Archive for the 'money management' Category



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.

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.

“Growth” portfolios

As of noon today our “Growth” portfolios will be 80% in cash.

I anticipated that the market would be a little volatile as we head into earnings season, but selling sentiment seems to have been unusually strong over the past week.
Hopefully markets will rebound with earnings announcements, but if sell off is related more to China and Europe, than this could be more than just a 10% “correction.”

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!

Portfolio Changes

Last week market sentiment was decidedly negative. While the news has focused on turmoil in emerging markets (not a factor), the real question is economic growth in the U. S. As I have said many times, corporate earnings have to be strong in 2014 to justify current market values. Last week’s sell off centered around a PMI report that came in much weaker than expected. My feeling was that the market did not fully consider December’s bad weather, and the affect of mid-week Christmas and New Year’s holidays. This week we have seen some stabilizing technical indicators that imply the market is holding at these levels and is due a rebound.

In response, for our Dividend and Growth Strategies we have sold off a fixed income position and purchased Ford (F), Altria Group (MO), and GE (GE). I have avoided owning tobacco stocks for 27 years, but at current valuation and a 5.65% yield I had to jump on MO. GE is one of my favorite stocks, and looks better now after an 11% decline and a 3.59% dividend yield. While Ford is more cyclical than I like, it has suffered an 18% decline and is cheap with a 2.72% yield. I am very bullish on the outlook for the aluminum bodied Ford F-150 pickup truck.

While these purchases over allocate us to equities, I expect to re-balance in a couple of months if not weeks. I’m comfortable that we can ride through a correction due to our relatively high dividend yields and low valuations across the portfolios. If we see the short term rally I expect, we’ll take profits and reallocate back into our 20% fixed income position.

A Look Ahead

It’s been a busy year already planning for the year ahead. While 2013 saw a rotation in the stock market from the less risky sectors like utilities and into growth sectors like technology, with the likelihood of slow economic growth ahead I expect 2014 to reverse that trend.

Here is the link to where I discuss in more detail my outlook for the year ahead.

I was also interviewed for an article at wealthmanagement.com entitled “Advisors’ Top 10 Investment Ideas for 2014.” My ideas were picked for two of the “top ten ideas.”

For those of you that actually like my charts, below is a copy of an article that I wrote for horsesmouth.com

2014 Outlook

(Originally published at horsemouth.com on December 27, 2013)

The biggest worry heading into a New Year is that with the market at record highs, it certainly must be overvalued and due a correction.

While a correction might actually be welcome (the pause the refreshes), worrying about whether the market is too high is quite a relief compared to recent worries of the past – financial meltdown, Europe/Euro implosion, China hard landing, U.S. recession/depression… So while anything could happen in the short run, let’s look into the crystal ball and see what we can see.

Technically Speaking

Below is a Graph of SPY, the SPDR S&P 500 Index ETF since October of 2012. Highlighted by the vertical lines are the three recent time frames marked by our seasonal strategy – better known as the Halloween Effect. In short, global market history shows that most of a stock markets’ gains come from the period of November first ( the day after Halloween) through the end of April (when you will hear the phrase “Sell in May and go Away…”). While 2013 proved to be a good year to be in the market – for the entire year, you can see a marked difference in market performance. While the market went up during the entire period, between the second and third vertical lines, you can also see that it did so with more volatility than the period prior, and so far in the period after.

Figure 1 SPY October 2012 – December 2013

chart1
Source: freestockcharts.com

Bottom Line

Technically the market is in a solid uptrend, and until it breaks out of this trend by going up through the top line of resistance, or down through the bottom line of support, we are in a bull market and investors should be taking advantage of it.

Looking at the bigger picture, Figure 2 looks at SPY using monthly returns since 1998. One of the debates about the market is whether we are still in a secular bear market that started in 2000. A secular bear is defined as a market that has reached a peak, declined and failed to rise above and stay above that peak. So in 2007 we breached the 2000 peak, but failed to stay above it. Today we are working on nine months of being above the 2000 and 2007 peaks. The question is can we stay there?

Figure 2 Spy 1998 – December 2013, Monthly Data

chart2

Source: freestockcharts.com

Bottom line – it will take a 17% decline to bring us down to the 2000 high. Given that we are in a seasonally strong period, it’s likely that it will take a full blown official correction of 20% or more to breach the 2000 high.  While 20% corrections aren’t uncommon, more than that is, so barring a macro event as of yet unknown origin (the proverbial Black Swan) I believe we have exited the 2000 – 2013 secular bear and have entered into a new secular bull market.

What about the nearly “new daily highs?”

Below in Figure 3 is the classic secular Bull/Bear Markets graph from Crestmont Research (crestmontresearch.com/docs/Stock-Secular-Explained.pdf). Quite simply in a secular bull market, the market is supposed to record news highs! Note: the folks at Crestmont believe we are still in the middle of a secular bear market.

chart3

Fundamental Data

Is the market too high?

The common mistake our clients make is to think that price alone has any relevancy to whether the market, or a security is priced too high, or too low for that matter. While maybe not the best, the better and most common metric is Price to Earnings Ratio. While there are many variations on the “proper” P/E to use, I like to look at the earnings for the most recent quarter, annualize and use the current market price. Based on information from zacks.com third quarter earnings for 2013 should beat year ago earnings by about 4.9%, putting  third quarter earnings at about $22.25 per share.  Annualized that would be $89.00 a share. Based on the S&P 500 at 1842 we have a current P/E of 20.7. The good news is that the third quarter solidly beat expectations of only 1.10% earnings growth. Bad news is that earnings estimates for fourth quarter are coming down. Based on current estimates of 6.8% YoY growth, actual earnings will decline from third to fourth quarter 2013 – meaning P/E ratio goes up, not down.

Bottom Line

This market really is getting expensive. Not to the eminent crash level, but to a level where it is hard to see huge market gains in 2014. Earnings absolutely have to catch up to current market prices and keep the current P/E at or under 20. Secular bear markets historically start with P/E’s in the mid 20’s so we could see a solid 25% gain from current market levels – and then seriously talk about bubble territory.

The Economy

One of the best data series for predicting economic conditions is the St. Louis Financial Stress Index and the Chicago Fed National Activity Index. Below in figure 4 you can see that financial stress is negative and heading lower (good) and the activity index is positive and moving higher (good). So not only is economic activity healthy and improving, the financial conditions exist to bolster continued improvement.

chart4

Don’t Fight the Fed

While many interpret this as a warning sign with the Fed announcing a tapering of QE III, I see it as a positive. While the U.S. Fed has announced a very modest reduction to QE III, new hire Janet Yellen does not have the history to indicate she will be hesitant to reapply the stimulus at the first sign of economic softness. Plus, the Fed has made a point to reiterate ZIRP policy, well into 2015. Remember that pre-crisis interest rate policy was monetary policy. So we are simply transitioning from extraordinary monetary policy to “normal’ monetary policy. In other words the Fed remains accommodative. And that’s not just in the U.S.

From the Daily Pfennig put out by Ever Bank, “…markets were focused on China and Japan.  Japanese data showed inflation continues to move higher and manufacturing is recovering, but the yen still sold off to 5 year lows.  The cash crunch in China ended as the government injected cash into the banking system.  And commodity prices moved higher helping to boost the commodity currencies. “

Bottom Line

The world is awash in cash, and continuing to get more. The financial crisis led to six years of belt tightening by consumers and businesses, and maybe, just maybe the world is ready to spend again. And just to confirm, Figure 7 shows total outstanding consumer credit – actually looks like we stopped pausing back in 2011.

chart5

What’s it All Mean?

One of the hardest things about market predictions is that there is really only a very loose correlation between economic growth and the stock market in the short run. In 2013 we had very anemic economic growth but an extremely strong stock market. 2014 is looking to be another year of steady if not spectacular economic growth. However the stock market looks to face two strong headwinds. First is the current valuation. To break a 20 P/E ratio there needs to be some feeling of “irrational exuberance” to ignore valuations and move higher. In 2013 the market was driven by some of the big technology names and IPO’s. But I don’t see much room for a sector rotation to undervalued companies too drive the averages in 2014. I did a simple stock screen on finviz.com. The only search criteria I used was NYSE listed stocks (3311 total) and screened for P/E under 15 (long term historic average) and positive earnings expectations for 2014 – not exactly a big hurdle. The results were a list of only 263 stocks. The market is broadly expensive.

Bottom Line

This is not the time to fight the technicals which are very strong. But I would be very wary as we move forward. Any hiccup to the goldilocks scenario that is being priced into the market could lead to a very quick 20% correction. But there aren’t any obvious reasons to return to the secular bear levels (below 2000 highs) and stay there for any length of time. The world is simply awash with cash, and nobody is likely to do much monetary tightening for at least another year.

Last Minute Gifting Advice

I hate to put a damper on the biggest gift giving season of the year (the time between Hanukah and Christmas), but one warning could save major headaches down the road.

Many times seniors like to take advantage of the current $14,000 gift giving exclusion. This allows anyone, at anytime, to give up to $14,000 a year to as many individuals as they desire, without paying income tax or affecting their estate tax exclusion. The confusion and potential problem is that such gifts are not allowed under Medicaid rules, and could potentially limit when a nursing home patient would become eligible for Medicaid assistance.

A little background. Nursing homes today can easily run over $80,000 per year depending on level of medical care required. Few seniors have the income necessary to fully pay this kind of cost, especially if a stay at home spouse is involved. Assets are typically sold off to pay the difference. In the circumstances of an extended stay, many seniors will eventually rely on Medicaid to supplement the cost of care. However, Medicaid has strict financial requirements. Meaning you must spend down all but a very small amount of your assets before Medicaid will assist with the costs. Medicaid also considers any gifts given over the last five years as if they were still part of your current assets, and so will not start paying until additional costs equal to those gifts are incurred.

For example, Mrs. Smith gives $10,000 a year to each of four children every year for the past five years. She enters a skilled care nursing home facility costing $80,000 per year. Her Social Security and pension equal $20,000 a year, so she must liquidate $60,000 of savings each year to cover the cost. In three years she has exhausted her original $180,000 nest egg. Normally Medicaid would now step in and cover her costs over her $20,000 per year income. However, since she was still gifting the $10,000 to her children for two of the prior five years, Medicaid will not start until she incurs additional nursing home costs equal to the amount of those gifts, or $80,000. The children will be expected to pick up her nursing home tab for two years before Medicaid will begin payments.

While this is a simplification, formulas and state rules will come into play, the general point is valid. So while gifts are always nice, if you are receiving financial gifts from elderly parents or grandparents, you may want to put that gift into the bank, instead refurbishing the kitchen.

On a Positive Note
I can’t end without a more positive planning note. If you are planning on making gifts to charity, consider giving shares of appreciated stock directly. This way you avoid paying capital gains taxes, still receive the full charitable deduction, and a charity can cash in the securities without being taxed on the gain. Most charities have brokerage accounts established just for such gifts. If not we can make arrangements for them.

For more information on proper gifting techniques feel free to call and schedule an appointment for a free consultation.

Quoted in Wall Street Journal

Below is a copy of a Wall St. Journal article where I was asked about our usage of online investing site CoVestor.com
To view the original article requires a subscription, so the article is reproduced below.

You can also follow our investment model performance at CoVestor Ltd. here

Learning to Embrace Online-Advisory Providers

Some advisers see online rivals as friends, not enemies

By Murray Coleman

Growing competition from discount brokers and fund companies is leading many financial advisers to embrace developers of online-advisory sites, often considered a threat to their existence.

“If you don’t take advantage of some of the more innovative advisory services online, you’re basically burying your head in the sand,” says Ross Almlie, president of startup TCI Financial Advisors in West Fargo, N.D., with $37 million in assets.

As more players such as Fidelity Investments and Charles Schwab Corp. push into offering financial advice, traditional full-service planners need to look for better ways to get word out about their skills, says Bill DeShurko, president at 401 Advisor in Centerville, Ohio, with $50 million in assets.

“People appreciate the fact that we’ve learned to work alongside online service providers to create a better investing experience,” he says.

Mr. DeShurko, who says he has been in the business for 26 years and has watched closely the advance by online advisers, is partnering with Covestor Ltd. The Boston-based firm offers online portfolios run by professional money managers that individual investors can follow and invest alongside with.

It’s a service that allows advisers with strong track records of running private accounts to bring their portfolio strategies to a larger audience, Mr. DeShurko says. He has blended a few of his existing account strategies to develop portfolios at Covestor that require minimum investments of between $10,000 and $20,000 each.

“Instead of turning away business from people with smaller accounts, we can put them into our Covestor managed accounts,” he says.

Since starting to charge for its asset-management services in 2010, Covestor says about 80 of its 139 portfolios are managed by registered investment advisers. The others are hedge-fund managers and professional traders. All are screened by Covestor, says Asheesh Advani, the firm’s chief executive. On the company’s board is James Cornell, a former president of Fidelity’s private wealth-management unit and John Sinclair, ex-research director at Fidelity.

Mr. Advani says Covestor tracks hundreds of different portfolio managers and invites the top performers to be a part of its online marketplace. It splits fees with managers, who charge anywhere from 0.25% to 2% a year to run their portfolios.

Ex-mutual-fund manager Barry Randall has decided to use Covestor as his main avenue to market a technology stock-focused investment strategy. Now, he serves as the chief investment officer at Crabtree Asset Management in St. Paul, Minn., which manages about $800,000 in assets.

“I had experience managing portfolios, but no real background in marketing,” Mr. Randall says. “So this is a perfect match. It lets me focus on what I do best.”

Instead of setting up client accounts through larger players such as Schwab or Fidelity, Mr. Almlie of TCI Financial Advisors has decided to take much of his business to another new company, Motif Investing.

The online advisory service has built some 120 different baskets of stocks and exchange-traded funds that focus on different themes–from companies that can profit from health-care reforms to stocks trading with less beta, a measure of volatility.

Such bundles of securities can be molded to almost any investors’ personal preference. For example, Mr. Almlie says he has a client who is passionate about investing in drug companies that helped her to overcome breast cancer.

“She wanted a broad-based portfolio with a slice of cancer-fighting biotech stocks, but we couldn’t find the right combination through a traditional mutual fund or ETF,” Mr. Almlie says.

Each motif comes without management fees. Instead, those using its portal can buy a basket of securities for a flat $9.95. They can also add or delete individual stocks or ETFs inside each portfolio for $4.95 a transaction.

“We act as an online broker and provide the technology to let investors build their own portfolios around any theme they’d like to target,” says Hardeep Walia, the firm’s chief executive and founder.

Starting early next year, Motif Investing plans to offer a service that will let advisers build securities baskets for clients using their own existing trading and back-office systems.

“They’ll be able to use their own software to custom design portfolios and to control whether their motifs are made public or not,” Mr. Walia says.

Write to Murray Coleman at murray.coleman@wsj.com

Update on one of our Dividend and Growth Plus Strategy Holdings

DuPont beats by $0.04, misses on revenues. DuPont’s (DD) Q3 EPS came in at $0.45 and beat consensus by $0.04, while revenue climbed 5% to $7.73B but missed expectations by $50M. “Third-quarter sales volumes and operating earnings were stronger across most businesses compared to a soft quarter last year,” said DuPont Chairperson and CEO Ellen Kullman. “Fourth-quarter operating earnings will be up substantially from last year. For the full year, we are on track to deliver modest earnings growth.”

Comment: Earnings news is good for maintaining DuPont’s current 3.03% yield. With a modest 13.8 P/E ratio there should be positive momentum behind the stock price moving into the fourth quarter based on guidance for earnings to be up substantially in the fourth quarter.

Is now the moment to invest in the stock market?

You are invited to an exclusive online presentation by a diverse team of Portfolio Managers on Covestor. They will share with you their current market concerns, provide important new insights, and explain how it’s possible to play both offense and defense amid the recent increase in market uncertainty.

Wednesday, September 25, 2013

12:00 PM EDT

The Portfolio Managers presenting at the webinar will be:
Martin Leclerc of Barrack Yard Advisors – a 30-year investment management veteran
Bill DeShurko of 401 Advisor – author of “The Naked Truth about Your Money” and a 20-year financial services veteran
David Fried of Fried Asset Management – publisher and editor of The Buyback Letter

RESERVE your spot today! Register Here!

After registering, you will receive a confirmation email containing information about joining the webinar.

Brought to you by GoToWebinar®
Webinars Made Easy®


bill@401advisor.com • 937.434.1790

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 498 other followers

Go to webpage:

Go to webpage:

Follow me on Twitter

on Amazon

Link to my weekly column.

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

Archives