Money Matters Newsletter:
June 1, 2015
An Easy Feeling of Satisfaction
The Investment View from Prescott, Arizona
Micro loans range from a few hundred to a few thousand dollars and can provide life changing financing to individuals in third world
countries.
Kiva.org is a 501(c)3 charity that runs a worldwide micro lending clearing house, sort of like eBay for microloans. On their site, you can browse listed borrowers by location, enterprise type, gender, loan size and other metrics and invest in increments as small as $25.
My personal Kiva portfolio includes loans to a group in the Congo to buy bags of used shoes for resale. Another loan went to a woman in the Philippines who wants to buy nets for her fishing business. A woman in Tajikistan wanted to buy cattle. And Agricultural inputs for farmers in Kenya, and Uganda, and many more.
Always liking to encourage entrepreneurs, I find the photos and stories listed on Kiva.org about my borrowers very compelling.
The loans pay me no interest, just a feeling of satisfaction of having helped someone bootstrap themselves. In fact, 98.6% of loans get repaid, a phenomenal rate, and a testimony to the effectiveness of Kiva’s local Field Partners who screen, package, disburse and earn money from the loans.
Kiva’s website has pages where a prospective lender (like us) can see track records of various Field Partner’s defaults, delinquencies, numbers of loans and such.
Loans generally pay off in a little over a year, and the repayments can be reinvested into new loans or withdrawn. The friend who introduced me to Kiva loaned $100 per month for 15 months and then had enough repayments coming in that he no longer needed to add new money and just reinvested his repayments.
The Kiva.org website is remarkably easy to figure out. My first time on, it took me about 10 minutes to look it over and begin making loans. You can use Paypal or a credit card. It’s that simple. Want a unique gift idea? Try a Kiva gift card.
Check it out. It’s fun, and you’ll feel good doing it.
Slice of Life
Last month was the annual conference of the National Association of Active Investment Managers (NAAIM), of which I was president in 2008-09. Those were certainly interesting times in the investment industry.
A new idea NAAIM has implemented is the NAAIM Shark Tank, patterned after the TV show where entrepreneurs pitch products and ideas to venture capitalists. NAAIM members pitch innovative investment ideas to fund managers, looking for capital and often getting critiques.
NAAIM members are considered the Thomas Edisons of the industry, always looking for new ways to use technology and developing new investment styles to deal with the vagaries of changing markets. This is cutting edge stuff – way different than ordinary index fund investing.
NAAIM Shark Tanks aren’t open to the public, so the information presented is raw and uncensored. Track records and methodologies are torn apart and examined closely, presenting fascinating looks into the decision making “black box” of each presenter. Every year I pick up at least one Shark Tank investing nugget that can be applied to portfolios I run.
Impact is one of the underlying-strategies included in Shock Absorber Growth* portfolios that came from a NAAIM Shark Tank idea. Since its implementation in our portfolios on June 12th of last year Impact has earned 10.4% vs 9.18% for the S&P 500** during the same period. And Impact’s largest drop in value was -4.03%, about half of the S&P 500’s** 7.40% decline during the Ebola scare from Sept 18-Oct 15. Its seven trades have delivered 5 winners and only 2 losers. Clearly this is a good strategy for growth investors.
With ideas like Impact, now you know why I say that NAAIM dues are the best money I spend on my business each year.
Earn a Discount on Our Fees
Would you like to save hundreds of dollars every year? Simply refer family and friends to Hepburn Capital.
We give a “volume discount” based on the total amount of money we work with for a family or other grouping of clients, including friends. The higher the amount of assets being managed for the group, the lower the fee percentage becomes for everyone in that group.
Besides being one of the nicest things you can do for us (and them), mentioning Hepburn Capital to your friends can save you real money. The easiest way to introduce someone to our work is to forward our newsletter to them. Here is a link that will allow you to forward it with a just click.
Thank you for your help and support.
How Are The Markets Doing?
The S&P 500** is my normal stock market benchmark because it represents about 80% of all dollars in the US stock markets. The Dow Jones** gets a lot of headlines because it is an older index, but it represents only 30 stocks and about 25% of all stock market dollars. The Russell** and Nasdaq** indexes contain more than 500 stocks, but they hold many small companies that really don’t move the markets. So I look first to the S&P 500** for clues about what is happening and often refer to it as “the market”.
Since February 24th of this year, the S&P 500** has posted new all-time highs six times. Perhaps you heard it in the news. However those six new highs only amounted to a .73% gain. The market’s upward momentum is waning as you can see in the S&P 500** chart below.
The narrowing triangle shown in the chart is called an indecision pattern. Eventually the market will tell us its intent by breaking out significantly above or below the resistance and support lines shown. Considering that the two lines are only about 1.5% apart as of this writing on May 30th, and narrowing steadily, it won’t take much of a move to create the breakout.
Combining this picture with the waning strength of the 4 year “presidential cycle” and traditional summer weakness called “Sell in May and Go Away” by adherents, this is not a time to be an aggressive investor.
In the past 3 months, interest rates have spiked up significantly hurting bond portfolios because the bond markets normally act like a teeter-totter going up when rates go down, and going down when rates go up. High yield stocks were also hit hard this past month or two as they reacted to this change in rates.
Gold has been locked in a sideways trading range and had not moved much, up or down, for several months.
Transportation stocks that often lead the economy, continue their slide, underscoring the weakness in the economy. GDP numbers were revised downward last week showing that the US economy actually shrank in the first quarter of 2015. With 3% population growth we need 3% GDP growth or the economic pie begins to shrink. One more quarter of GDP shrinkage will mark a recession.
Peter Drucker wrote in his seminal business book, Management, “Forecasting is not a respectable human activity and not worthwhile beyond the shortest of periods”. It is hard to imagine a recession after the government printed many trillions of new dollars, but stranger things have happened.
But with Drucker’s words ringing in my ears I am not going to try to predict what the economy will look like in another quarter or two out. But the market’s loss of momentum and economic weakness concern me and are two reasons why I have gotten a little more conservative over the past few weeks.
What’s Going On In Your Portfolio?
There were lots of changes made in HCM portfolios this past month.
The Income portfolios* were hit hard by spiking interest rates, so weaker parts of the portfolios, including all real estate and some high dividend stocks were sold off. As of Friday, May 29th, cash levels had risen to 30%, greatly reducing our risk if the trend continues.
Municipal portfolios* also hit an air pocket as interest rates spiked, so mid-month I added a hedging instrument designed to go up if munis go down, to help stabilize principal values.
Shock Absorber Growth portfolios* had a good month despite the underlying strategies having very different results. That is what diversification is all about.
Underlying strategies in Shock Absorber Growth* portfolios include Future Technologies* which had a very strong month, outperforming the market. The Impact strategy* moved to cash mid-month, and Targeted Growth*, held back by lackluster energy stocks, was in line with the market as a whole.
Adaptive Balance portfolios* (50% growth and 50% income, currently) were flat during May with gains from the growth strategies offset by losses on the Income side. Adaptive Growth* portfolios (80% growth and 20% Income) showed small gains as growth carried the month.
College Classes Coming…
Fundamentals of Investing for Retirees
June 10th marks the beginning of my next Fundamentals of Investing for Retirees class at Yavapai College.
This class has been the most popular investing class at YC, running for 25 years straight. It is designed to help investors become more confident about their financial decisions. In an easy to grasp format this class provides a broad knowledge of investments preferred by investors approaching or already in retirement. Learn the ins and outs of stocks, bonds, mutual funds, annuities and more. Topics include recognizing risk, controlling the tax impact of IRA withdrawals, avoiding common investment mistakes and simple risk reducing strategies that anyone can use.
I try to keep the classes lively, and the most fun has been when friends wanting to learn brought other friends and the social interaction level is high. If you know someone who has complained about their finances or who has financial decisions to make, please suggest this class to them. Telling your friends about me is one of the nicest things you can do.
Mark your calendars, and call 717-7755 to register for course # SU15-118. Tuition is $65. The class runs for 3 Wednesdays, beginning June 10th, from 3:00-5:00 pm.
Managing an Inheritance: Planning it, Getting it, Keeping it
If you plan to be on the receiving end of an inheritance from a parent or other loved one, planning is crucial if you hope to preserve your windfall, save on taxes and avoid family squabbles. This discussion will guide you through the heart of complex issues, both emotional and financial, that beneficiaries face, during the three phases of inheriting: planning your inheritance, receiving it, and making your life better because of it. Topics include documents you may need, dealing with disability, the use of trusts, basic estate planning principals and protecting your new assets.
This two hour class will be at Yavapai College on Wednesday, July 8th from 3:00-5:00 pm. Mark your calendars, and call 717-7755 to register for course # SU15-124. Tuition is $45.
Scottsdale Office
If it is more convenient to meet with Will in Scottsdale, please call the office to schedule your appointment.
928-778-4000
Our Spotlight Strategy
Impact* is our spotlight strategy of the month. It is an underlying strategy in Shock Absorber Growth* portfolios, including Adaptive Balance* (50% Shock Absorber Growth) and Adaptive Growth (80% Shock Absorber Growth)
With our Impact strategy we strive to provide a high rate of capital appreciation using leveraged and inverse leveraged Index mutual funds.
We move back and forth between either leveraged long, leveraged short (inverse) or money market mutual funds. The proprietary HCM Safety Net suite of indicators is used to warn of potential stock market declines in which case exposure may be quickly reduced or hedged using inverse funds or ETFs.
Click here to read more about the Impact Strategy.
Mental Floss
Install a regular coat rack low down the wall to store shoes safely off the floor.
New Conservative Income Strategy
In the next few weeks I plan to unveil a new strategy that will have even lower risk than our Flexible Income* portfolios. If you are comfortable with annuity like returns, but are turned off by hard-to-understand products, long commitment periods or high redemption fees, I think you will like my new Conservative Income strategy*.
Like everything I offer, it will be liquid on a daily basis, with no up-front commissions or exit fees. Because it will trade very infrequently, it will also offer a lower fee structure.
Call the office if you would like to discuss the details of this new strategy designed for conservative investors.
Time for a Review?
I don’t like to call you and bug you about your investments like many broker types do, but I am always happy to go over your portfolio with you. In fact, it is very important that we do reviews periodically so that we can ensure that our investment objectives are still in sync with your life situation.
If you have not had a portfolio review for a while and would like one, please call the office at 928.778.4000 to schedule an appointment, either by phone or in person.
If you don’t feel the need for a formal review, please remember that it is important for you to call me if you have a change in your financial situation, your goals or your sensitivity to risk.
If you would like a current copy of our Privacy Policy or our SEC Form ADV, Part 2, you can find them at our website at www.hepburncapital.com/images/PrivacyPolicy.pdf or www.hepburncapital.com/PR/form-adv.pdf respectively.
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.
Flexible Income
Adaptive Balance
Adaptive Growth
Shock Absorber Growth
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Hepburn Capital Management, LLC adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Hepburn Capital Management, LLC, an Arizona Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2014 William T. Hepburn. All rights reserved.
