Earn Baby Earn

Posted: January 26, 2012 in Uncategorized

Another day another bang up earnings report. So far this week we have seen AAPL, CAT, NFLX, SBUX all outperform analyst estimates. Regardless of these great earnings reports stocks are still underowned across the board. With the large outflows from equity mutual funds over the last few years many investors are sitting in fixed income at the moment. Obviously the last few years has driven a generation of investors out of the market. The fear has been palpable, but as we talked about yesterday fear can crush your portfolio. In the current environment the risk is to the upside. Though the Fed is planning on keeping rates low through 2014, essentially begging investors to jump back into risk based assets, many are keeping it safe and staying in fixed income. Unfortunately for these investors current yields on fixed income are very low, many are eating into their principal just to get the necessary income to live their lifestyle. Generating yield in this environment is tough. On one hand the events of the last few years have had investors running scared for a safe place to put their money, which strictly from a psychological point of view makes sense. On the other hand however,yields in these “safe” assets are so low that you almost have no chance to outpace inflation. Whats an investor to do? Current trends suggest that at current levels the market is a bit over bought. Ok, so if you are a trader now may be a good time to take profits from your long positions. If you are investor however now may be the time to over come your fear and rebalance your portfolio. Look for companies/funds that pay a solid dividend and have solid earnings to give you stability and income. If the earnings reports of the last week are any indication companies are becoming lean, mean, earning machines.

Once upon a time long long ago the average person would work 30 years for the same company, retire at 65 with a gold watch and a pension. Life was grand and the “average investor” was not worried about VIX readings, QE 1,2,3, Apple Earnings, High Frequency Trading, or any other financial buzz word for that matter. But all of a sudden pension obligations became to hot to handle and BOOM retirement saving is now up to you the individual.

Beginning in the 80’s employers left the margin squeezing pension programs on the shelf and began introducing the much discussed 401(k) plan. The advent of the 401(K) plan has turned the “average investor” into a willing or “unwilling market participant. All of a sudden the stock market was no longer just for the wealthy, the wicked or the gambler, now the market is for everyone. Over time the shift from an entitlement society to a self-sufficient society has brought millions of new market participants and a sea change in the psychology of the investor.

There are no shortage of theories, research papers, and books on investor psychology, many have tried to pin down what causes investors to react and how you as an advisor, trader, broker, or asset manager can capitalize on it. Whether its monthly market sentiment charts, VIX readings, or surveys there is a billion dollar industry trying to figure out how the investor feels. In my opinion trying to quantify how the investor feels is fools gold. It’s not hard to tell that the world is at a cross roads. Between the crisis of 2008 here in the States or the current situation in the Euro Zone there has not much for investors to feel good about the last few years.

Many like to say that the last 10 years has been a lost decade in the market. The .SPX and the NASDAQ are about where they were at the turn of the century. In between 2000 and 2011 the market has been a cyclical bear market. Too often the average investor will react to the news they here on Fox or CNBC, they don’t see a distinction between an investor or trader. When the market is driven down 3% in a day by traders many average market participants feel like they must get out before it’s too late and they lose everything.When the market is driven up 3% by the same traders the average investor feels like they have to jump into the pool head first or they will miss their opportunity to become rich. This is obviously a flawed logic.

Stock market psychology to me is not an acute science, quite honestly if you read the news headlines on any given day you can get a sense of the average investor feels. The biggest driver of this psychology; fear. Am I going to retire? Will I survive my retirement? How am I going to pay for college? These types of questions are what keep the average investor up at night. These questions are what drives an investor to buy and sell with the market. These are the types of questions that cause an investor to be a failed investor or an investor no more. Ideally investors would not have an emotional, visceral reaction when dealing with their investments. Unfortunately this is  not the case. Investors who lost 40% of their portfolio’s are fearful that it will happen again. Investors who timed it perfect and doubled their money are convinced it will happen again as well, it’s all a matter of perspective.

When it’s all said and done fear and greed are the biggest drivers of the market for the average investor. Will this change? Probably not, all we can do is sit back and watch as generations of investors continue to make the same mistakes time and time again. Everytime the market corrects or the economy sputters you hear the words “this time its different”. Bullshit, the only thing that is different are the characters. They will get in and out of the market too late or early. Many will say that investing is a scam and that they will never get into the market again. In fact close to 35% of Generation Y (born between 1980-1990) have said they will never invest in the stock market. Thats fine, we don’t need them, if the fear of losing money in a bad market forced you to forego investing all together you’re clearly not cut out to be an investor. But you must remember that you do not save for retirement, you invest for retirement. They say those who don’t know history are bound to repeat it, I can only hope this turns out to be false, otherwise we are going to have years of volatility to come.

Where can I get Income????

Posted: January 11, 2012 in Uncategorized

One of the more interesting conversations I get to have with my clients is how we are going to generate income for their retirement. With so many solutions available this tends to be a loaded question. In my experience many clients have no idea how to live off of their money when  retirement comes calling. The income distribution phase of financial planning is the ugly step sister compared to the fun asset accumulation phase. No longer are we talking about generating alpha, beta coefficients, and performance. Rather we are talking about IRA distributions, RMD’S, and yield.

Many brokers turn to annuities for income, some will utilize mutual fund portfolios’, others will use laddered bonds, while others rely on dividend paying stocks. Needless to say there are a million ways to generate income in retirement . For me and my clients there is no magic bullet. Introducing an income plan that stays in line with the needs and risk tolerance of the client is paramount. I personally believe in using a diversified approach to investing as well as generating income.

While some variable annuities promise to pay income for life no questions asked I am quite skeptical. Most companies hedge their reserves against the 10 year treasury and you all know what the 10 year in currently yielding. I am just as guilty as any other broker/advisor using these products. At the time they seem like a great idea, especially in the market environment of the last 3 years.Guranteeing principal, income or both while participating in the market is great,but I have a sneaking suspicion that the glory days of these investment vehicles is behind us.

Others will use REIT’S and only REIT’S to generate said income. Many times older and undereducated investors will be sold these programs believing they are stable and safe. One firm in particular is guilty of misleading sales practices regarding these investments. Older investors are herded into a banquet hall and promised the moon: 8% income, no risk, stable principal, and liquidity only to find out that the entire story is fiction. I suppose Poppy is not who you thought he was. I am not here to say all REITS are bad, I use them in my practice for 5-10% of my high net worth clients portfolios. In no way however am I promising the moon, when used as a diversifier REITS (non traded) can smooth out volatility and provide a generous income. They should not be your only source of income however.

All in all the most important thing I can do is educate and inform the general public about whats out there. There are tons of investment programs available to the public and by and large most are on the up and up. However many in my industry like to abuse or misrepresent what they are proposing to clients. Generating a solid income stream for a client is not rocket science. Listen to your clients, understand their goals, risk tolerance and time horizon. Its amazing what you can accomplish when you actually listen. I was told early on in this business you want to be interested not interesting.

Mutual Funds vs ETF

Posted: December 29, 2011 in Uncategorized

As my business moves forward and grows I am always looking into ways to improve both my service and performance as an advisor. One of the most asked questions I get from my clients is what is the difference between Mutual Funds and ETF’S.

According to Investopedia a mutual fund is:

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectusd

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

As ETF’S explode onto the scene I am faced daily with the decision of indexing vs the active management of the mutual fund industry. As 2011 comes to a close I am beginning to see many of the benefits of moving away from the mutual fund model. While performance is important for my clients, diversification and keeping the portfolio in line with the objectives is more important.

As the year is coming to a close I am having a hard time justifying the fees involved in the mutual fund model. Most equity managers trailed the benchmark or are in line with the benchmark. While there are some exceptions to this most funds have underperformed across the board.

ETF’S do provide a cheaper and more liquid access to many of the same things and frankly if the fund managers do not get there act together the industry will go out of business. While I am not quite ready to jump ship on the fund industry as a whole, incorporating ETF’S will be a part of my re balancing act going into 2012. As far as I am concerned the additional diversification and added liquidity will only enhance the portfolio’s I manage.

Hopefully many of the fund managers I have trusted for years will get back on track this year, many are calling 2012 a stock pickers market. If that is the case I suppose we can chalk it up to bad luck. If not the fund industry is going to have a hell of a time raising capital and keeping outflows at a minimum.

2011 has been very very good to me

Posted: December 28, 2011 in Uncategorized

As the year closes I have been taking the time to sit back and reflect on the year that was. All in all 2011 was a watershed year in my life and subsequently my career. The year began with hope and promise as many do, at the time I was unaware of the impending roller coaster both in my business and in the market.

The year starts with hope, promise, new relationships and vigor. As January led into February I was personally convinced that 2011 was going to be the year of my life. I had a brand new relationship with an established accountant, I was presiding over a networking group that was finally showing signs of life, and most importantly my younger brother was getting his life back on track after a long fight with addiction. But as we learn not all that glitters is gold.

As the January led into February and tax season began I started to notice some kinks in the metal. My home run accountant was not what I thought, the market volatility was keeping me up at night and for the first time in a long time I was not so sure about some of my choices.

Since I started in the business  of financial planning/advisory my goal has always been to provide my clients with top-notch advice and service. I learned quickly however not everyone shares my philosophy. After about 2 month of working with my new accounting partner I learned that churning out a commission to sustain a lifestyle was the number one goal of this accountant. Suddenly my “home run” had turned into quite a problem.

As the relationship began to sour so did the market. Greece was rearing its ugly head, debt ceiling fights we dominating the news, and volatility was dominating the conversation and keeping my clients scared out of their fucking minds. Uncertainty in the market was driving the uncertainty in my business. There was no training or chart for me  to turn to in this instance this was for me to figure out and for me to fix.

The decision to move on is never an easy one. When a relationship goes south whether in business or in life there is plenty of blame to go around. But if you can look back and honestly tell yourself that you did all you could there is no reason to hang your head.

My long-winded point is that even though the year started with such hope and promise nothing in this life is guaranteed. Whether in relationships or markets there is going to be peaks and valleys. I am proud to say that this year ended right where it began with hope and promise going into the new year. I learned more in 2011 than I ever could imagine, I grew personally and professionally and am ready to move on to 2012 with even more vigor than I did in 2011. And even though everything did not work out as planned I can honestly say thank  you.

Santa is that you?

Posted: December 21, 2011 in Uncategorized

Today was a wild ride up for the equity markets, just when we thought that Santa was going to leave us coal in our stockings we have a 3% rally to the upside. It was a rip roaring ride that made me think Santa had NOS boosters in his sleigh, not even President Obama could him down. For those traders who were long equities going into the day congrats, investors however have been missing these moves all year it seems. Most if not everything I do as a Financial Advisor is manage expectations and mitigate risk. As nice as a 3% rally is, I can’t for the life of me think this is a healthy market. Day’s like today make investors feel like they are missing out on the egg nog. According to CNBC:

Worldwide, investors have yanked $34 billion out of equity funds this year and put $75 billion into bonds.

In the U.S., stock funds, including both exchange-traded funds and mutual funds, squeaked out a miniscule $4 billion net inflow this year, while fixed income-focused managers collected a monster $86 billion, according to EPFR.

I supposed being crushed by 2 major market corrections in the last 10 years and a cyclical bear market will kill whatever investor confidence is left.

This gets back to managing client expectations, my clients understand that we are not trading this market, the dizzying volatility will drive even the most seasoned investors batty. Between Greece, the Jack Asses in Washington (on both side of the aisle), and talk of a double dip recession  everyone is running for the hills. Days like today are the exception not the rule. We know that most of the clients we deal with on a daily basis are not suited to handle the daily swings in this market. And while they look nice and keep the phones quiet, we know that it is not healthy. No advisor worth his salt is telling their clients to jump into the fray right now, to many factors heading into 2012 could cause a neck breaking move to the down side. By managing expectations we manage risk in this New Normal (Thanks Bill Gross). Currently the risk is not to the upside or to the downside, the risk is letting your clients feel like they are missing out on something. Santa will come and go as he does every year, I would recommend leaving him the traditional cookies and milk but don’t expect a bag full of goodies. This year he may just disappoint you.


Christopher Hitchens..Farewell

Posted: December 16, 2011 in Uncategorized

I write today with a heavy heart. Though we never crossed path’s I am comfortable to call Christopher Hitchens a friend. As an aspiring writer/blogger I was very fortunate to come across the writings of Christopher Hitchens when I did. Many of his thoughts and idea’s were considered sacreligious, racist and blasphomous.For me it was his delivery and belief in himself that I found inspiring. As humans we find out what we are all about when we are cornered by others.Will we stand up and fight or will we run away. I am of the belief that if you do not stand for something you will fall for anything. Christopher Hitchens never shied away from controversy or a good fight. In the eye of many he was different, a man without a clue some would say. I see it a tad different, the man opened doors and eyes alike. Many of us never have what it take’s to be our own person and follow our own beliefs, not Christopher Hitchens. For those of you who are unaware, Hitchens had very strong beliefs and he was not scared to speak them. A hardline Atheist, who was open to the belief that you could wish god existed but would never acknowledge its presence as an absolute, hardline supporter of the Iraq War after bashing Kissinger and Vietnam years before, a believer in the eradication of fundamentalist Islam, and rather unapproving voice against those who in his mind abused religion ie. Mother Teresa, he never would shy away from controversy. Whether it was his criticisms of religion, god, politics, economics, or culture Hitchens had a delivery about him that made you listen. I can’t say that I agree with everything that the man wrote but I respect the path he took to deliver his opinions. Through the use of sarcasm, he made seemingly untouchable subjects easy targets. The institutions we have come to know and respect were simply no match for the man. Many people despised him for his opinions. However in this day and age I cannot think of a more important writer this world need’s a dash of realism every so often. Hitchens opened my eyes to a different way of thinking and doing, I will always remember the first time I saw him as a guest on Real Time with Bill Mahr, as soon as his segment was done I began reading his works, needless to say I was hooked,finally a writer who for lack of a better word was a wise ass who spoke to me and my beliefs. Many find it hard to believe that someone so against the “grain” was able to influence as many people as he did, to that I say; take a look around today’s blogosphere; Christopher Hitchens was a rock star. In the world of writing he was Hendrix,Morrison, Wallace and Shakur all rolled into one,  a touch of controversy, balls, talent, brains, and humor. Farewell my friend you will be missed.