March 8, 2011
- ...North Dakota, that is
- ...I would not worry too much about it
- ...a 72% loss for the King of Buy and Hold
- ...both organizations are tax deductible charities
- ...what a change a couple of weeks can make
- Earn Yourself a Management Fee Discount
- ...would you like to save hundreds of dollars annually?
Our Spotlight Strategy
...Socially Responsible Investments
As you are getting this, I am on my way back from Phoenix after spending Monday at a regional meeting of the National Association of Active Investment Managers. These smaller meetings have now sprung up all around the country and have been one of the more successful initiatives I began as president two years ago.
We active managers are sort of a rare breed, and the biggest benefit of membership in NAAIM is the interaction with other active managers. These small groups really focus on personal interactions rather than formal presentations and I learn things and gain valuable insights at every meeting.
OK, OK. In full disclosure, there was a little golf at Troon North thrown in, too. Did I say golf? I really meant therapy. You know . . .
The Investment View from Prescott, Arizona
A dozen times over the past few years when someone was telling me about having trouble finding work or was in danger of losing their house, I related that I could understand their fears because I had been through the very same thing 25 years ago.
Alaska became home in the 1970s after the Army took me there on a tour of duty. I became a real estate investor and a millionaire in my mid-30s. But Alaska's economy is heavily influenced by the oil industry, and when oil prices collapsed in the mid-1980s it created a real estate depression there, much like what we have going on here, now.
At 37 I was as broke as anyone is today. Upside down in a big way. For a year and a half I sold properties as fast as I could to pay the mortgages, lost my house and my car, and finally gave the last couple of properties back to the bank. I climbed into an old motorhome and headed down the Alcan Highway, homeless, unemployed and looking for something better.
My experience, as painful as it was at the time, makes me better at what I do today. I learned about the added risk that illiquidity can bring, and the frustrating feeling of having a problem investment "own you" instead of the other way around. This is why I work exclusively now with investments which can be converted to cash on a daily basis. If something isn't working, I can be rid of it in days and not have it drag me (or you) down.
It also taught me to recognize an overheated market and avoid the worst of the collapses that we saw in 1990, 1998, 2000-03 and 2007-09. If you were reading my newsletters in 2005, you would have been warned about real estate problems in time to get out.
The advice I offer to anyone caught in today's economic problems is "go to North Dakota". They don't have a recession, the cost of living is low and they are developing oil fields that may rival Saudi Arabia's in size. The future there is bright, far into the future.
Usually I get a sneering "North Dakota?" in return. That just tells me that many of the people in economic straits right now may not be willing to do what it takes to break out of their rut.
Cathy and I talk about how many times Alaskan friends said they wished they could do what we were doing when they heard we were moving. Actually they could have, but were not willing to pay the price.
So, with apologies to Horace Greely, I will continue to tell people looking for opportunity, "Go North Young Man" - North Dakota, that is.
With all of the turmoil in the Middle East, oil prices are going through the roof and US stock market indexes have been slipping over the 3 weeks ending March 4th. Certain foreign markets, including China, Brazil, India and a number of small emerging markets are faring much worse, and are experiencing significant corrections made worse by oil worries.
Although things over there are clearly unpredictable, I don't see any real damage to Middle East oil supplies. The price hikes we are experiencing appear to be mostly fear-based speculation.
Two things keep me from getting excited about this, and one is what is not happening in Saudi Arabia. There is no unrest there, and they are the key oil supplier in the region.
More importantly, Saudi Arabia has increased their oil pumping capacity over the years. Right now they have unused capacity sufficient to replace all the oil supplied by Libya and Algeria and still have a million barrels per day of unused capacity left.
We import a little over 20% of our oil needs from the Middle East, including 12% from Saudi Arabia, 3% from Algeria, 4% from Iraq and 1.5% from Kuwait. None from Libya, by the way.
This doesn't mean there can't be disruptions to the oil supplies from overseas, but ri
ght now I would not worry too much about it.
Q: Can you name three consecutive days without using the words Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, or Sunday?
A: Yesterday, Today, and Tomorrow.
Warren Buffet is somewhat of a folk hero in this country, and says he likes to buy investments he can hold forever. Sometimes that can be a painfully expensive mistake, even for someone with Buffet's deep pockets.
In a recent regulatory filing for the end of 2010, reported in InvestmentNews, Buffet disclosed that his company, Berkshire Hathaway, had sold the last of its 8.7 million shares of Bank of America stock which he bought in the second quarter of 2007.
B of A's price on December 31, 2010 was $13.48, a far cry from the $48.89 at the end of June 2007.
If you are counting, that adds up to a 72% loss for the King of Buy and Hold. Yikes!
Food banks get a lot of publicity around Thanksgiving and Christmas, but people get hungry all year long. I'm a believer that if you can help someone, you ought to, and right now the food banks need your help.
Both the Prescott Community Cupboard and the Yavapai Food Bank could use donations of peanut butter, Mac and Cheese, tuna and other canned meats, pasta, powdered milk, canned fruit and other canned goods, tomato sauce, vegetables, beans, and most of all, cash.
Both organizations are tax deductible charities, so don't be afraid to donate a little extra for Uncle Sam, too.
There is a $200 per person ($400 per couple) Arizona state tax credit for contributions to a qualified charitable organization like these two food banks. This is in addition to the federal deductions. Tax credits are a dollar for dollar savings on your taxes, meaning contributions like this might actually cost you nothing. Please consult with your tax adviser regarding your individual taxes.
You can drop food and donations off at the Prescott Community Cupboard, 434 W. Gurley in Prescott, AZ 86301 or at the Yavapai Food Bank, 8866 E. Long Mesa Dr, Prescott Valley, AZ 86314. If it is more convenient for you to drop donations off at our office, 2069 Willow Creek Road, we will be happy to make periodic runs to the food banks to drop things off for you.
Would you like to save hundreds of dollars annually? Simply refer family and friends to Hepburn Capital.
We calculate fees on the total amount of money we work with for a family or other groupings 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 me (and them), mentioning Hepburn Capital to your friends can save you real money.
The easiest way to introduce someone to my work is to forward my 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.
What a change a couple of weeks can make! My last newsletter, two weeks ago, was written the weekend of February 20th, the day before Middle East fighting threw a whammy at the stock market. At that time we were fully invested with "our pedal to the metal" so to speak.
While that newsletter was still in process, I had reduced our Careful Growth* holdings from fully invested to 55% in cash. The investments we retained were mostly gold, silver, oil and natural resource stocks, all of which have continued to do well even as the major market indexes have struggled over the past two weeks.
Most folks recognize that the Federal Reserve's policy of printing money has inflationary potential, but it had not really been showing up in the economy. It is possible that rising oil prices might be what kicks inflation off in earnest, so my investment posture has changed to protect your accounts and potentially profit if inflation really gets traction.
In the past two weeks, I have added to both our metals and oil stocks so the Careful Growth* model is 70% invested with 60% of that in the "hard assets" that I mentioned earlier. These are all things that often do well in times of inflationary pressures.
In the five weeks since I implemented the changes to our Careful Growth* model it has earned over 7% while the S&P 500** has earned 1% and change. Dodging bullets the past few weeks has helped us make money while the stock markets floundered.
Flexible Income* accounts remain fully invested with four different kinds of bond funds, and the stock of a company that invests in residential mortgage backed bonds. Despite the reputation of these bonds, having taken down some really big banks a few years back, this company is profitable and pays a great dividend. We also own gold and silver in our income accounts as surrogate currencies.
The Flexible Income* model is up 2.14% so far for the year through March 4th, putting income accounts on track for a good year. Balanced accounts* have benefited from the strong performance recently of both the Careful Growth* and Flexible Income* sides of the Balanced portfolios*.
For our Socially Responsible Investments clients, we invest using the same methodology as our Flexible Income, Careful Growth and Balanced Growth non-SRI portfolios. What changes is our use of socially screened mutual funds and ETFs when they are available in the appropriate market sectors.
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. 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.
** The S&P 500 and Nasdaq Indexes are unmanaged lists of stocks considered representative of the broad stock market. Investors cannot invest directly in the S&P 500 Index.
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.