Monday, April 6, 2015

ETF Portfolio Review

The S&P 500 was pretty flat for the first quarter of 2015. Personally, I do not like comparisons against the S&P 500 and our ETF Portfolios, because they do not account for risk adjusted returns, dividends and equity allocation percentages. The S&P 500 is an index of the nation's top 500 U.S. companies. It is 100% allocated to equities or stocks. For the first quarter of this year, it ended up at 2,067.89. It started the year at 2,058.20. This represents a growth in points of 9.69 and a very meager return of 0.47%.

If you happened to be considering investing in an S&P 500 index fund right now and you found out that the first quarter of 2015 only returned 0.47%, then would you still invest in it? Not with all of your money, but a portion? This is the mistake that most investors make in regard to investing. They will look at the performance of a particular fund which represents a recent time period, then decide based on that limited information whether to invest in it or not. Then, they repeat this process for several positions. In the end, they may have a dozen different positions that they have chosen based on "good" past performance. The problem with this is that they have not analyzed the overall 12 positions to see how they will react together.

Anytime that you put a portfolio of positions together and make a "good" portfolio out of them, then there are several other things that need to go into your analysis. First of all, what level of risk are you taking? What is the standard deviation? What was it in 2008 the year of the big crash? What is it today? What is the Beta today? What was it in 2008? What is the Alpha today? What was it in 2008? Did you know that these figures can changed drastically from year to year?

Just like performance changes from year to year, so does the statistics of Standard Deviation, Beta, Alpha, R-squared, Sharpe Ratio and others. Don't forget other important items like Credit Quality of the Fixed Income portion of the portfolio, assuming you have a Fixed Income portion. How many are AAA rated? AA rated? A rated? Junk rated? What about the duration of your Fixed Income portion? What is the Maturity of the Fixed Income portion?

Of course, don't forget about valuation multiples of the stocks like Price/Earnings, Price/Book, Price/Sales and Price/Cash Flow. Then, there is profitability of the stocks in the portfolio. What is the Net Profit Margin? Return on Equity? Return on Assets? How much is their Debt to Capital Ratio? What about Potential Capital Gains Tax exposure? What about the overall expense ratio?

I can tell you all of the above in regard to our portfolios, but I doubt any self-directed investor could do the same. Most people who invest on their own do very poorly. Hiring a professional advisor who not only knows how to invest, but also is a financial planner, real estate agent and insurance agent just might make more sense than trying to invest on your own.

When you look at becoming a client with our firm, we educate you on all the items described above. You will know how your current portfolio looks and what you can expect from it if you did nothing. Then, we will show you how to improve it with our professional expertise. It is simple really. You can continue to kid yourself into thinking that you are just as competent as a professional like me, or you can realize that hiring a professional like me is a very smart decision. The choice is all yours.

Please visit one or both of my web sites. Marian Financial Services, Inc. or for First Coast Planning, LLC.


Tuesday, March 31, 2015

First Quarter of 2015 Ends Flat - Oil Down

There were lots of ups and downs this quarter in the stock markets. Reviewing some research from S&P, Morningstar, Ned Davis Research and others, we have noticed that stocks overall are in a muddling range. This means that they are beginning to get overvalued on a P/E basis, but that is based on last quarter's earnings. We really haven't had the full impact of lower oil prices on our economy. Lower oil prices have created some extra cash flow for consumers, but the compounding effect or the length of time that oil prices remain low is what matters. Businesses who are dependent on energy prices will also benefit and that should positively impact their earnings. Think trucking companies, airlines, shipping and the automobile industry.

When we as consumers receive week after week of low gasoline prices, then it will eventually show up as free cash flow to us. Depending on how often you fill up will determine the excess cash flow that you retain. Depending on the number of automobiles in your household (that you are paying for) determines your free cash flow. A typical two car family might see $120 to $150 per month in extra cash flow. When you multiply this out by each American household, then you can see how quickly this will multiply. Add month after month of this type of savings and you will eventually spur economic growth. There is little doubt about this fact.

Now consider the businesses who rely on gasoline like trucking firms. They could be saving $120 to $150 a week per truck. Multiply that times their entire fleet, then you can see a clearer picture. This will positively impact their bottom lines over time. As a result, even though stocks might appear overvalued a little bit right now, I believe that this will correct itself after earnings are released.

The underlying geopolitical issue going on here in my humble opinion is that Saudi Arabia had a plan of keeping their production high to try and cause Iran major pain. However, with this nuclear agreement between the U.S. and Iran, this has changed the impact that Saudi Arabia may have by keeping production high. If some deal is reached, no matter the deal, then the likelihood is that Iran will be free to sell their oil again. This will give them much needed cash flow for their economy and the Saudi's plan will no longer be much of an impact to Iran.

I suspect that oil prices may continue to decline a little bit more and may even dip down in the thirty dollar range, but after that happens, I expect a vigorous snap back. In other words, I think we will see a quick drop down, then an equally quick pop back up. The OPEC members will have had enough and they will cut production at that point and or shut refinery operations until they get their price of oil back up to a reasonable range for profits.

So, enjoy the low gas prices while you can. I suspect by the third or fourth quarter we will see gas prices trend back up.

Monday, February 9, 2015

Good Advice for $3.99

Looking back at some of the advice that I wrote about in Meet Wally Street - The Reason You're Stupid has turned out to be right on the mark. One of the main things that I tell people not to invest in are Non-Publicly Traded REIT's. Lo and behold, a major Non-Publicly Traded REIT overstated their income by about $23,000,000 last year. Their CEO had to resign and shareholders were left holding the bag. As I describe in my book, these are investments created by Wall Street to benefit the people who work for the Non-Publicly Traded REIT, not you. That's a fact, Jack.

It is the wild, wild west as far as regulations go with these Non-Publicly Traded REIT's. They ordinarily price the REIT themselves. You see, it really doesn't matter what they say the price is, because you are not going to be able to get your money out of it for at least 10 years anyway. Investors in Non-Publicly Traded REIT's sink their money into an illiquid investment for 10 years or more where they send you phony valuation statements all along, then later you might get a small portion of your money back if you are lucky. Let's see. The guy who sold you the damn thing makes off with 8.5% in commissions. The General Partners make off with another 11 - 13% right off the top, so you are already down 20% from day one. Not to worry, these guys running this REIT have lots of experience in Real Estate. This actually means that they are good at pulling the wool over people's eyes and taking their money. Are you one of them? I hope not.

FINRA, the organization who regulates the Non-Publicly Traded REIT industry has some good tips on their web site. This amounts to an Investor Alert that you should read. Who reads or knows about these tips from FINRA? Did you know that FINRA issues these investor alerts? That's what I thought. Here is the link by the way: FINRA Tip Sheet on REIT's.

I'm telling you. Investing $3.99 for a copy of my eBook is a great investment in your future. You can buy it here: Meet Wally Street. If you read it, then you will be better educated about what is really going on in regard to financial advice. I trust that you do read it. You'll be smarter for it.




Wednesday, December 10, 2014

Seniors Living Alone are at Risk

I recently heard about something very scary in relation to an 80 year old man living alone. A couple knocked on the door saying they were friends of a neighbor and wanted to come in and see his antiques. Once inside they scoured the home for valuables. They questioned the man about what was going to happen to his antiques and other possessions once he died, which is totally inappropriate. They kept asking probing questions about how much the antiques were worth, where do the family members live and who is he leaving these to in his will. After he finally got them to leave, he called the neighbor and asked if she knew them and she said she wasn't sure, but their name seemed familiar.

The next day, the man received a call from someone claiming to be his granddaughter who wanted money of course. The man realized it was a scam and hung up, since he didn't have any granddaughters.

There are several things to be aware of here. One is that those people could have knocked this elderly man in the head and taken whatever they wanted, or worse killed him. He should have never let them inside since he didn't know them.

Second, they could be setting him up for a break-in later, now that they know the layout of the home. They could be watching his house looking for him to leave and swoop in and steal whatever they wanted.

Further, these scammers could easily find out who lives in the neighborhood and pick out an equally elderly neighbor that they might rely on for a faint memory. They simply act as if they know the neighbor when in fact they just "googled" the neighbor and got their name figuring the elderly man would know the close neighbor. In reality, the neighbor doesn't know them at all.

Finally, they could be in cahoots with the supposed granddaughter who called the next day. The fact that this call was the very next day after this couple's visit was pretty suspicious.

It is hard to believe that there are people like this who prey on the elderly, but sadly there are way too many of them. If you have elderly family of friends, then make sure you check on them often and report any suspicious activity to the police.