Archive for the 'Investing' Category



While the markets have shown some recent volatility, the one thing we can count on is our dividends and dividend increases. One of our popular holdings, Microsoft (MSFT) announced a dividend increase yesterday. Their quarterly payment has been upped from $.28 to $.31 giving investors an 11% raise in their income. When is the last time you received an 11% raise?

For more information on how to have a life long stream of rising income schedule a free portfolio analysis today!

bill@401advisor.com

Investors.com quote

Here is a link to an article, Biotechnology ETFs Show Rebust Health In August I was quoted in posted at investors.com – the online publication of The Investor’s Business Daily (IBD). Short article focusing on two of the hottest market sectors, biotech and solar/green energy. My take is that it is mainly a consequence of a “risk on” market attitude that comes from global central banks jointly adding money into their respective economies. “Don’t fight the Fed” is particularly appropriate when multiple Fed’s are all pursuing the same easy money policy. Especially now that the ECB has decided to join the party.

Fed Policy and the Market

Below is an excerpt from our Monday report from Sterne Agee, (emphasis added):

“Fed Chair Janet Yellen gave a balanced assessment of the labor market in her keynote speech at Jackson Hole last week, according to Standard and Poor’s Economics. She said there is no “simple recipe for appropriate policy.” She indicated that the economy is improving and that the FOMC now is questioning the degree of slack, and repeated that faster progress toward the employment and inflation goals could speed up rate hikes. She also reminded us that if progress is disappointing, then the accommodative stance could remain intact longer. In other words, the Fed remains data dependent.

 What does all this mean for the timing of the exit from zero interest rates? We still think it is likely to come sometime in the second quarter of 2015.

During the next round of rate increases, investors appear to be fairly confident that equity prices will hold up, theorizing that an improving economy…should help support, if not boost, share prices. In addition, they point to two prior Fed tightening periods in which the S&P 500 held up remarkably well.”

Now let me translate. The consensus amongst Wall Streeters is that rates will increase in the second quarter of next year. This is a case where perception is far more important than reality as this could change if the economy progresses or regresses at a faster pace than anticipated. So “Data dependant” means that moderately bad economic news – the economy is growing, but at a slower pace than expected, will continue to be good news for the market as that would lessen the odds of a near term rate increase. But really bad news, as in recessionary news, or really good news (faster economy = faster rate increases) will be bad news for the stock market. In other words, we are in the bad news is good news market cycle.

Without extreme news, expect a continuation of the stock market rally from here into the end of the first quarter of 2015. The key to a rally continuation will come from first quarter 2015 earnings results. The question will be if an accelerating economy and theoretically rising sales can offset rising pressure on wages and rising costs from interest expenses.

401 Advisor, LLC’s position in our Dividend Income Plus strategy is currently 100% invested, with a rotation to what we deem to be higher quality issues. While the media focus is on the middle east and  domestic turmoil, the real issues are Europe’s economy heading to recession, and China’s aggression in the far east. We’re invested…but nervous with the bailout plan in place.

Defensive investing in a Bull Market

Building equity portfolios in a bull market is hard. Clients get caught up in the exuberance and reckon the more stocks they own, the better diversified they are. Protect your stock enthusiasts with a diversified portfolio built on low correlation, low-beta equities, and the appropriate number of asset classes. Your clients will thank you when their mania wanes.

Article posted on Horsesmouth.com July 10, 2014.

Horsesmouth _ Defensive Investing

“The time to build an arc is when the sun is shining.”

The stock market is reaching new highs while the economy seems to be sputtering along. This has created an environment that has led Brian Nelson, CFA of Valuentum Securities appropriately using a baseball analogy during the baseball All Star Game and Home Run Derby to say, ” If there is an environment more difficult to hit a pitch out of the ball park, I don’t think I’ve seen one.”

My take is similar. The economy is improving and I don’t fear a rise in short term interest rates from the Fed. I’m in the camp that we need modestly higher interest rates to encourage banks to lend. On the other hand, while I don’t see any reason for a market correction, we are definitely due a routine 10% – 20% correction. What I am afraid of is that conditions exist such that an innocuous 10% correction could quickly become a full blown sell off – and very quickly.

And thus we have decided to start building our “arc.” My intent is to stay fully invested within the parameters of our investment models. However, we are definitely rotating our stock holdings into quality holdings. We’ve sold some of our higher yielding but lower quality investments and have sought out low cost, dividend growing cash flow kings that have proven they can weather a storm. We have backtested our holdings against several market scenarios and feel very comfortable should we get a surprise on the down side. At the same time, if the market continues its trek up, I think we will be well rewarded for holding low priced quality stocks.

This is when being “small” works to our advantage. With slim pickings in the markets for stocks that meet our stringent criteria, I am happy to hold 15 – 25 non-correlated stocks in a portfolio and not be forced to own hundreds of issues like a mutual fund.

I recently described my portfolio building process in an article for horsesmouth.com, a subscription site for financial advisors. A copy of the full article has been posted in the Library section of this web site.

Market Sends Mixed Signals

On Thursday HorsesMouth.com published an article I wrote on the market’s mixed signals. Despite most predictions to the contrary, interest rates have declined fairly substantially this year. Falling interest rates are usually a sign of (fear) of a slowing economy. The stock market however, despite a short pause in March, has pretty much marched upward in a surprisingly consistent fashion. The stock market is considered a leading indicator for the economy. Therefore a rising stock market portends an improving economy. So which is right?

In the article I reviewed the economic data for May and other indicators. There is no question the economy continues to show improvement, albeit at an unsatisfying slow pace. I believe the bond market sell off is anticipating a rise in short term interest rates IF the Fed were to put an end to their zero interest rate policy (ZIRP). Although the economy shows modest growth, the growth is seen (by the bond market) as too modest to continue if interest rates were to rise.

For investors we continue with our theme of market seasonality. While our portfolios are fully invested, we are in conservative stock holdings pretty much across the board. Focusing on large U.S. stocks and especially dividend payers. It is a strategy that is working well so for this year.

As a side note, I recently talked to a prospect who said the “competition” criticized my recommendations because I did not recommend being “diversified” by holding foreign stocks and bonds (via a mutual fund). After 28 years of doing this, I still don’t get while some people insist on putting money at risk just to be “diversified.” Europe just went to a NEGATIVE interest rate policy. This is extreme, panic type policy. China is in the midst of a slow down as the government cracks down on corruption and lending practices. My suggestion is to keep your money at home, in the U.S. for now. There will be a time to invest overseas, but I will only do so when the risks are much lower.

Past performance is no guarantee of future results. This article contains forward looking statements based solely on the author’s opinions.

Stock Report

I don’t usually post stock advice, but Apple, Inc. (AAPL) is not the usual stock. Their products have a cult-like following and owners will soon have an opportunity to buy shares of Apple’s stock at a somewhat reasonable price. But does that mean AAPL is a good investment?

Apple, Inc has announced that they will split their stock on June 9 for shareholders of record on June 2. For each share of AAPL owned, investors will receive 7 shares of new AAPL stock. Many times I hear novice investors naively celebrate splits, because of course, “more is good.” But the reality is that in a, strictly financial sense, a stock split is completely neutral. If the split were to happen at AAPL’s current price of about $620 a share, each share will become 7 shares but at a new lower value of $88.57 per share, or a total value of $620.

So why the excitement? In stock investing it is easier (meaning more cost effective) to transact stocks in what we call even lots of 100 shares. At the current price of $620 a share, 100 shares would be a $62,000 investment. More than most individual investors wrap up in a single stock. So in theory many investors will use the new lower price to “round up” their holdings to round lots of 100 shares, or new investors will buy into AAPL at the new lower, more affordable price. Such buying action would drive up the price of the stock.

The question is then, “Should you buy or sell AAPL now before the split”? Regardless of the price of a share of stock its value is determined by such things as revenues, sales,  profits, assets, etc. Remember the value of each share of stock is relative to its financials and is identical before and after the split. So you should only make an investment decision based on those financials, not on whether or not the stock splits. In the case of AAPL, we have a fair value of about $700 a share pre-split, which would be $100 post split. In other words AAPL has room to move up about 12% to be fairly valued. Too me that is a good reason to hold onto AAPL if you are long or own the stock now. A trader can probably make a quick profit, as I do think the stock will benefit from increased demand. A long term investor can get off to a good start with a quick gain, pocket a 2.14% dividend and wait for Apple’s new products to boost long term earnings. But a better strategy might be to avoid the hype, be patient and see if AAPL settles back down in price after an initial run, post split.

410 Advisor, LLC does own shares of Apple, Inc. in our clients’ portfolios. There is no guarantee of future results. Comments made are forward looking and as such opinions can change on a daily basis based on new material facts as they are presented.

So if the Economy is Recovering, Why Don’t You Feel Better?

The N Y Federal Reserve released the information in the chart below this week.
Two takeaways:

  1. 1. Overall consumer debt is rising, but still below record highs set in 2008. Presumably this is a good sign as consumers theoretically only borrow when they feel confident about the future. Wall Street analysts apparently don’t understand the concept of borrowing because there is no other money available to buy stuff…like food.
  2. 2. Student loan debt is at absurd and unsustainable levels. Trouble is most recent college grads don’t have a lot of money to invest, so Wall Street likes to ignore this stat too.

But if you look at the numbers, student loan debt is 125% of all auto loan debt. Considering that most Americans own a car, and only 33% of Americans age 25 to 29 have a college degree the debt per college grad is crippling, considering that cars and thus car loans, aren’t cheap.

chart

What to watch for:
Before we talk bailouts and defaults watch for Wall Street to start bundling and selling pools of student loans to investors. The Government will say what a good idea this is, and investors will feel patriotic as their investments will help fuel more lending and more debt to unsuspecting future college grads. Then wait for the defaults and the billions of dollars retirees will lose out of their retirement accounts. Won’t happen? Just substitute “mortgage” for “student loan”. History really does repeat. (And just as a warning – student loans are already being bundled for secondary market,  )

Are you just starting out? Saddled with debt? Trying to save, pay off debt and live a little all at the same time? If you need help, give me a call and we can get you started with a lifetime financial plan.

Should I Own Bonds?

With interest rates at near all time lows, many investors are questioning whether they should own any bonds at all. Most financial advisors recommend a portion of an individual’s portfolio be allocated to bonds, and not just for retirees but for younger, more aggressive investors as well. This seems counter intuitive to younger investors who generally feel that they have time to weather investment volatility and should maintain allocations that maximize long term returns.

However in investing timing is always important. While we don’t know when a market correction will come, we know one is inevitable. Think of investments in bonds, not as “safe low earning money” but as “opportunity” cash. I can’t tell you how many times I’ve heard investors say that they wish they had had cash available at some point in their investing lives to make an investment at a specific time. Professionally careers are made by a single investment made at a market bottom.

For more opinions, here is a link to an article I was quoted in on whether a bond allocation makes sense for younger investors.

How Are Those New Year’s Resolutions Going?

If you’re like most Americans you made a list of New Year’s resolutions in the best of faith to follow for the year. And like most of us the year’s resolutions became more like this week’s to-do list! If your list included improving your finances, we’re here to help and get you back on track.

I’ve heard that many younger people want financial help, but don’t think they have enough money to ask for professional help. At DeShurko Investment Advisors, we believe that financial planning is the process of saving and investing. It doesn’t matter where you start, what’s important is to reach your goal. Wealth management is the investment process to manage money, once accumulated.

To help out those who want to get started, with a financial plan for their future, we’ve adopted an age-based service and fee model for our financial planning clients. Simply put – for one low annual fee we’ll provide a review and roadmap to financial success. We’ll also use our award winning investment process to manage and invest your 401(k) plan account. No more worrying about what funds you should own and when. We’ll take care of the decision making for you!

Give us a call, and we can discuss your situation with a free initial consultation. Let’s get that Financial Resolution back on track!


bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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