Money Matters Newsletter:
The Investment View from Prescott, Arizona
February 3, 2015
Much News is Misinformation
Since then I have built a business where I react to the facts, not conjecture or speculation of what might happen if this occurs – or that occurs. There are just too many variables for anyone to know what the future really holds. And, the pros you see on TV and the Internet all know that. So why do they continue to lead us in the wrong direction? Follow the money!
Most pundits work for someone other than you, often institutional investors like hedge funds, mutual funds or pension funds and their allegiance is to their investors, not you. Some are shills for brokerage firms that create new issues of stocks or bonds which need to be pushed off onto investors quickly. These firms are always selling, never buying. So they need buyers for what they sell. As a result they have well oiled PR machines that put out whatever needs to be said to drum up buyers. This is known as the “Sell side” of the business.
Remember that market prices are set when buyers and sellers agree on a price. If there is an imbalance in the number of buyers or sellers, the price will move up or down until a balance is found.
If an institutional investor needs to sell a truck load of a particular stock, they need a whole lot of buyers or their huge amount of selling will create an imbalance and drive the price down before they can sell all their shares.
So they need buyers to take the other side of their trade, and that is where you come in. Pundits are fed stories to lead investors to believe that a particular stock is a good buy. These stories are regurgitated on TV or the Internet, aimed at investors who are always looking for the latest hot tip. A wave of buyers comes into the market, helping the institution unload a stock they think is no longer worth holding.
Two weeks ago I saw a well respected commentator advising investors to buy multinational companies “due to the strength in the dollar”. Actually, this is the opposite of what you should be doing. In a strong dollar environment, companies who do some of their business in Euros or Yen lose money when those currencies get converted back into dollars for accounting here in the US. In fact, the Dow Jones Industrial Average**, which is full of multinational stocks, has been the weakest of the major US stock indexes over the past month.
The moral of this story is, don’t believe everything you read or hear in the news. In fact don’t believe half of it, because I am firmly convinced that half of all news these days is misinformation. Follow the money!!
“Don’t believe everything you read or hear in the news. In fact don’t believe half of it, because I am firmly convinced that half of all news these days is misinformation. Follow the money!”
~ Will Hepburn ~
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Paper Statement Delays
If you have not signed up for electronic delivery of statements, I apologize for the delay in getting your printed statements to you. There was an approval required of me before they were to be sent out, and I thought I had conveyed my approval to Trust Company of America, but I guess I was not clear enough. I’ll chalk that up to this being my first statement cycle at TCA, as well as yours. Please be assured that we are taking steps to tighten up the process.
My statement was postmarked January 22nd, and arrived early last week. If you have not yet received your December 31st statement, please contact the office at 928-778-4000. We can print and send you a copy from the office while we resolve why your statement has not arrived by mail.
Of course, if you have signed up for electronic statements on TCA’s Liberty account access platform, this delay did not affect you, because your statement is available on Liberty. I would suggest saving a PDF copy of electronic statements for your records.
Slice of LIfe
If you have never been on a cruise, the Mexican Riviera is a wonderful place to start. Two weeks ago, Becca and I went – her first cruise, but definitely not her last, she says.
This time of year you can see whales almost every day, usually several at a time. And the ship slows down when they are nearby to give them a better chance to notice us and get out of the way. If you pay attention to the speed of the ship you don’t have to stare at the water all day to do whale watching.
Becca and I spent an afternoon at sea hanging out with comedian and magician Joseph Tran who performed the night before in the 750 seat on-board theater. The three of us spent a couple of hours learning cribbage – none of us had played before. I’m not sure if anyone ever warned me to never play cards with a magician, but I should have known better. Naturally, Joseph won.
If you get to Puerta Vallarta, be sure to walk the Malecon, their boardwalk. They have spent big bucks putting in dozens of whimsical bronze statues – some looking like they came from Han Solo’s bar scene in Star Wars.
And, be sure to have lunch at Pipi’s, a few blocks up from the Malecon. The guacamole is made to order at your table and they have tender shrimp the size of lobster tails! It was absolutely the best Mexican food I have ever eaten.
How Are The Markets Doing?
The sideways patterns of the past several months are starting to make the stock market look toppy. What does “toppy” mean? It means investors are beginning to use up days as an opportunity to sell so every good stretch is followed closely by an air-pocket type drop.
To be clear, however, this potential topping pattern is not complete, and does not appear to be a major pattern. Nevertheless, it is definitely on our radar screen.
When the market churns along without making any progress that is called being “stuck in a trading range”. Considering that as of January 30, 2015, the S&P 500** stock index has eked out only a .35% gain in over 6 months. The market is not going up, but it is not going down either. We are definitely in a trading range.
If the market continues down, then this analysis will change, but despite the jitters that a toppy looking trading range can bring, the sky is not falling, yet.
Certainly, the market has some formidable issues to deal with. Deflation, where the prices of things drop instead of rise as they do during inflation, seems to be taking hold again and threatening our economy. There is recession and political issues in the Eurozone, risk of debt defaults in energy dependent countries and companies caused by falling oil prices along with a host of other problems.
This kind of market does call for close monitoring, because if it does break down you do want to be ready, but at this point I would take this market one day at a time and try not to get caught up in scare headlines.
What’s Going On In Your Portfolio?
The S&P 500** stock index dropped 3.1% in January. I’m pleased that our fully invested Shock Absorber Growth* portfolios did better than that despite posting small losses. This is the lower risk aspect of my style of investing created by my shock absorber hedges – investments that go up as other things go down.
Currently Shock Absorber Growth* portfolios are made up of 3 underlying strategies: Targeted Growth, including indexed health care, biotech funds and stocks; Impact, which uses a leveraged index fund; and Future Technology stocks.
After a poor year in 2014, I made significant changes to our Flexible Income* strategies in the 4th quarter, swapping out ¾ of our holdings from bond funds into high dividend paying stocks, and that has proven to be a good move. Flexible Income* accounts gave us a great performance in January, with one-month gains of around 4 percent.
Interest rates on 10 Year Treasury bonds have dropped to 1.68% as of this writing on January 31st. With the S&P 500* Index paying 1.87%, stocks now yield more than bonds do for the first time in around 65 years. This is a big deal. As investors notice this, I expect this recognition will trigger a wave of buying that will give dividend stocks a tailwind.
If you have Adaptive Growth* or Adaptive Balance* strategies, you have combinations of my Shock Absorber Growth* and Flexible Income* strategies. For a couple of years the blends have been 80% growth/20% income for Adaptive Growth* portfolios and 50%/50% for Adaptive Balance*. If the market does weaken from here, you will see me gradually change those mixes to become more conservative. That is where the idea of an Adaptive strategy comes from.
Municipal Income* portfolios saw a good gain in January as interest rates dropped, pushing bond prices up.
The Case For Electronic Statements
Electronic quarterly statements are free at Trust Company of America but TCA has announced that in the second quarter of 2015 they will begin to charge $3.75 to deliver paper statements. The whole world is going in the direction of electronic delivery of documents, so this does not surprise me.
If you have not already signed up for electronic statements and want to save $3.75 and a few trees in the process, you can opt-in for electronic statements on TCA’s Liberty account access platform. Here’s how:
Go online to Liberty: https://www.trustamerica.com/liberty and log in normally.
If you are a first-time user of Liberty, use the six-digit account number from your primary account for your login and your nine-digit social security or tax identification number as your initial password (numerical characters only, no dashes). You will be prompted to change your password the first time you log in.
1. From the main page in Liberty, click on the ‘About your account’ tab
2. Click ‘Document Delivery Options’, select edit and choose ‘Email’ for the Delivery Method.
3. Agree to the terms and click ‘Save’
You will receive an email notification when quarterly statements are ready.
Unfortunately, I can’t set this up for you, but one of my staff can walk you through the process if you would like help with this.
If it is more convenient to meet with Will in Scottsdale, please call the office to schedule your appointment.
College Classes Coming
Managing an Inheritance: Planning It, Getting It, and Keeping It.
Thursday, Feb 5th 3:30-5:30 pm
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 two hour discussion will guide you through the heart of complex issues, both emotional and financial, that beneficiaries face. I will address 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.
Call Yavapai College at 717-7755 to enroll in course # WS15-148. Tuition $45.
Fundamentals of Investing for Retirees
Thursdays, Feb 19-March 5th 3:30-5:30 pm
This course, popular at YC since 1990, 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.
Call Yavapai College at 717-7755 to enroll in course # WS15-151. Tuition $65.
Our Spotlight Strategy
With our Shock Absorber Growth strategy we strive to provide an acceptable rate of capital appreciation while experiencing one half of the risk of the S&P 500 Stock Index*, using primarily equity investments.
Your money will be invested primarily in stocks and commodities mutual funds and ETFs, both foreign and domestic, inverse and leveraged, and a money market fund. The proprietary HCM Safety Net indicator is designed to warn of potentially sudden declines in which case stock market exposure may be quickly reduced.
Count every ‘F ‘ in the following text:
FINISHED FILES ARE THE RE
SULT OF YEARS OF SCIENTI
FIC STUDY COMBINED WITH
THE EXPERIENCE OF YEARS…
WRONG, THERE ARE 6 — no joke.
READ IT AGAIN!
Really, go back and try to find the 6 F’s before you scroll down.
The reasoning behind is further down.
The brain cannot process ‘OF.’
Incredible or what? Go back and look again!!
Anyone who counts all 6 ‘F’s’ on the first go is a genius.
Three is normal, four is quite rare.
* 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.
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.