Money Matters Newsletter:
The Investment View from Prescott, Arizona
November 4, 2014
In Your Face
Facebook went from famous to infamous with its share price doing a much publicized face-plant when it first began trading back in 2012. It has recovered nicely, and its revenue generating schemes, which are now becoming known due to the disclosure laws relating to publicly traded companies, are credited for this.
Unfortunately we each get to pay a piece of that price in submitting to ads.
“Submit?” you say! Yep. That 9,000 word privacy document you checked off without reading allows Facebook to sell information about you to advertisers so they can target ads based upon your interests, where you go and what you do. Facebook isn’t really free. It is an exchange of information that you agreed to.
The saving grace is that Facebook gives marketers access to you without telling them who you are, which saves you and I lots of pop-up headaches but shrewdly keeps Facebook strongly in control of the data flow, and the cash flow.
That cash flow is now over $7.00 per Facebook subscriber, annually, and there are over 1.2 billion of us. When you do the math you’ll see why so many say Facebook founder Mark Zuckerberg is a pretty smart guy.
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“Remember: All of the financial theories and all of the fundamentals will never be any better than what the trend of the market will allow.”
~ Greg Morris ~
Investing with the Trend
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What you can do? You can’t stop receiving ads on Facebook-but you can keep Facebook from aiming specific ad topics at you. For a while you’ve been able to hover over the corner icon on an ad and click on a down arrow or X in the upper right corner to keep ads from that company from coming back. Try it.
From the pop-up menu, select “Why am I seeing this?” You’ll get an explanation of what Facebook thinks made a good match between you and that particular ad. Underneath that, there’s a link labeled, “View and manage your ad preferences.” From here, you’ll be taken to Facebook’s entire dossier on you.
It’s a fascinating and slightly scary view of what Facebook has pegged you as being interested in over the years. Mine knew that I had just returned from a trip, and I am not much of a user of Facebook. Gulp.
If you remove all topics, Facebook reserves three pieces of information that it will never let you keep out of its ad-targeting system: your gender, age and where you live. The Preferences page also points out that deleting targeting points will not decrease the number of ads only the relevancy. Did I mention that Mark Zuckerberg is pretty smart?
The reality: Facebook and its friends-ad companies-can tailor ads to you based on tracking where you go on the Web.
Food For Thought
Forgive some student debt for first-time homebuyers?
Wall Street firm BlackRock put forth an intriguing suggestion last week to forgive some student debt for first-time homebuyers, reported CNN Money. It’s too early to say exactly how their stimulus measure would work, and it would take Congressional action to see because the federal government administers the majority of student debt.
The move could be a creative way to ease student debt, which has quickly become a $1.2 trillion Achilles heel in the American economy. Younger generation home ownership is at the lowest level since 1982 and mounting student debt may be part of the problem.
If you aren’t aware, thanks to our government student loan debt is inescapable, even following the student through bankruptcy. This puts students in “indentured servitude,” a type of bondage that debtors would encounter a few hundred years ago.
With unscrupulous bankers seeing easy money from a literally captive market, in addition to paying for tuition and books they now loan kids money for room and board and expenses. Many kids think they on a gravy train, being paid to go to school, without really understanding the long term effects of this debt. With so many students graduating with six-figure school loans to pay off, compounded by sliding wages and so many low-value degrees being offered, it is not surprising to me that many young people can’t qualify for loans due to existing school debt burdens.
“Fiscal policy initiatives targeted at young workers with high levels of student indebtedness might, perhaps surprisingly to some, have an outsized impact in supporting the housing recovery and financial markets,” read a recent BlackRock commentary.
BlackRock estimates there are about seven million people in the U.S. that would be eligible for an FHA-approved mortgage but are burdened by student loans. The thinking is that because they are devoting a large chunk of their income to pay down student debt, they probably aren’t saving for a down payment on a house.
If just one million of them are converted to homebuyers through some form of student debt forgiveness, more than three million jobs could be created, BlackRock said.
A Slice of Life
One of my least favorite chores is to stand in line at the post office to mail Christmas packages. If you share my sentiment, we can help you. Hepburn Capital can offer you the use of our UPS service this holiday season.
Our office maintains a UPS account, complete with the ability to weigh packages, pay for and print UPS labels online. Bring your packages by and in a few minutes our staff can process your packages and, because you have already paid at our office, you can drop them off at the UPS store without having to wait in line.
This is just Hepburn Capital’s way of saying thank you at Thanksgiving and making the holidays a little brighter for those in our circle of clients and friends.
How Are The Markets Doing?
The S&P 500 Index dropped over 7% from its September highs and was negative for the year at one point before beginning to bounce back smartly from the Ebola scare and uncertainty over this week’s elections. The markets are agnostic about which party is in power, but they hate uncertainty. Some weeks back when my last newsletter was written, the election outcome was still uncertain and the potential was high for “October surprises” when the opposition has no time to react.
As of this writing on November 2nd, it seems as calm as politics gets and the Republican election advantage is clear. Knowing which party will be in charge of decisions gives nervous investors some assurance of what might come down the pike, making them comfortable enough to invest.
On the good side, the weakest part of the year for the markets – historically speaking – is now behind us, with the colder months generally being better for making money in stocks.
On the flip side, long term market tops take many months to form and, as of this writing on October 31st, the market has made very little upward progress since the 4th of July. The uptrend since then, if there is one, is pretty weak for a supposedly strong economy, as The Washington crowd tells us we have. Unless we make some significant new highs, we still could be in the process of forming a long term top in the stock market such as we saw in 2000 and 2007.
I’ll be keeping my eye peeled to identify that all-important primary trend as these dynamics unfold. As my friend Greg Morris said in his book, Investing with the Trend, “Remember: All of the financial theories and all of the fundamentals will never be any better than what the trend of the market will allow.”
What’s Going On In Your Portfolio?
We went into October with our Shock Absorber Growth model having very little stock market exposure, holding about 50% cash and in balance hedged with funds that go up as the stock market goes down to offset market fluctuations in remaining holdings. As a result, when the S&P 500 Index dropped over 7% of its value, our growth portfolios hardly dropped at all.
With the newly emergent strength in the stock markets, our growth portfolios have been moved from that very low market exposure to fully invested over the past two weeks, and ended up posting small gains in October, with very little volatility compared to the market.
Our Shock Absorber Growth model currently employs three strategies. The Targeted Growth strategy holds funds invested in health care, biotech, China, a diversified stock fund, a couple of individual stocks and a gold fund. Our Impact strategy is invested in an index fund, and Future Tech is about 90% invested in nano-tech, stem cell, robotics and the Internet of Everything stocks. Future tech continues to hold the only stock hedge we are using to manage the risk in these sometimes volatile stocks.
The Flexible Income model at our new custodian, Trust Company of America, now includes high dividend stocks in the real estate and energy fields, plus two gold funds, a currency fund, a couple of diversified income funds, a high dividend preferred stock fund and an inverse fund that will rise as interest rates rise.
Of course our blended strategies, Adaptive Balance and Adaptive Growth hold investments in both the Shock Absorber Growth and Flexible Income models. The Municipal Income model is fully invested, also.
October was not a good month for our Flexible Income portfolios. I bought the inverse interest rate fund too early and it took our model portfolio down about 1.5% before finally bouncing strongly as I expected. Gold also bit us this past week as it dropped sharply, showing a serious breakdown on its chart and costing us another 1.5%. If the price of gold doesn’t bounce quickly we may be out of gold by the time you read this newsletter.
Scottsdale Office
If it is more convenient to meet with Will in Scottsdale, please call the office to schedule your appointment.
928-778-4000
College Classes Coming
Upcoming classes at Yavapai College include “Managing an Inheritance: Planning It, Getting It, and Keeping It” on February 5th, and “Fundamentals of Investing for Retirees” on Thursdays from Feb 19th to Mar 5th.
Mark your calendars and tell your friends. I’ll provide more details in January.
Our Spotlight Strategy
With our Adaptive Balance Strategy we strive to provide high total return from a combination of investments in both the equity and income markets with an emphasis on the income markets.
Our proprietary indicators are used to determine a stock market exposure that adapts to both strength and weakness in the market, directing exposure to the HCM Shock Absorber Growth strategy from 0% to a maximum of 50% of account value. The balance, 50% to 100% of account value, is invested in the Flexible Income Strategy. The HCM Safety Net indicator is designed to warn of sudden potential declines in which case stock market exposure is quickly reduced.
Mental Floss
Use a can opener on obnoxious plastic packaging.
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.
