Google+ Followers

Tuesday, June 23, 2015

Weekly Update 6 20 2015

This week's theme is good faith; fiduciary care.

"The principle of acting in good faith is at the heart of decent work." Richard Eyre

"Observe good faith and justice toward all nations. Cultivate peace and harmony with all." George Washington

"Our first responsibility is to protect the American people and we cannot put on blinders to expect that everyone who seeks asylum does so in good faith." Bill Shuster

"The foundation of justice is good faith." Cicero

"The best security of the fidelity of men, is to make interest coincide with duty. Alexander Hamilton

Everyone in Iowa, or Ames at least, has been watching and talking about basketball news the past month. One favorite son gets a high profile NBA coaching job and another wins his first NBA championship ring.

Another piece of basketball news was about a high profile player accusing a Financial Advisor of stealing twenty million dollars.

Who do you trusts and how can you know?

Here are the criteria I would look for.

1.   Training: Do they have or are they being supervised under someone who has advanced training? A Certified Financial Planner®, Chartered Financial Consultant®, Accredited Investment Fiduciary® or other recognized accreditations?

2.   Experience: Do they have experience in good and more difficult market environments? Or they are supervised by someone who does.

3.   Will they commit to acting in your best interest as a fiduciary? Unless they are fee only and not connected through compensation arrangements to a third party, they have inherent conflicts of duty. These conflicts might include commission payments from product providers, proprietary product offerings from the firm that pays them a salary or other forms of compensation. In any event, if they are receiving compensation from someone else, and not you; then their primary responsibility is to someone else and not you.

4.   Finally, I would say they should not acquire custody of your assets or have withdrawal power of your assets. An Investment Advisor should safeguard the client's assets from theft by using third party custodians, and only having limited powers of appointment to perform transactions such as trading and receiving fees.

Marrs Wealth Management fits all of these criteria.
If you know of others who are looking for a trusted Financial Advisor, share these guidelines with them.




"Is your advisor a fiduciary? Chances are, you have no idea"
Andrew Osterland writes; "Financial advisors are currently regulated under two different standards of conduct.
Investment advisors registered with the SEC or a state securities regulator are fiduciaries, subject to the duty of loyalty and due care with their clients. They are typically compensated by asset management fees and are expected to act in the best interests of their clients. If they don't, they can be sued in a court of law."
"Stockbrokers, broker-dealer representatives, insurance agents and others who provide investment advice, on the other hand, are regulated by the private-sector organization Financial Industry Regulatory Authority (FINRA) or by state insurance regulators and are subject to a "suitability" standard of conduct." 
"Their investment recommendations must be suitable for investors based on their financial profiles, but those advisors are not required by law to act in their clients' best interest. They are often compensated by commissions on transactions that can put them in conflict with the interests of their clients."
"The value proposition of a live advisor involves much more than asset allocation and security selection. It's about understanding people's goals and helping them achieve desired outcomes."-Kurt Schacht, managing director of Standards and Financial Market Integrity at the CFA Institute"


Sometimes you need to look more deeply than what is said! CNBC put out a list of top fee only advisors recently, a deeper look revealed that 9 of the top 10 were not really fee only.



"CNBC Top-Fee Only Firms Fail Fee-Only Requirements"
"As a part of the registration requirements for an RIA, all firms must submit Form ADV, a public disclosure document which includes, in "Part 2", an explanation under "Item 10" of "Other Financial Industry Activities and Affiliations". This disclosure documentation must be provided to new updates (along with annual updates thereof), and is publicly available to anyone through the Investment Adviser Public Disclosure (IAPD) search database."
"Accordingly, I looked up the Form ADV Part 2 disclosures for each of the top 10 firms in CNBC's list of top Fee-Only firms, with the remarkably simple approach of just searching for the word "insurance" and seeing what came up in Section 10 on disclosed affiliates. Here's what I found (in order of the top-10 ranking on CNBC's list), quoted directly from the companies' Form ADV Part 2 documents."



"Michael Kitces is calling CNBC out on the carpet for allegedly misleading the investing public by calling advisors "fee-only" when they may indirectly receive compensation from commissions."
"In a hard-hitting article published yesterday on his blog, Nerd's Eye View, the industry guru questioned the integrity of the New York-based news giant's list of top 100 rated fee-only wealth management firms."
"Kitces's allegations are based on his vetting of the SEC documents of the first 10 entries on the list."
"A deeper look at the Form ADV Part 2 disclosures of just the top 10 firms on CNBC's 'fee-only' list reveals that nine out of 10 of them share in insurance commissions, own an insurance agency, or are under common ownership alongside an insurance affiliate to which advisory clients are referred. In other words, nine out of 10 of CNBC's "Top Fee-Only" firms are not actually fee-only," Kitces writes in his blog."
"Granted, there are also a lot of issues out there right now of firms holding out as fee-only when they're not," he says in an interview. "But in this case, CNBC took pains to point out that their list was not based on advisor submissions, but their own third-party selection process. Which makes it all the more concerning that CNBC didn't vet the form ADVs of the RIAs first, to see all the related insurance entities. And it's not that hard to do. The information is all public. I looked up the firms, searched for their insurance details, and wrote that entire article in under two hours and spotted the issues." See: The SEC needs to clean up its semantics before accusing RIAs of inflating AUM."

It is important to get professional advice for investment success.
More important it is essential to get un-conflicted advice that is in your own best interest.
A recent Supreme Court case decided that it was a breach of Fiduciary duty to not monitor a client's investments. Do you believe a person that is not being paid a fee to manage your investments is monitoring those investments?



The S and P 500 index was trended up this week +.75%.

The Dow Jones World Index trended up this week. +.25%
The CRB Commodities index trended down this week. -.63%
The Gold Index trended up this week.  +1.8%
The US Dollar index trended down this week. -.70%
The 10 year Treasury Yield index trended down this week.
-4.95%
The 10 year Treasury Price index trended up this week.
+1.03%
Inflation Linked Bonds trended up this week. +.65%
US Aggregate Bond Index trended up this week. +.52%
The International Aggregate Bond Index trended up this week.  +.63%

The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.


2014 2nd qtr + 2.91%

2014 3rd qtr + 2.63%

2014 4th qtr +3.04%

2015 1st qtr +3.57%


It pays to stay diversified and not chase prior winners!


Many investors take the wrong approach looking primarily at recent return.

Overall risk measures and managing downside risk play an increasing role in end results.

Investors instead should be focused on managing Dynamic Beta exposure, evaluation of Active Share, Sharpe ratios, Sortino ratios and Alpha.


Please forward this on to anyone who you think may be interested.  

The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. Decisions on making any investment should be made only subsequent to a thorough professional analysis of the overall individual financial picture and the goal for the investments. This writing is not to be construed as an offer of personal advice or an offer to follow any recommendation. Any investments should only be entered into after a thorough analysis from your personal Adviser and related to your current financial picture and goals.

Any investments can lose value. Diversification is not a guarantee against loss.

The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. All decisions about investments should be made within parameters of risk, time frame, financial position and overall asset allocation.

Thursday, June 18, 2015

Weekly Update 6 13 2015

This week's theme is planning.

"The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market." George Soros

"A financial crisis is a great time for professional investors and a horrible time for average ones." Robert Kiyosaki

"It does not do to leave a live dragon out of your calculations, if you live near him."  J.R.R. Tolkien

"A goal without a plan is just a wish."  Antoine de Saint-ExupĂ©ry

"By failing to prepare, you are preparing to fail."  Benjamin Franklin

"Give me six hours to chop down a tree and I will spend the first four sharpening the axe."  Abraham Lincoln

"If you don't know where you are going,
you'll end up someplace else."  Yogi Berra



Wealth Management is about managing investments and so much more.
Investing is the beginning and important to managing your financial life, then comes continuing to plan for how you and others might assure the maximum benefit from your wealth.

Investment environments and personal needs change.

After gaining a significant amount of wealth, distribution options and considerations increase.

Have you reviewed your investment portfolio allocation lately?
Consider a review every six months.
Have you reviewed beneficiaries within the last three years?
Is your will up to date?
Do you need a revocable or irrevocable trusts?

Andra Reason is a Certified Public Accountant and Certified Specialist in Estate Planning. She serves as a great resource to our clients.

Are your investments held in a trust or directed to a trust in the will?

Below are some important considerations in choosing a trustee, contingent trustee or co-trustee?



David H. Lenok writes " ... when it comes time to choose a trustee who's tasked with ensuring that the vehicle functions properly, most clients gravitate towards those they trust the most-family."
"Unfortunately, this instinct, though it seems logical on its face, is often incorrect. Often a non-family trustee is the superior option and can help sidestep certain notable pitfalls of including family in trust administration. An interesting recent blog post lays out 3 major reasons why clients may want to choose a non-family trustee:
  1. 1.   Time Consuming. You'll notice I used the term "trusts administration" above, and that's on purpose, as it's the rare description of duty that's extremely apt on its face. A trusteeship is, at its heart, an administrative position. A trustee is required to maintain detailed records on the trust's business, keep track of deadlines, maintain accounting reports and stay on top of and comply with ever-changing laws. That's all on top of his responsibility to keep the various beneficiaries informed as to the trust's status. Finally, he isn't allowed to complete these tasks in the way he deems best, but must follow rules laid out in the document itself and abide by numerous, occasionally conflicting legal duties. All in all, it's a heavy weight to lay on someone and may represent too much of a time commitment for even a trusted family member.
  2. 2.   Liability. The time commitment isn't the only burden taken on by a trustee. He's also a fiduciary who's legally liable for the proper management of the trust's assets. This position opens up the possibility that beneficiaries may personally sue the trustee for any perceived mismanagement (which can even occur in cases where the trustee has followed professional advice). Having a family member, particularly a non-professional, to assume such risk can be irresponsible for all parties involved.
  3. 3.   Family Conflict. The elephant in the room when it comes to families and money.  A trustee can be placed in some fairly awkward positions that can cause or exacerbate all manner of intra-family tension. Questions of favoritism, nepotism or even undue influence can create flashpoints that will disrupt the administration of a trust. A third party trustee will still have to deal with many of these issues, but he'll have the luxury of doing so with a clean slate and not bringing any emotional baggage/history of his own along for the ride."


It is very important to plan when you are healthy and young. None of us knows how long life, strength or health will remain.
We have been introduced to Dick Edwards lately. He is personally connected to Nate Brammer in our office. His book "Mom Dad Can We Talk?" is a good reference for planning for retirement and aging.

 


"Dick Edwards has thirty-five years of experience working closely with older adults and their families. For the last twenty years he served as administrator of Charter House, a nationally recognized model for excellence in retirement living and long-term health care affiliated with the world-renowned Mayo Clinic in Rochester, Minnesota."

"For fourteen years, Dick served in the leadership of Aging Services of Minnesota (ASOM), a statewide association of not-for profit providers of services for older adults. His excellence in leadership and knowledge concerning caring for aging parents has been honored by Mayo Clinic, LeadingAge, and ASOM."

Many issues around financial planning and issues to address were addressed recently in a bulletin issued by the SEC.
Of special concern are issues surrounding aging and elder care. This touches many of us as our parents, grandparents and we, ourselves get older.



"Preparing for Your Own Financial Future: Hope for the Best, But Plan for the Worst.
Losing the ability to manage your finances may be something you'd rather not think about.  We often think about our financial capabilities, like our ability to drive, as an important measure of our independence.  But planning ahead may help you stay in control of your finances, even if diminished financial capacity becomes a serious problem.  Taking the steps listed below now may help avoid or minimize problems for you and your family. 
  • Organize your important documents.  Organize and store important documents in a safe, easily accessible location.  That way, they are readily available in an emergency.  Give copies to trusted loved ones or let them know where to find the documents.  Typically, the following documents will be most relevant to your finances:
    • o    Bank and brokerage statements and account information.  Make a list of your accounts with account numbers.  Keep a separate list of online bank and brokerage passwords and PINs and keep the lists in a safe place.  In addition, make a list of the locations of your safe-deposit boxes, including where the keys to the safe-deposit boxes are located.  Also, keep your recent bank and brokerage statements available, as well as information about how to get those statements online if you access them electronically.
    • o    Mortgage and credit information.  Make a list of your debts and regular payments, with account numbers and names of the financial institutions that issued the loans or credit cards.
    • o    Insurance policies
    • o    Pension and other retirement benefit summaries
    • o    Social Security payment information
    • o    Contact information for financial and medical professionals, such as doctors, lawyers, accountants, and securities professionals.
    • Provide your financial professionals with trusted emergency contacts.  If you have a financial professional, such as a broker or investment adviser, provide that person with emergency or alternate contact information in case he or she cannot contact you or suspects something is wrong.  You may wish to discuss with your financial professional what you would consider to be an "emergency," and specify when he or she may contact someone on your behalf.  Discuss what information can be shared with your emergency contact.  For example, you might provide your financial professional with a simple written instruction, such as:  "Please call my son Mark at (222) 555-5555 if: (i) you are unable to reach me and there appears to be unusual activity regarding my account; (ii) you are unable to reach me for two weeks irrespective of any unusual account activity; or (iii) if you think I am confused or acting strangely."  Providing an emergency contact generally will not enable the person to make investment decisions on your behalf - so be sure to take other steps if you want someone else to manage your accounts if you cannot.
    • Consider creating a durable financial power of attorney.  A financial power of attorney gives someone the legal authority to make financial decisions for you if you cannot.  That person is called your agent.  The document is called "durable" because it remains in effect even if you become incapacitated.  You retain the ability to change it or cancel it as long as you are still able to make decisions.  A financial power of attorney differs from a health care power of attorney, which only covers health care decisions.  You may want to consult with a lawyer to determine whether a durable financial power of attorney is right for you.  After signing a durable financial power of attorney, you can still manage your money and property as long as you have the ability to make decisions. Also, it is important to remember that you always have the option to change who you choose to act as your appointed representative and the individuals you allow to access your financial information. As you are essentially giving financial decision-making authority to your agent, it is critical that he or she be someone you can trust.   
    • Think about involving a trusted relative, friend, or professional.  Besides listing them as emergency contacts, you may wish to give a trusted relative, friend, or professional an overview of your finances (even if you don't want to share all the details).  For example, you might ask your broker or bank to send duplicate statements to your daughter or accountant.  You might also consider asking a trusted friend or relative to join you on periodic visits to your financial professional.  This would give someone you trust a sense of your financial situation and with whom you've been doing business.  If you choose to involve a relative or friend, it is very important it is someone you are sure you can trust.  Consider discussing the selection of the person with a number of other trusted friends or relatives.
    • Keep things up to date.  Be sure that if something changes (for example, you open a new account) you keep your information as current as possible.  Also, your trusted contact may change over time.  Keep your financial professionals informed of changes regarding who has authority to review your account or whom they should contact in case of an emergency.
    • Speak up if something goes wrong.  If you ever think someone is taking advantage of you, or that you've been the victim of a fraud, speak up.  Sadly, sometimes even financial professionals and people we know commit financial crimes.  There's no shame in being a victim, and the sooner you let someone know about it, the better chance there is of putting an end to it.  Contact information for reporting abuse appears at the end of this document.
Helping Others Who May Have Diminished Financial Capacity
You may have a parent or other loved one with diminished financial capacity, or who you worry may face that issue in the future.  If so, consider the following steps to help. 
  • Have an open conversation about investments and other financial matters sooner rather than later.  Even if it feels awkward, it is important to have an honest conversation about finances.  Ask your loved one to consider taking the steps outlined above.  Even if he or she does not want to take these steps, ask your relative or friend to consider how he or she wants to maintain control of his or her finances in the future.  Explain that advance planning is a way to make sure that a trusted person makes decisions if he or she no longer can.
  • Help your relative or friend with managing finances.  You may also offer to take a more active role in helping your loved one manage his or her financial accounts.  Be alert both to mistakes that your loved one may make in managing finances and to any signs of elder financial abuse.  It can be hard to tell whether actions are the result of confusion or of financial exploitation.  For example, if you find that a loved one has paid the same bill twice by mistake, you should help him or her fix the error.  But beware that multiple or unusual payments could also be a sign of financial exploitation, so don't rule out that possibility without looking into it.  Be on guard for any sudden changes in investments that seem out of keeping with the loved one's longstanding goals, values and investment style.  These changes may have come about because of confusion or may be a sign of financial exploitation.
  • If your family member or friend has named you to manage money or property, understand your responsibilities and how you can protect your loved one from financial exploitation.  For example, your loved one may have named you as an agent under a power of attorney or a trustee under a revocable living trust.  Read the Consumer Financial Protection Bureau's Managing Someone Else's Money guides.  They walk you through your duties, tell you how to watch out for financial exploitation and scams, and tell you where you can go for help. 
If you've been asked by a loved one or friend to help out with his or her finances, here are some things you can do to help. 
  • Help with ongoing financial responsibilities.  You may need to take on immediate tasks, such as helping to pay bills, arranging for benefit claims, preparing tax returns, or helping with investment decisions. 
  • Review their investment portfolio.  This might be a good time to help reevaluate the person's portfolio in light of his or her financial and medical situation.  Does the person expect a big increase in health care, personal care or other costs as a result of his or her illness or disability?  If so, will he or she have enough cash or liquid assets on hand to cover those costs?  (Liquid investments are assets that the owner can sell readily and without paying a hefty fee to get money when it is needed.)  These can be complex questions and you may wish to discuss them with a financial professional.  Keep in mind that buying and selling investments on behalf of a loved one requires legal authority, through a power of attorney, a trust or similar arrangement.
  • Assess the riskiness of their investment portfolio.  All investments involve some level of risk.  But do the investments present the right level of risk at this stage of the person's life?  If not, you may wish to consider contacting a registered investment adviser representative or registered broker-dealer representative for help.
  • Contact their investment professional.  If your loved one has a financial professional and has authorized that person to speak with you, make the professional aware of your loved one's condition.  This is critical so that the financial professional can make recommendations appropriate to the client's financial needs and can watch for signs of declining financial skills or potential abuse."


Our clients are not only our responsibility as professional fiduciary advisors, you are our friends and extended family. You are important and we are constantly concerned about your quality of life as well as with your investments.




The S and P 500 index was flat this week after swings up and down.
The Dow Jones World Index trended up this week. +.36%
The CRB Commodities index trended up this week. +45%
The Gold Index trended up this week.  +.75%
The US Dollar index trended down this week. -1.43%
The 10 year Treasury Yield index trended down this week.
-1.43%
The 10 year Treasury Price index trended down this week.
-.36%
Inflation Linked Bonds trended up this week. +2.43%
US Aggregate Bond Index was flat this week.
The International Aggregate Bond Index trended up this week.  +1.18%

The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.


2014 2nd qtr + 2.91%

2014 3rd qtr + 2.63%

2014 4th qtr +3.04%

2015 1st qtr +3.57%



It pays to stay diversified and not chase prior winners!


Many investors take the wrong approach looking primarily at recent return.

Overall risk measures and managing downside risk play an increasing role in end results.

Investors instead should be focused on managing Dynamic Beta exposure, evaluation of Active Share, Sharpe ratios, Sortino ratios and Alpha.


Please forward this on to anyone who you think may be interested. 


The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. Decisions on making any investment should be made only subsequent to a thorough professional analysis of the overall individual financial picture and the goal for the investments. This writing is not to be construed as an offer of personal advice or an offer to follow any recommendation. Any investments should only be entered into after a thorough analysis from your personal Adviser and related to your current financial picture and goals.

Any investments can lose value. Diversification is not a guarantee against loss.

The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. All decisions about investments should be made within parameters of risk, time frame, financial position and overall asset allocation.





Wednesday, June 10, 2015

Weekly Update 6 6 2015

This week's theme is consistency and predictability.

"Variety may be the spice of life, but consistency pays the bills."  Doug Cooper

"If you're not consistently carrying out your plan ninety percent of the time, you really don't have a plan at all." 

"My name is CONSISTENCY, I am related to SUCCESS. We should hang out more often than...every once in a while."

"Success is an outcome of conscious choices pursued consistently and tirelessly." Vishwas Chavan

"An intelligent consistency is the foundation of genius."  

"Some habits of ineffectiveness are rooted in our social conditioning toward quick-fix, short-term thinking."

"Habit 1: Be Proactive
Habit 2: Begin with the End in Mind
Habit 3: Put First Things First
Habit 4: Think Win/Win
Habit 5: Seek First to Understand, Then to Be Understood
Habit 6: Synergize
Habit 7: Sharpen the Saw"
 Stephen R. CoveyThe 7 Habits of Highly Effective People

"Live, love, laugh, leave a legacy."  Stephen R. Covey

I have talked about the seven habits and Stephen Covey before. I think these habits should be instilled in every process of choice for a person or business.

As an investor if you don't plan and continue to revisit your plan you are not going to reach your expectations.
Many investors don't know where they are currently with investment goals. They simply haven't taken the time to think through how to start and they don't have an end point in mind.

Of course this is the point of investing, where you end up or; do you have what you need when you need it?

We seem to be our worst enemies in navigating the turbulence of market fluctuations.


Barry Ritholtz writes; "In other words, the traditional starting point of economics is actually false. As a model, it helps conceptualize commerce, but in the real world it can be and often is wrong. This is where the behaviorists come in to show how peoples' irrationality affects their decision-making. Specifically:
We get too emotional about the possibility of making lots of money;
We get too depressed about the risk of losing money;
 Our cognitive processes fool us constantly into believing things that are untrue;
 We have poor impulse control, an inability to think long term and lack patience."
What is the answer to ending up where you want, when you want to be there?

Craig Israelsen puts forth this study comparing a stock only portfolio, a traditional 60% stock and 40% bond portfolio and a diversified 7 asset class investment portfolio.

Full disclosure; we subscribe to being included in 7twelve partners research group.

  





RISING RATES
Israelsen says;"I found it particularly interesting that, during the inflationary periods of the 1970s, the seven-asset model had considerably better performance as a retirement portfolio - finishing with a balance of $2,086,863 for the 1970 to 1994 period, while the 60/40 model ended up at $1,090,081. The pattern recurs in the first four 25-year periods."
"Why that's worth considering: Over the past 33 years - after the U.S. economy began to decline in 1982 - U.S. bonds have enjoyed an era of unusual prosperity. The average annualized return of U.S. bonds was 8.39% from 1982 to 2014."
"But during the 34 years from 1948 to 1981, when interest rates were rising in the U.S. economy, bonds produced an average annualized return of 3.83%."
"When interest rates eventually do rise, the performance tailwind for U.S. bonds that has been fostered by declining interest rates could turn into a stiff headwind. An asset allocation model that has a large commitment to U.S. bonds (such as the classic 60/40 portfolio) may be at risk - because if interest rates rise, bond returns will likely be far lower than over the past three decades."
"This suggests that a more broadly diversified portfolio is prudent - both in the accumulation years and in the retirement years." 

The answer to being more certain about reaching the end point, that you have in mind, is lowering the maximum drawdown in your investments while increasing potential risk adjusted return.

 
Note all investments may lose value and past performance does not indicate a future return.

 
The question becomes what are willing to risk in order to get to your return target?
Are you willing to risk at a point in your return stream a 40 percent or more downturn?


What is most efficient in these examples?
The answer seems to be apparent! The 7 asset class diversified investment strategy.
The stock only portfolio may or may not get you to same place, most investor sell in a drop and buy after an upturn. This is called chasing returns. This is the a strategy that is no win!
It has been shown, over and over again, almost all stock investors do not realize stock market return potential. It simply becomes too stressful to remain invested through a 40% to 50% downturn.
Many say they could but only those under 40 years old who had very little invested during the last severe downturn.
It hurts a little less if you had $100,000 invested and your account went down $40,000 as opposed to a drop of $400,000 or more!


At Marrs Wealth Management we implement personalized and diversified portfolios built around your life situation to efficiently meet your investment need. We build these investment portfolios around seven broad asset classes; Cash, US Stocks, Global Stocks, Alternative Strategies, Hard Assets and Real Estate.

The S and P 500 index trended down this week. -.69%
The Dow Jones World Index trended down this week. -1.11%
The CRB Commodities index trended down this week. -.29%
The Gold Index trended down this week.  -1.57%
The US Dollar index trended down this week. -.64%
The 10 year Treasury Yield index trended up this week.
+14.65%
Inflation Linked Bonds trended down this week. -1.03%
US Aggregate Bond Index trended down this week. -1.2%
The International Aggregate Bond Index trended down this week. -.60%

The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.


2014 2nd qtr + 2.91%

2014 3rd qtr + 2.63%

2014 4th qtr +3.04%

2015 1st qtr +3.57%


It pays to stay diversified and not chase prior winners!


Many investors take the wrong approach looking primarily at recent return.

Overall risk measures and managing downside risk play an increasing role in end results.

Investors instead should be focused on managing Dynamic Beta exposure, evaluation of Active Share, Sharpe ratios, Sortino ratios and Alpha.


Please forward this on to anyone who you think may be interested. 


The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. Decisions on making any investment should be made only subsequent to a thorough professional analysis of the overall individual financial picture and the goal for the investments. This writing is not to be construed as an offer of personal advice or an offer to follow any recommendation. Any investments should only be entered into after a thorough analysis from your personal Adviser and related to your current financial picture and goals.

Any investments can lose value. Diversification is not a guarantee against loss.

The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. All decisions about investments should be made within parameters of risk, time frame, financial position and overall asset allocation.


Monday, June 1, 2015

Monthly Update 5 30 15

This week's theme is efficiency.

"Efficiency is doing things right; effectiveness is doing the right things." Peter Drucker

"Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall." Stephen Covey

"The most general law in nature is equity-the principle of balance and symmetry which guides the growth of forms along the lines of the greatest structural efficiency." Herbert Read

"Efficiency in government is a more elusive concept than efficiency in the private economy, which may be measured relatively easily as output per units of input. What is the government's 'output?' " Nathan Myhrvold

"During periods of extreme fear or greed, you don't have the proper balance between those two to generate market efficiency and you get extremes in behavior." Andrew Lo

"There is nothing so useless as doing efficiently that which should not be done at all."  Peter F. Drucker
A good explanation of why investors continually become caught up in making wrong decisions is we think markets are rational and are taught that index investing is the best you can do- just go with it!
Cullen Roche wrote a good blog on why the efficiency of markets is a useless truth. See Link below.



Markets may know all public information but this does not mean rational decisions are made on basis of the information.
Also there is a lot of information to decipher that lies behind all that information. There is also quite a bit of information that is not disclosed publicly or may even be misstated.

If you read my update last week you would know that, "What you see is all there is", is not a good way to make decisions.

You may have said to yourself over the past few months; "I can't sell or rebalance this investment it has done so well"!
Or: "I can't sell or rebalance this investment look at the capital gains I will owe taxes on."

If you invest on emotional bias, you will likely have no idea if you will or will not achieve your investment potential.
The goal of investment management and financial planning is to increase probability of achieving a specific purpose.

The S and P 500 Index has a long term annualized return of somewhere between 6.5% to 7%, if your investments have done significantly higher it may be time to take some profits and rebalance. 

We look very deeply into valuations both absolute values and values relative to other assets that are non-correlated.





.Valuation is a great predictor of long-term stock returns
CAPEMonthly returns1 year returns5 year returns10 year returns20 year returns
5-100.3%11.6%13.2%10.6%9.1%
10-154.9%7.9%6.7%7.6%7.7%
15-200.6%3.8%5.4%5.7%5.1%
20-250.6%2.9%5.0%2.7%3.0%
25-301.0%3.5%0.1%3.9%1.3%
30-350.7%-0.9%-1.1%1.3%0.6%
over 350.7%-0.8%-4.1%-2.6%no data points
*Source: Shiller's website. Returns are annualized.




Why are value managers like GMO and Research Affiliates calling for very low returns in US Stocks over the next five to seven years?

https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-class-forecasts/gmo-7-year-asset-class-forecast-(april-2015).pdf?sfvrsn=2 


https://www.researchaffiliates.com/AssetAllocation/Pages/core-overview.aspx 



The current CAPE Cyclically Adjusted Price Earnings Ratio is around 28, which historically has been a twenty year high point in valuation of the S and P 500 Index. It could still go higher, as it has in the past, only two times in the last 130 years, 1929 and 2000. 


The Nasdaq Index peaked in 2000 at above 5,000 and only last month did it again go over that mark, fifteen years later.

Valuations do mean something in determining potential for long term gain.
"You can only squeeze so much from a turnip" is an old adage I have heard.

However when the stock market goes up as it has the last two years you need to grin and bear a little pain to stay diversified and rebalance.

http://www.pragcap.com/being-a-good-loser-is-essential-to-becoming-a-good-investor



Cullen Roche writes; "The unfortunate reality about trading higher returns for greater predictability is that you have to learn to be a good loser. You have to accept the reality that your neighbor who is leveraged to the gills in tech stocks will outperform you handily when things are going well. You have to accept the reality that you will open your portfolio at times and see red positions. You have to accept the reality that the S&P 500 will often outperform your portfolio. But you also get to know that, over the course of a volatile market cycle, your savings will be allocated in such a manner that you will have created greater predictability about how much of that savings will be actually be there at certain times when you might need it. Therefore, by learning to accept losses you actually increase the odds that you will achieve your financial goals."

http://seekingalpha.com/article/3214676-john-hussman-voting-machine-weighing-machine?ifp=0 


John Hussman says: "One of the best single measures of prospective 10-year S&P 500 total returns is the ratio of nonfinancial market capitalization to nonfinancial gross value added (essentially corporate revenues without double-counting), including estimated global revenues.

"The following chart shows current valuations on an inverted log scale, along with the actual subsequent nominal annual total return of the S&P 500 over the following decade."


"Put simply, depressed valuations are associated with strong subsequent long-term equity returns; elevated valuations are associated with poor subsequent long-term equity returns. Interest rates are useful for comparative purposes, but don't imagine that low interest rates can be associated with bothelevated equity valuations and satisfactory long-term equity returns."





This is not good news for traditional 60/40 stock bond investors. Stocks are at relative highs and bond yields at relative lows.

Bonds have held up a 60/40 blend for the past fifteen years, which may be over for the near term?




At this time in the cycle of financial markets it is especially important to be broadly diversified across multiple asset class investments and with investment managers who use proven strategies to minimize risk.
The traditional havens of safety in cash and bonds, may not be the best place to diversify?

Looking at alternative assets to stocks and bonds may make sense.
Also alternative strategies such as long-short and tactical or strategies that focus on finding value or hedging risk could be more effective to reaching long term goals then buy and hold benchmark centric investments.

The S and P 500 has run in place since February. The only positives in May come from gold and the dollar.


The S and P 500 index is flat for May
The Dow Jones World index is negative for May. -2.09%
The CRB Commodities index is negative for May.
-2.09%
The Gold index is positive for the May. +1.07%
The US Dollar index is positive for May. +1.6%
The 10 year Treasury Yield index is negative for May. -1.04%
Inflation Linked Bonds is negative for May. -2.93%
US Aggregate Bond index is negative for May. -.16%
The International Aggregate Bond index is negative for May.
 -1.44%

The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.

2014 2nd qtr + 2.91%

2014 3rd qtr + 2.63%

2014 4th qtr +3.04%

2015 1st qtr +3.57%


It pays to stay diversified and not chase prior winners!


Many investors take the wrong approach looking primarily at recent return.

Overall risk measures and managing downside risk play an increasing role in end results.

Investors instead should be focused on managing Dynamic Beta exposure, evaluation of Active Share, Sharpe ratios, Sortino ratios and Alpha.


Please forward this on to anyone who you think may be interested.  




The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. Decisions on making any investment should be made only subsequent to a thorough professional analysis of the overall individual financial picture and the goal for the investments. This writing is not to be construed as an offer of personal advice or an offer to follow any recommendation. Any investments should only be entered into after a thorough analysis from your personal Adviser and related to your current financial picture and goals.

Any investments can lose value. Diversification is not a guarantee against loss.


The above is for informational purposes only and not an offer or recommendation to buy or sell. Past performance is no guarantee of future return. All decisions about investments should be made within parameters of risk, time frame, financial position and overall asset allocation.