Author Archive
Rebalancing your portfolio
Recently, I visited a prospective client in New Jersey. He is currently a client with Fisher Investments, and his advisor told him never to rebalance since that involves market timing.
I have to hand it to this financial advisor for recognizing that market timing is an unproductive endeavor, but he is so wrong about rebalancing that I am compelled to write this article.
Rebalancing is not a market timing activity, it is calendar-driven or condition-driven. For instance, you may decide that you will rebalance your portfolio on January 1st of each year or whenever an asset class allocation is off by 20%.
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Morgan Stanley Smith Barney
I went to a Morgan Stanley financial advisor associate recruitment meeting recently to spy on how they train their new financial advisors.
They have an extremely rigorous 36 month program. New associates are expected to pass series 7 and series 66 license testing in the first 12 months. These licenses enable them to charge both fees and (hidden) commissions. (Comparatively, my series 65 license prohibits me from charging commissions.)
As soon as they get the licenses, they are expected to go into “production.” The firm sets very tough production targets. If they fail the targets, they will be kicked out of the program.
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Why I Am Bullish About The Market?
Posted on: June 9, 2013
I wrote this article in October of 2011 after the market had a brutal summer. I made a bullish call. Since then, the S&P 500 is up 44%. I must say I am less bullish now than I was then.
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What happened to the market in August and September?
Between July and the end of September, markets lost between 13.5% (Dow) and 27% (Emerging markets) depending on which market you are looking at.
I pored through economic data and could not see any marked deterioration in the economy. In fact, on balance, I see continued slow improvements.
Pundits attribute the market tumble to 1) political gridlock in Washington and 2) the European debt crisis. I don’t buy either of these explanations.
View original post 363 more words
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Is this your fund manager?
Securities and Exchange Commission Chairman Mary Jo White supports a new rule that would allow hedge funds to market directly to the public. I think that’s a fantastic idea. Let me explain why.
Between 1998 and 2010, hedge fund managers earned “only” $379 billion in fees. Do you know how much they made for investors?
Before you answer that question, you should be aware that one-third of hedge fund money is channeled through funds of funds. Their managers need their cut too. Between 1998 and 2010, their take was about $61 billion.
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10. How Often Do Market Corrections Happen?
9 Variable Annuity Fees You Don’t Know You are Paying
8. Morgan Stanley Wealth Management Makes My Life Easy
7. Why Asset Class Diversification is Superior
6. Physicians: Qualified Retirement Plan for Asset Protection
5. Lessons learned from three prospective clients
4. The High Cost of Fee-based Financial Advisors
3. Profit from Harry Dent’s predictions? Think again
2. Be Careful When Buying a Condo as a Rental Property
Also see Top 10 in April.
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I wrote this article at the thick of the financial crisis. I followed his advice and my clients were able to get back even before many other investors. My first client to get even was on Christmas of 2010. The overall market only gets back to pre-crisis level in January of 2013. Here is how I implemented his four point advice:
- Though it was extremely uncomfortable, I kept my clients on their asset allocation plans. In fact, we rebalanced into equity at the bottom of the market.
- We rebalance out of the rallying treasuries to invest in tanking corporate bonds.
- We know the limit of our intelligence, we just keep to our asset allocation plans.
- We only invest in index funds and asset class funds. No actively managed funds were used at all.
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This is based on an interview David Swensen done on Fox News Network.
1. Have a strong decision-marking process
Investing success requires sticking with decisions made uncomfortable by the variance of opinions. In his own words:
Think carefully how it is that you are gonna allocate your assets and stick with it. Too many individuals were excited about the equity market 18 months ago and were despairing 3 months ago. It should have been the other way around. They should have been concerned about valuation 18 months ago and excited about the opportunity to put money to work at lower prices 3 months ago.
2. Sell mania-induced excess, buy despair-driven value
On his favorite area of despair-driven value, David Swensen has this to say:
I think the most interesting area is the credit market. Bank loans are trading at extraordinary low value. High-grade corporate debts, below investment grade corporate debts…
View original post 183 more words
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It has been one year since Facebook IPO. Most of my top 10 reasons last year arguing against buying FB stocks are still true today. Remember the hype leading up to the IPO, then ponder this line of mine: “The more successful the Wall Street money machine is, the less likely you will get rich.”
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坚强点
1. Facebook is a great service to help you keep in touch with friends and family. But a great service does not equal great investment.
2. When was the last time you clicked on a Facebook ad? I can’t recall when I ever did. The click-through rate for Facebook ads is 10% that for Google ads, for good reason. Google ads are delivered at the moment you have actionable intent, while Facebook ads are delivered when you don’t want any distraction.
3. As more and more people use mobile devices to access Facebook, this will present a big challenge since it is nearly impossible to display distracting ads on tiny mobile screens.
View original post 290 more words
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New York Stock Exchange
Recently, I got a call from a physician client of mine who asked a fantastic question. The Shiller PE of the S&P 500 index is at 24 now, much higher than the historical mean of 16 – is the market headed for a fall?
What is the Shiller PE?
This is a stock market metric invented by Yale Professor Robert Shiller. Basically, it is the average of the PE ratios of ten consecutive years. Because of that, Shiller PE is also called PE10.
Professor Shiller found it to be a reasonably good measure of valuation of the whole market: the higher the Shiller PE, the more expensive the market.
Back to my client’s question, I told him right away that I don’t know the answer. I don’t make investment decision based on opinion. I have to research historical data. After I hung up the phone, I asked my assistant to study the relationship between the Shiller PE and forward one-year and forward three-year returns.
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Tax Strategy for Entreprenuers before They Sell their Business: Donor Advised Fund
Posted on: May 14, 2013
Tax planning tips
Last week, I went to a luncheon seminar hosted by Fidelity Charitables, a division of my custodian company Fidelity Investments.
I went there because 30% of my clients are business owners. I know that one-third of them have strong charitable intent, and helping them do well by doing good is part of my responsibility.
Part of the dilemma of successful business owners who have charitable intent is this: They make a lot of money when they are running their business, and especially at the time they sell their business. But they give away their money to the causes they care about usually in retirement when they do not have as much income to write off. Without careful charitable planning, they will end up paying a lot more in taxes and have a lot less to give to charity.
Here comes the rescue plan: Donor Advised Fund (DAF).
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Morgan Stanley Smith Barney
Last weekend, I went to New Jersey to meet a potential client who is an executive at a pharmaceutical company.
He told me that, as part of the executive benefit package, the company refers executives to Morgan Stanley where they get “free” financial advice. I smirked and said: “Well, we will find out how free it is. One thing I know, though, Wall Street firms are not known for charity.”
It turns out that Morgan Stanley advised him to open several, separately managed accounts (SMA), each with a management fee of 1.5%. The reason for the multiple accounts?
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10. Why Asset Class Diversification is Superior
9. Are Financial Advisors Required to Disclose Fees?
8. Lessons learned from three prospective clients
7. How Often Do Market Corrections Happen?
6. Physicians: Qualified Retirement Plan for Asset Protection
5. Variable Annuity Fees You Don’t Know You are Paying
3. Profit from Harry Dent’s predictions? Think again
2. The High Cost of Fee-based Financial Advisors
1. Be Careful When Buying a Condo as a Rental Property
Also see Top 10 in February.
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.
Get informed about wealth building, sign up for The Investment Scientist newsletter
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I met with three prospective clients on my trip to Los Angeles last week. I did a quick financial review with each one of them and gathered some lessons learned as well.
Prospective client A is a physician in his late 60s. He has already reached retirement age but he needs to keep working since he has less than $1mm saved for his retirement.
All that money is in tax deferred accounts, meaning far less than $1mm is available for his retirement. This is NOT retirement security.
Client A is not an extravagant person, so why is he in such dire straits?
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Medicine is a profession fraught with legal risk. According to an AMA survey for the period 2007-2008, for every 100 doctors, there were 95 lawsuits.
The survey also reveals that physicians 55 years and older are eight times more likely to get sued than physicians 40 years and younger.
Not that they make eight times more medical errors, just that they are richer lawsuit bait.
That reminds me of a joke. Why won’t a shark attack a lawyer? Professional courtesy.
Back to the topic at hand, many physicians in solo or small practice simply use a SEP IRA as their retirement plan. It is very simple to set up, and the contribution limit is a generous 25% of earned income or an annual limit of $49,000. What is there not to like about it?
Click to get my white paper Wealth Management Guide for Physicians.
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Bullet train
I just came back from a long trip in China and Taiwan. During the trip, what impressed me the most was China’s bullet train. We rode the longest high-speed rail line in the world – Beijing to Guangzhou – which started services only a few months ago.
The train is futuristic, comfortable and extremely smooth. Zipping at speed of 300 km/h or about 190 mph, the water in my glass sitting on the table stayed still.
With such a speed, one could travel from New York City to Washington DC in one hour and 15 minutes, or from New York City to Chicago in three and a half hours. High-speed rail truly shrinks the country.
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New York Stock Exchange
The S&P 500 closed the first quarter at a record high. Should that worry investors? The short answer is, No.
When the market was 30% below the high three years ago, I did some research. I categorized all market conditions into:
1. Breaking a new high.
2. Less than 10% below historical high.
3. Between 10% and 20% below historical high.
4. Between 20% and 30% below historical high.
5. Between 30% and 40% below historical high.
6. More than 40% below historical high.
Then I calculated the one year forward returns of the six conditions.
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10. January Barometer Effect: What Will the Stock Market Do for the Rest of 2013?
9. Email Scam Targets Financial Advisor Clients
8. Why Asset Class Diversification is Superior
7. How Often Do Market Corrections Happen?
6. Variable Annuity Fees You Don’t Know You are Paying
4. Profit from Harry Dent’s predictions? Think again
3. The High Cost of Fee-based Financial Advisors
1. Be Careful When Buying a Condo as a Rental Property
Also see Top 10 last month.
Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.
Get informed about wealth building, sign up for The Investment Scientist newsletter
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