etc. are a WANT, not a need.
  4. You don't know how much you spend. It's pretty simple, the amount that you save is the difference between how much you make and how much you spend. It is important for you to look at this and realize that if you aren't saving anything that you need to adjust your lifestyle to decrease your discretionary spending. Not saving should not be an option for anyone!
  5. Your tastes exceed your spending capabilities. Many individuals are first generation wealth and are fully aware that they can live on less expensive items than they do. If you are shopping at Byerly's instead of Sam's Club or Neimann Marcus instead of TJ Maxx, this may apply to you. If you are not saving due to this spending you, have some self-evaluation to conduct.
Investing Lesson: Hitting the reset button will likely take some self-analysis and some decision making but these are all decisions that will improve your personal financial report card. The more money that you spend now, the less money you will have in retirement, the longer you may have to work or both! That is the simple fact.

Monday, September 12, 2011

Beware of Gold Coin Offers/Dealers/Pitch Men

Many of you may consider gold coins a good investment, a way to balance your investment portfolios and reduce your risk with what many consider the world's oldest and most trusted asset. Some of you have informed us over the years that you have bought gold when in fact you have been sold gold coins.
There are a number of issues with buying gold coins, unless you are an experienced buyer who knows what you are buying and what "dealers" are selling. Some of the problems include:
  1. The transaction costs. Some quick research shows that premiums can be as much as 5% over the price of the gold coins PLUS there is a cost to shipping. I am going to guess that you would lose that premium when you went to sell this trusted asset at a later date.
  2. You have to know what it is you are buying. All coin dealers will claim you are buying a rare and valuable coin (at a premium, may I add) when in fact the coin you are buying will have no value beyond its bullion (if it has any).
  3. Coin dealers can be crooks! We are unlucky enough to have some of these Ponzi schemers locally.
Charles Ponzi

On September 8th, the FBI raided the downtown Minneapolis coin firm, International Rarities Corporation (IRC) - a local firm that sells investors a "solid investment:" Gold coins!

IRC is being charged with pitching a number of their gold coin buyers shares in a Nevada company. Private offering documents say that they were seeking to raise $10 million to take the firm public. On August 19th, IRC filed for Chapter 11 bankruptcy and it is likely the investors will be left "holding the bag" again. The Minnesota Attorney General's Office is currently investigating complaints specifically about IRC's coin sales.

  1. The ads and the dealers all echo the same message: The coins they are selling are one-of-a-kind, available for a limited time and will only increase in value. The truth is, the ads are meant to dupe those who don't understand the investment and those who will rely on emotion and not knowledge. 
  2. If you are interested in buying gold, contact us and we will help to insure that you are not taken by individuals like those who were running IRC.
  3. WFG has recently completed our national research on the numerous Gold dealers and have a bulletin you can request with the details.  Jerry Wade recently bought a small quantity of the yellow metal from one of the dealers in the bulletin. 

Saturday, September 10, 2011

Never Forgotten

Sunday, September 11th, 2011 marks the 10th anniversary of that unimaginable day in which the world froze with stunned horror as our country was attacked. We watched the World Trade Centers collapse, along with the simultaneous attack on the Pentagon and the hijacked United Airlines Flight 93 in Pennsylvania.

One of the heroes on that plane was Tom Burnett of Minneapolis.  He and others are believed to saved the plane from hitting its ultimate target, the White House.
Image Detail
Tom Burnett

We mourned as a nation over the tremendous loss of life and over the pain and fear that these acts inflicted upon the United States of America and its citizens.

All across the nation there will be events and ceremonies to pay tribute to those lost as well as the heroes who came to the aid of our nation on that tragic day 10 years ago. The Senate has established a National Moment of Remembrance that will take place at noon CDT.

Americans are asked during this minute to cease all activities for one minute and to take the time to remember those that lost their lives, the loved ones they have left behind and the service/military men and women who risk their lives each day to serve and protect this country and our freedom.

I will be observing this moment of remembrance and it is my hope that all of you will also. Regardless of political affiliation, race, sex or creed, we as a nation lost almost 3,000 Americans on this day 10 years ago. It is important for those left behind to know that their loved ones are gone but that they will never be forgotten.

"To find a safe journey through grief to growth does not mean one should forget the past. It means that on the journey we will need safe pathways so that remembrance, which may be painful, is possible." ~ Donna O'Toole

Thursday, September 08, 2011

How to Make Student Debt, Smart Debt

How to Make Student Debt, Smart Debt

College classes have started which means that tuition bills are due. With college costs still rising and scholarships decreasing, an increasing amount of students and their parents will be forced to become first-time borrowers. Of incoming freshman, 53 percent reported using loans last fall, the first significant increase since 2004, according to ULCA's Higher Education Institute.

With a volatile economy and high unemployment rates, it is important that college students and parents of college students don't load themselves up with unnecessary debt and that they choose the debt wisely.

Unless students limit their debt burdens, choose fields of study that are in demand and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.

Here are some tips from if you or your children intend on borrowing money to pay college tuition:

Choose a school that fits into the family budget. Families seem to be learning that picking a school is an economic decision as well as an academic one. In a survey by, 45% of students ranked “quality of major” as their top reason for choosing a school. But “scholarship or financial assistance” (43%) and “total costs” (41%) came in a close second and third -- even higher than “academic reputation” (38%).

Among students who leave school with no debt, 85% graduated from public colleges, according to a report by Mark Kantrowitz, publisher of and Selecting an affordable school doesn’t have to mean sacrificing quality. To find public and private schools that deliver both, see our Best College Values special report.

Bypass the four-year route. Starting at a community college and transferring to a four-year school can save a lot. You can also slice a year off your expenses if your child takes Advanced Placement courses in high school or qualifies for college credits through the College Level Examination Program.

In Kantrowitz’s study, half the students who graduated with no debt graduated from a community college (one-third graduated from a public four-year college). Other hallmarks of students who graduate debt-free: They tend to spend less on textbooks -- $1,000 or less per year and are more likely to live at home with their parents.

Use money you don’t have to pay back. It’s never too late to save, especially if you live in a state that gives you an income tax break for contributions to state-sponsored 529 plans. Visit to look for scholarship and grant money from schools and other sources where your student’s grade point average or other achievements would make him a standout.

If you must borrow, borrow smart. Start with government-sponsored loans, which offer flexible repayment options -- such as lower payments and deferral -- and fixed interest rates. These include Perkins loans, for eligible students, and Stafford loans, which may be subsidized if your student qualifies. Also, look into PLUS loans for parents or a home-equity line of credit. (For more information on student loans, go to With that combination, you shouldn’t need private loans, which carry a variable interest rate and generally require a co-signer.

Apparently, many students don’t realize that federal loans are the most attractive. “A majority of undergraduates who take out risky private loans could have borrowed more in safer federal loans instead,” reports the Project on Student Debt.

It’s also smart to pay all or part of any loan interest as it accrues so that it isn’t added to the balance that has to be repaid. And remember that even the best student loan can be a dual-edged sword, encouraging a student to borrow more than he should.

Know what you’re getting into. Use the Student Loan Advisor calculator at It provides an estimate, based on starting salaries of various professions, of the maximum in student loans your child should take out and how much it will cost to pay it back.

One rule of thumb is that students should try to limit their total borrowing to no more than their expected starting salary when they graduate. FinAid warns that “if you borrow more than twice your expected starting salary, you will be at high risk of default.”

And possibly the most important, choose a marketable major. Moody’s is right on the money in suggesting that students pick fields of study that are in demand. That doesn’t mean your child has to major in engineering or computer science. But if he/she is majoring in economics, it couldn’t hurt to take accounting. If he/she is studying history or government, he/she could learn a foreign language. And if he/she insists on studying something as precarious as journalism, he/she should minor or concentrate in another subject -- such as business, health or computer skills.

Investing Lesson: Borrowing at times is unpreventable but making sure that you are doing it in the smartest fashion is key!

Wednesday, August 31, 2011

WFG Top Stock Picks in "Good Company"

The primary time of year for my/our robust stock and portfolio analysis is November and December.  This time period allows for a full review and appraisal of all current holdings and consideration of potential changes as we enter a new calendar year.  We, of course, evaluate all portfolios and holdings throughout the year, but desire to give each year's top picks time to run, unless new information comes to light that provides a cause for a making a sale or adding a new position that we believe meets our  ConVal® security selection criteria.

The table below reflects what Morningstar calls the top picks at any given time of their "Ultimate Stock-Pickers."
It is very interesting to see that of the 70 stocks WFG currently owns via our ConVal® process, all of the stocks on the list above are owned by WFG, except Wells Fargo.  These stocks were either already owned in 2010 or purchased in January of 2011.  Of greater note is that WFG identified many of these stocks as top picks earlier than the M-Star "Ultimate Pickers" did.

Investing Lessons
1. Bigger is not always better
2. WFG's ConVal® process is a winner

Friday, August 26, 2011

It Was Time to Hedge Our Gold Position

With Gold continuing its parabolic ascent, we made the decision this week to hedge 50% of our exposure to Gold ETFs owned in our no load mutual fund.  We still believe the secular bull trend for the yellow metal remains intact but Gold is long overdue for a shorter term price correction downward.  Silver experienced such a correction several months back.

Investing Lesson
It's never a bad idea to take some chips off the table and protect your profits when any particular investment has run very far, very fast.  Knowing when to do this and how to do this is what separates a "good" professional money manager (hard to find)  from the self-directed investor, who more often than not will do the exact opposite; buy high and sell low!

Monday, August 01, 2011

You Know The U.S. Government Is Screwed Up When ............

Who's ready for iAmerica?

As reported by the BBC and backed up by the company's financials records, the software company Apple has more cash on hand than the United States federal government.

Apple's quarterly financial report shows that the company responsible for the iPad, iPod and the iPhone now has $76.4 billion in reserve cash w
hile the U.S. Treasury Department is sitting on just $73.7 billion.

In my opinion, the feds could probably learn a thing or two from Apple's success. Congress remains embroiled in a debate over spending and whether the federal government, which currently owes trillions in debt, should be allowed to borrow even more. International credit rating agencies have threatened to downgrade the national debt for the first time in the nation's history if Washington doesn't come up with a solution to lift the $14.3 trillion debt ceiling while implementing a concrete plan to get the nation's "financial house" in order.

Meanwhile, Apple's financial report shows that the company's profits, even through the last recession, are booming!

Investing Lesson
When all is said in done, when it comes to politicians, more is said than done.

My Opinion
It still pays to be very conservative at this point in time. The numbers on the U.S. economy came in Friday and were unfavorable. There is still at least a 50% chance that before this market cycle is over, the economy may slip back into another recession, with the market taking a final 30-50% swan dive downward.  If and when that happens, it will then be time to load up the truck and invest aggressively.  Patience, is a virtue, but difficult for many to maintain.  I remain resolutely patient. 

PS: Any agreement on a balanced budget amendment will not be worth the paper it is written on, but will be hyped as a great victory, with no details and the teeth of someone with their dentures sitting in Polident.

Friday, July 22, 2011

The Power of Perspective

Carl Richards has become famous for his ability to create cartoon drawings, that are simple in nature, yet communicate powerful financial concepts.  I have shared his work with a number of WFG clients.

Carl has now moved into video blogging.

Watch the short video on:
The Power of Perspective

Investing Lesson
Many things in life are often harder than they look, including investing!

Tuesday, June 28, 2011

Iowa Indy Corn 250 and the Ethanol Boondoggle

A departure from the usual financial oriented blog, I spent last weekend in Iowa at the Indy Racing League (IRL), Iowa Corn 250 with my 18-year-old son, Sean.  That said, view the video then read the financial implications of our trip to the corn state!

Being from Indy, having been to over 20 Indy 500 races, but never having ventured beyond, this was a real treat.  I TiVo every IRL race each week.  I have come to eat and breathe IRL like I do Butler basketball.  Hey, I am a kid from Indy!

Life Lesson
Spend more time with your kids!

Investing Lesson
For the past four IRL seasons, the league had an arrangement with the ethanol industry, of which all cars, all season, ran on ethanol.  For the 2011 season, this is no longer the case as the cars are now running on that nasty fuel...gasoline!

Rumor has it that Congress is close to reversing the 50 cents per gallon subsidy for ethanol. If it does so, the fuel is not cost competitive. The most reliable studies on ethanol have revealed the following:
  1. Without the 50 cents per gallon subsidy, the fuel is not cost competitive with gasoline.
  2. Regardless of subsidy, the boondoggle of artificially promoting a "greener" fuel has had widespread, negative implications.
  3. The cost of corn has skyrocketed over the past five years, causing Americans of all incomes to suffer an "ethanol grocery tax."
  4. The amount of energy that it takes to produce a gallon of ethanol exceeds the "carbon footprint" of producing a gallon of gasoline.
  5. Game, set, match.
We have the world's greatest natural gas reserves and have not figured out that natural gas is the wave of the future.  Why, you might ask?  Lobbying of course!  Hopefully, Congress, on the latest and third try, will pass an energy bill that places natural gas incentives as the number one way for America to more quickly move towards energy independence. Don't hold your breath!

There you have it!

Wednesday, June 22, 2011

Money Anxiety Index: Latest Sign of Double-Dip

Great article from CNBC about the increasing potential for a double dip recession.  Click on the blog title above to access.

Investing Lesson
The time to prepare for a storm is before it hits.

Sunday, June 19, 2011

Stock Market Declines For 7 Weeks In A Row, The Longest Losing Streak In 10 Years

Investing Lesson
The chances of a "double dip recession," which I predicted last summer, but was obviously early about, is again fair game.  I believe it is better to be early and correct, than late and wrong when it comes to assisting our clients in navigating these turbulent financial times.

Saturday, May 07, 2011

Why Paying the Annual Fee for the Amex Platinum Card is Worth It

I have an American Express Platinum Card that has a $250 annual fee. I pay this fee because:
  1. They have a real, U.S. based service team that you are able to contact.
  2. This card replaces the need for a AAA membership when you experience issues with your car.
  3. When I lock myself out of my Savannah condo, they send over a locksmith.
  4. They repaired a flat tire on my snowmobile trailer in the Wayzata High School parade, which they did not have to do.
  5. They assist my children with any issues that may arise when they are traveling in another state.
  6. They provide access to free beer and free internet when you need it the most! Example: I am currently sitting in the Charlotte airport in the U.S. Airways VIP Lounge, which this card grants me access to. I was sitting here last week, too!
  7. My flight to Minneapolis has been delayed so free beer number one is almost done. Don't worry, they will page me when and if I can make it home today.
  8. Free beer number two is almost ready to begin .... okay, I did tip the bartender, that is not included.
Well, I will now send off this blog for posting, relaxing in a nice leather chair while waiting to be paged for my flight. It could take five minutes; it could take five hours. Either way, there is no lower-stress way to deal with this situation or the others that I have listed.

Note: Beer number two has begun, cheers!

Life Lesson: All of this is worth the $250!

Wednesday, May 04, 2011

401(k) Retirement Plan is a Misnomer

Have you ever noticed that when Wall Street tries to sell you something they will go to all lengths to make things sound good?

A typical spiel might go like this, "All you need to do to retire with comfort is use our Target Date fund. Your plan sponsor, acting as a fiduciary on your behalf, has chosen the best funds for you to utilize in your 401(k) retirement plan."

The way the message really should read is "We wined and dined your bosses. Now we get to collect management fees from you. Good luck with your retirement."

Have you tried finding a Target Date fund for the exact year you want to retire? In all likelihood, your retirement would need to coincide with a year that ends with a 0 or 5, nothing in between, please.

Or try asking your Target Date fund what your withdrawal rate in retirement should be. I am 99.9% certain you will not be getting an answer.

A 401(k) plan is nothing more than an investment account, not a road map to retirement. It does not analyze your individual financial situation and will not provide a customized retirement plan.

Investing Lesson: If you and your loved ones want a real retirement plan, do not rely on your company's 401(k) Retirement Plan or Wall Street's latest fad. Work with a fee only financial planner like WFG, a true fiduciary who truly puts You First.

Tuesday, April 26, 2011

History Bodes Ill for Stock Market

"There have been only four other occasions over the last century when equity valuations were as high as they are now, according to a variant of the price-earnings ratio that has a wide following in academic circles. Stocks on each of those four occasions would soon suffer big declines."

Mark Hulbert

Read more of Mark's article by clicking on the above blog post title.

Investing Lesson

I watch the Shiller PE 10 Ratio very closely and am concerned about its current high reading. That said, it has been above 20 for over one year. Markets can remain over or under valued for long periods of time, before a significant adjustment takes place.

Thursday, April 14, 2011

Covered Call Strategy Explained

Selling call options against stocks you hold is a great way to generate additional income for your portfolio but there are several problems with executing such a strategy in individual accounts:

(1) Call options can only be sold in 100 share increments.
(2) You need to be approved for selling covered calls by your broker.
(3) Commissions often eat up most of the premium you receive when you sell only one call.

Fortunately for investors in the Wade Core Destination Fund, we are able to execute the covered call strategy within the fund which overcomes the above limitations. In fact, we have sold covered calls against 25% of the individual stocks held in the fund.

When selling a call option in the fund, we allow for a cushion to capture additional upside in a stock's price while collecting a premium from selling the call.

This is a clear example of one of the many advantages of investing in the Wade Core Destination Fund.

Monday, April 11, 2011

Still Kicking the Can Down the Road

What is going on in Washington is a joke. A dangerous, bad joke.

Our country needs to "restructure our finances," much like a business going through a bankruptcy or foreclosure process. Unfortunately, our leaders are unwilling to chop the fat, and our citizens only want their neighbors to go on a diet and shun any needed changes that would impact them personally.

"There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen... the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

Frederic Bastiat

Bernanke will be judged later as a "bad economist."

Thursday, March 24, 2011

3 "Paid to Wait" Stocks Other Value Managers Like

I have opined in the past that there are only a select few "value driven" money managers that I respect for their skill and have a good track record over complete market cycles. One such fund is the Jensen Fund (JENSX). 

Health-care stocks barely budged last year as worry over legislation kept them from joining the broader equity-market rally. Robert Zagunis, manager of the Jensen Fund, says this year will be different, especially for companies such as:

  1. Medtronic(MDT)
  2. Abbott Labs(ABT)
  3. Stryker(SYK).
I agree with Robert's conclusion. Medtronic was purchased in 2010 in our portfolios, with Abbott and Stryker added the first week of January 2011. All three of the above mentioned stocks qualify as WFG Paid to Wait stocks and are owned in our privately managed accounts and our no load mutual fund.

Tuesday, March 15, 2011

Paid to Wait Stocks Shine in Market Sell Off

All of the major U.S. stock averages are now on pace to close at new lows after all peaking on February 18th. Leading the way on the downside are the Nasdaq and Russell 2000, which are both down more than 5% from their highs.

Source: Bespoke Group. Data as of 3/14/11.

WFG is overweight high quality Paid to Wait stocks, underweight small company Russell 1000 stocks entering 2011 and short Russell 1000 stocks in our mutual fund.

Wednesday, March 09, 2011

200 Years Later and Still No Wiser

More than two centuries ago, Adam Smith warned of the dangers of having financial institutions that were "Too Big To Fail." The paragraph below was taken out of a recent Barron's article:

Adam Smith discussed at length the 1772 collapse of the Ayr Bank in Scotland, which ended up costing the Duke of Buccleuch and other investors. It was laid low by "chimerical projectors…who would employ money in extravagant undertakings, which, withal the assistance given them, they would probably never be able to complete." It was important, Smith claimed, to limit the size of enterprises so that one bank failure wouldn't incinerate the entire financial system.

Does the above look familiar to you? Unfortunately, even after our most recent experience with the 2008 financial collapse, lessons still have not been learned. Wells Fargo, JP Morgan, Bank of America and Citi Bank are four major banks that got bigger, not smaller.

Even worse, now more than ever the housing markets are relying on Fannie Mae and Freddie Mac to help finance mortgages--two companies standing at death's door with outstretched hands asking for donations from the taxpayer.

We have come out of the 2008 crisis with even more financial institutions that are Too Big to Fail. What will the next round of profits and greed bring when the cycle turns down? More pain, not less, we suspect.

Tuesday, March 08, 2011

Uncle Sam's Growing Bill

In the most recent newsletter from Grant's, it was projected that net interest expense (payments less income) for Uncle Sam would be $658 billion at a rate of 5.8%. The average maturity of debt issued by the treasury is five years. This means that by 2016, the U.S. government would need to refinance the majority of its debt. If net interest costs went up by 1%, the annual interest payment goes up by $151 billion. If rates were to hit the highs seen in the early 80s, net interest payments would be $1.49 trillion. Notice that is a T for trillion.

Are we worried about the government deficits and the road the U.S. economy is headed towards? You bet we are. Economic risks are very elevated right now, and it is not the time to be aggressive. We believe that patience that will pay off in the long run.

Wednesday, March 02, 2011

Doug Kass Agrees With Jerry Wade-Be A Contrarian "It Ain't a Popularity Contest"

Doug Kass is one of the few financial experts that gets quite a bit of media airtime that:

  1. Knows what he is talking about.

  2. Has been right much more than wrong with his market forecasts.
Click the blog title above for an excellent article just penned by Doug at

Monday, February 21, 2011

Gulf Stock Markets Slide-WFG Already Exited

Based upon the Egypt turmoil that started weeks ago, I felt it prudent to sell our 1% position in Templeton Frontier Markets Fund owned in our no load mutual fund, shortly thereafter.

My concern was then, as it is now, that the turmoil may continue to spread and infect a host of other countries in the region.

It was time to as musician Steve Miller would say, "Take the Money and Run."

If you are an internet subscriber to the WSJ online you can click on the above blog title for access to an article from the WSJ on the topic.

Thursday, February 17, 2011

Word of Caution From Doug Kass

Doug Kass is one of the few financial experts that gets quite a bit of media airtime that:
  1. Knows what he is talking about.
  2. Has been right much more than wrong with his market forecasts.
Click the blog title above for an excellent article just penned by Doug at

Wednesday, February 16, 2011

Why NFC Could be Another Game-Changer for Apple

Many investors wonder how high and how long Apple can continue its ascent.

Click the blog title above for an excellent article from as to how Near Field Communications (NFC) could be another game-changer for Apple.

WFG owns Apple in our stock portfolios and our no load mutual fund.

Thursday, February 10, 2011

Is This The Time To Be Going LONG - with a 70 Yard Pass to Randy Moss?

The following is from Contrarian Guru Extraordinaire, David Rosenberg.

"Sorry, but that time has passed. But we will probably get another kick at the can because we are sure that the “event risk”, which caused so much turbulence and buying opportunities in 2010 will come around again in 2011. But this is one overextended U.S. stock market, that is for sure.

We have a dividend yield on the S&P 500 of 1.8% with a 10-year bond yield at
3.7%. Somehow that is just slightly less appealing than the 3.6% dividend yield and 2.8% bond yield we had at the March 2009 market lows.

The dividend yield, by the way,
is where it was at the market peak in October 2007.
Food for

The cyclically-adjusted P/E ratio on the S&P 500 is now 23.3x, where it was
back in May 2008. At the lows, it was trading at 13.3x.

So if we are talking about the best entry point from a value perspective,
it was then, not now.

Amazingly, the Investors Intelligence survey now shows 53.4% bulls and 23.3%
bears. At the March 2009 lows, these numbers were basically reversed. Equity portfolio manager cash ratios today are at 3.5%; at the March 2009 lows they were closer to 6%. As an aside, the last time the liquidity ratio was as low as it is today was in September 2007. Gulp!

… well, you know which way it’s going from here".

Tuesday, February 08, 2011

WFG Recent Stock Addition, EOG Resources: Oil Boom Play

We recently added EOG Resources (EOG) to our no load mutual fund and our privately managed Concentrated Growth Portfolio.

Click the above blog title for an informative article on who EOG is and what the growth opportunity is.

Investment Lesson

It pays to stay informed. You are smart if you are a client and read this blog. We call it "being engaged" with your advisory firm.

A Tanker Company

We added shares of Nordic American Tanker Shipping (Symbol NAT) to our Growth portfolio in August of 2010.

Why invest in a company that is in a highly cyclical, capital intensive industry with low barriers to entry you might ask?

There is a lot to like about Nordic American's business model:
  • The company has traditionally carried little to no debt giving it great financial flexibility, especially in economic downturns. This is a huge competitive advantage in a capital intensive industry.

  • Its tankers are newer double hulled ships, meaning it does not face the need to replace obsolete tankers.

  • It continues to have access to equity markets where it issues new shares to purchase new tankers. While management of many companies issue shares to fund "Empire Building," Nordic American's management has been very disciplined in using the cash it receives from equity issuance to grow the fleet of tankers.

While the stock price has suffered through most of 2010 due to falling shipping rates, the best time to buy into shipping companies is when shipping rates are down.

Although the company continues to pay a variable dividend based on operating performance, management still continues to have the goal of paying out the majority of operating profits to shareholders.

Think about it: An investor who bought a share of NAT on 9/30/1997 at $18.75 would have received $41.51 in dividends through 2/3/11. Not too shabby a return.

Monday, January 31, 2011


All I can say

With stock futures down all weekend long, the world stock markets today acted as if there was no current and/or future turmoil in the world.

Friday, January 28, 2011

Mama Said There Would Be Days Like This ..

Well, Momma actually did not say that regarding investing, but yours truly did.

The eruption in Eygpt is a prime example that on given given day, "The investment climate can suffer an earthquake."

Almost on cue after two months of a huge stock market run up, I have had a number of clients question my current defensive stance in our portfolios with their money. Hey, don't get me wrong, it's their money and a very legitimate question. That said, having been doing this for 26 years, I understand the cycles of investing and more importantly, how what's going on in the world can heavily influence our collective grey matter!

My response to clients has been as follows:

  1. I believe the stock market to be overvalued.
  2. I believe that a stock market can remain overvalued for longer than it should.
  3. The longer a market that is already overvalued moves in a further overvalued condition, the greater the future cardiac arrest (2000-2002 and 2008-2009).
  4. The U.S. stock market has been fueled by government stimulus, not fundamentals.
There are multiple risks on a worldwide basis that could take the stock market down 20-40%.

I do NOT have a crystal ball.

It is like walking by a house each week that seems to have lots of people in it, having a great party. It is normal human behavior to feel like you are missing out on the fun.
  • It is a great party, until the music stops and there are not enough "safety seats" for the majority of the people in the room.
  • I want my clients to have a safety seat!
I have dedicated an extensive area of my company's website (, click on WFG Advocacy) to the topic of behavioral finance. Lots of great articles, with tons of empirical data suggesting that our brains have been wired since the stone ages to have a two position on/off switch between greed and fear. That's it, no five-position dial.

The single greatest role a professional financial advisor plays is assisting their clients in finding the "middle switch position." That is hard to find on their own.

A day like today was not a matter of if, but more a matter of when. That said, who knows what will happen beyond today. Just so we are clear, no one knows. I repeat, no one knows. If you think you know, or a friend tells you they think they know, well, think again. These are the facts!

What You Should Do

The best course of action remains as follows:

  1. Do not be an "extreme" investor. This means sitting all in cash because you believe the sky is falling. It never works.
  2. As important, walking into the party at 1 a.m. and getting more into stocks when they are overvalued has proven equally as costly.
  3. The prudent, proper, experienced, appropriate, yet often very hard, thing to do is continue to allow a professional investment advisor who operates from a contrarian investment philosophy to keep you well diversified across an ever dizzying array of investment choices.
My investment approach changed as a result of the "sea change" in the world economy that started in 2008. We are now about "making it and keeping it" and less about "making more and then losing it."
  • In baseball terms, singles and doubles win ball games over time, not home run swinging.
  • In real estate terms, we are about "owning" lower, reliable, more consistent returns vs. "renting" higher, unreliable, inconsistent returns.

Thursday, January 06, 2011

More Examples of Fund Managers Who Fail To Invest In The Funds They Manage

Article From MorningstarA version of this article appeared in the November 2010 issue of Morningstar FundInvestor. Greg Carlson is a mutual fund analyst with Morningstar.

Morningstar has conducted multiple studies demonstrating that the majority of mutual fund managers don't invest heavily in the funds they manage.

  • Morningstar strongly believes that a significant level of ownership better aligns managers' interests with those of shareholders. Let's take a closer look at some funds in this situation.
Managers Micro-Cap MMCFX 
None of the managers at any of the four subadvisors who divvy up the fund's assets own a single share of it, according to its most recent Statement of Additional Information. One of those subadvisors came on board in December 2009, and portfolio managers' holdings in the fund were last disclosed as of October 2009. But the 11 managers from the other subadvisors have all worked on the fund since December 2007, so they've had time to build up stakes in it. They simply haven't.

While it's true that subadvisors are less likely to invest in funds they run, that's no excuse. There are a number of subadvisors who own hefty stakes in their charges, such as Jim Barrow of Vanguard Windsor II VWNFX, and Bill D'Alonzo, David Herro, and Dick Weiss of the Masters' Select funds.

Wasatch Ultra Growth WAMCX 
Manager Ajay Krishnan had between $100,001 and $500,000 invested in the fund at the end of 2009. That's not a small amount on an absolute basis, particularly for a small-cap fund. But given his 16-year tenure at Wasatch, including 10 years as manager of this fund, and the firm's intense focus on smaller companies, it's fair to expect a larger commitment. It would make the fund's expense ratio a bit easier to swallow.

Putnam Multi-Cap Growth PNOPX and Putnam Growth Opportunities POGAX 
These large-growth funds are both on the pricey side. Both funds are run by the same manager, Robert Brookby. He's steered the smaller Growth Opportunities since January 2009, and after a solid start there, he was tapped to take over the $3.5 billion Multi-Cap Growth in April 2010. As of Growth Opportunities' November 2009 Statement of Additional Information, he had between $100,001 and $500,000 invested in its shares. Not bad, but given the fund's aims to be a core holding and Brookby's five years as a portfolio manager, we hope to see a bigger stake in the future.

AllianceBernstein Growth AGRFX 
As of July 31, 2010, William Baird (who's served on the fund since late 2006) had between $100,001 and $500,000 stashed in the fund, while Vadim Zlotnikov had between $50,0001 and $100,000 invested in its shares. Meanwhile, Frank Caruso didn't own a single share of the fund. Amy Raskin joined as a fourth manager in November 2010 on the date of the fund's last SAI.

Investing Lesson
Only invest in investments that the financial advisor you work with has a substantial stake and commitment in. I am the largest shareholder in the no load mutual fund that I manage for WFG's clients. This is called "eating your own cooking."

Wednesday, January 05, 2011

Bullish Sentiment Indicators Reach High

Late December of 2010, surveys of bullish sentiment from Investors Intelligence (II) and the American Association of Individual Investors (AAII) showed the ninth highest combined reading since 1987, and it was the sixth period ever where the combined reading was above 120%.

One place where the holiday spirit is not in short supply is the equity market.

Investing Lesson
Be wary of all the "good news"and "good feelings" as we enter 2011.

Tuesday, January 04, 2011

Can You Trust The "January Effect?"

The information below comes courtesy of, Technical Forecast (TF) email to WFG, January 2, 2011.

According to the Stock Trader’s Almanac, the January barometer has a 90% accuracy ratio since 1950. The premise of the January Barometer is simple: As January goes, so goes the year.

The December 19 TF featured charts of the S&P’s performance in January 2007, 2008 and 2009, all of which were down months. However, over the past three years a new pattern has emerged. Year-end euphoria has culminated into sentiment extremes and January sell-offs.
  • Therefore, the January barometer has proved correct only five times over the past decade, a 50% accuracy ratio.
January 2001 was an up month, but the year ended down. January 2003 and 2005 were down months, but the years ended up. And of course, January 2009 and 2010 were down 8.6% and 3.7% but finished the year strong with returns of 23.5% and 12.6%.

As discussed over the past several weeks, sentiment extremes point towards a January correction and a down month. A down January, however, would contradict another high probability seasonality, the Presidential Election Year Cycle, for example. A pre-election year, such as 2011, sports the best historical performance of the four-year cycle. In fact, the last pre-election year loss was recorded in 1939 (Dow down 2.9%). The last significant pre-election year loss occurred in 1931, during the Great Depression.

The pre-election year performance pop is credited to each administration's efforts to pump up the economy (or at least the stock market) to finish strong and persuade voters to re-elect whoever is in office.
  • However, this time around much money has been pumped into the economy before the pre-election year (bailouts, low interest rates, QE1 and QE2). There is a chance that this premature shot of liquidity alters the cycle and mortgaged the market’s otherwise rosy future.
Investing Lesson
Past performance has proven to be a unreliable indicator of future results!

Still Like Gold, But.....

It has been decades since it first came out but Sean Connery as James Bond in the movie classic, Goldfinger, is back in vogue. When gold shows up on the front page of the New York Times, you know that a lot of the news is in the price (see TV ads running 24/7 and radio). We remain big fans of the yellow metal and still see potential for $2-3,000 an ounce over the next decade, as its hedging properties against the integrity of the global financial system will likely remain intact.

The reality is that gold has made such a continual upward move over the past several years that speculative fervor is evident, and the fact that gold is now a front-page story makes it susceptible to near-term pull-backs. Nonetheless, it can correct all the way down to $1,200 per ounce without violating any long-term trendline.

As in 2006-2008, when real estate schemes were all the rage, investors need to be careful when any asset class receives so much attention that your cab driver is talking it up. We will continue to add to the precious metals area at opportune times during 2011.

Monday, January 03, 2011

Europe's Slump = USA Slump = What Should We Do?

Firms Hurting as Europe Slumps
Wall Street Journal


Multinational companies in a range of industries are seeing slowdowns in Europe and bracing for what could be many months of weakness.

Companies in the technology and health-care fields are under pressure from government efforts in Europe to cut costs, while consumer-goods makers have to contend with sluggishness in nations including Spain, Ireland and Greece. They are responding, in some cases, by cutting jobs and investments, steps that will themselves weigh on Europe's economic climate.

"There will be less people working, less people paying taxes, which will weigh further on government finances—all of this is linked to weakening economic growth," said Media Eghbal, a Western Europe analyst for market-research firm Euromonitor International Inc.

The euro-zone's economic growth slowed sharply in the third quarter, as business investment stalled, signaling that companies aren't confident enough to commit more capital. Spain's economy stagnated, and Greece's contracted. Pressure to cut public-sector spending is rising as government debt climbs.

"Central government budgets in many of the countries in Europe are being reduced dramatically," a spokesperson for Cisco said in a conference call with analysts. That factor, among others, led Cisco, which makes routers and switches that connect computers to the Internet and each other, to announce a weaker-than-expected sales forecast, sending its stock price tumbling over the past quarter.

OPINION-What Needs to Happen, But Most Likely Will Not (Jerry Wade)
Unless the U.S. does the right thing (start balancing the budget), which our elected officials have shown a clear lack of guts to do thus far, we will likely relapse into recession. In my opinion, we have never really left the current recession. What needs to happen as soon as possible in America is the following:

  • American households modify their lifestyles in such a way that they achieve positive vs. negative cash flow.

  • American households modify their lifestyles in such a way that they quit spending from investments while still working and instead, start saving more for retirement..

  • Federal Government makes the hard changes necessary to achieve positive vs. negative cash flow.

  • State Governments makes the hard changes necessary to achieve positive vs. negative cash flow.

  • Pension plans are restructured to provide lower current and future payouts, or risk running out of many for all current and future retirees.

  • Social Security restructured to provide lower current and future payouts, or risk running out of money for all current and future retirees.

  • Labor Union Benefit packages for millions of employees are restructured to provide lower current and future payouts, or risk running out of money for all current and future retirees.

  • And yes, higher taxes, for a limited period of time, for all who earn an income.

The impasse we have seen thus far is the Republicans want to cut expenses and not raise taxes. The Democrats want to raise taxes and spend more money. The labor unions do not want any changes; pension plans are inept thus far at seeing that they have a problem; and the folks currently on Social Security and future recipients want nothing to do with any cuts.

Without shared sacrifice, across all the above groups,
the good old U. S. of A. will experience further financial collapse.

Investing Lesson
At this point in time, it is prudent to err on the side of safety vs. taking too much investment risk.