Hits and Misses

Beware of optimistic price targets

If you pay attention to price targets set by big brokerage firms, maybe you shouldn’t.  It was just one year ago that the average price target for Apple’s stock was $724 for June 1 of 2013.  That number is the average of 12-month targets released last Spring by the nation’s largest brokerages and investment banks. Goldman Sachs was among the most bullish, with a target of $850.  Nine analysts said the stock would be above $800 per share. As of 5/7/13, Apple was trading at $465 per share after reaching its $700 or so peak last fall.

Only a few analysts covering the stock said a year ago that Apple was overpriced and would decline substantially.  (Source: Apple 2.0 and AAPLInvestors.net). What’s the lesson here?  Research analysts put too much emphasis on momentum and too little on fundamental analysis.  They did not see Apple’s financial challenges as a serious threat to the stock price until large institutions started dumping the stock.  Keep that in mind when you consider the predictive power of price targets. And by all means, don’t think that the close clustering of targets from many big name banks makes them any more useful.

The lesson here is to always look at a company’s fundamentals, including revenue and profit results and projections.  Better yet, read their reports to shareholders. Don’t assume that the analysts setting price targets have done this work for you.

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Timing is everything

By Andre Shashaty

My last investment advisor before I started managing my own investment told me repeatedly not to try to time the market.  He last said this to me in 2007, when he advised me not to sell several stock mutual fund positions.

I understand why people tell us not to time the market.  There are at least two very good reasons:

  1. It’s very hard to call the exact top of any uptrend and it’s very easy to miss periods of great appreciation after a bottom is reached.
  2. It’s probably better that your broker should trade too little than trade too much. There was a time when brokers routinely did too many trades in order to drive up transaction fees, which, taken to an extreme, is known as churning.

To time or not to time.  After a great deal of study, including my recent reading and coursework on modern portfolio theory, I have concluded that anyone advising you to buy and hold is full of beans.

You should never jump completely in to equities at likely low points or sell every stock position and go to cash at perceived peaks. That’s an extreme version of market timing which very few would endorse.

However, all the literature on how to invest points to a need to time the market to some degree.  Investing is like playing poker, and you must constantly consider when to raise and when to check.

I believe in strategic as well as tactical asset allocation.  This requires rebalancing as often as quarterly. Rebalancing simply means to pare back assets that have gained in dollar value and as a percentage of your portfolio.  That is a form of market timing.

Likewise, for retired folks, cash flow planning also requires market timing.  Obviously, you want to lock in gains by selling appreciated stocks as you approach retirement or anticipate a need for cash.

Modern portfolio theory teaches us that a large proportion of your return is dependent on overall market performance as opposed to individual stock or fund choices.  That argues for some effort to increase positions in troughs and reduce positions at cyclical highs.

There is one kind of market timing that should be avoided at all costs, however. That is buying high and selling low. There are far too many investors who only get interested in stocks when they are hitting new highs, as has been the case lately.  These same people also tend to dump stocks when they are reaching lows, locking in losses.  Bad idea.

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No recourse for consumers on bank investment advice

If you know someone who is unhappy with a bank’s performance in managing investments, don’t look to the newly created federal Consumer Financial Protection Bureau to help.

The bureau, known as CFPB, has posted on line the largest collection of complaint data on federal consumer financial products and services ever made public. The Consumer Complaint Database has about 90,000 complaints about mortgages, bank accounts and services, student loans, consumer loans, and credit cards.

However, it does not list any complaints about management of investment accounts. CFPB has a very user-friendly system for letting people file complaints. But it does not list bank investment management (often called wealth management) as one of the services about which you can complain.

CFPB is not alone in ignoring complaints about bank investment management. The Office of Comptroller of the Currency does not invite complaints about investment management either.

What about the Securities and Exchange Commission? No luck. As far as I can tell from my research, SEC will tell you that bank investment operations are governed by the banking regulators not the SEC.

To the best of my knowledge, banks have managed to wriggle out from under specific regulatory oversight of their investment advisory operations.

If you want to complain to CFPB about some other bank service, here’s the link.

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Hitting new highs

By Andre Shashaty

If you want to know how investment market hype works, read the press coverage of the Standard & Poor’s 500 stock Index reaching a “new high” this week.  Amid all the breathless coverage, the press left out some key facts.

First of all, it’s only a NOMINAL new high.  If you adjust for inflation, it’s not quite a new high in terms of inflation-adjusted dollars.

More importantly, it only means that the market is now almost even with where it was.  If you bought the SPDR S&P ETF (SPY) on October 12, 2007, you paid 156.33 per share.

It closed March 28, 2013 at 156.55.

So, if you invested $1,000 dollars in October 2007, when the hype about the perpetually rising market was also very strong,  it took you  5-1/2 years to get back to even on that money.  And that’s without adjusting for the declining value of the dollar over that time.  On a real dollar basis, you are still in the red.

Of course the market’s upward surge is exciting and positive.  But the point is that the press always covers financial markets with rose-colored or grey-colored glasses. When things are moving up, the news is all good and the reports are all glowing.  When they are going down, it’s the end of the world.  They tend to gloss over the caveats and qualifications in order to keep the story simple.

Just keep it in perspective and don’t let the hype get you off your game. That’s all I’m saying.

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EASY AS 1, 2, 3:

By Andre Shashaty

Panic or Euphoria? Neither, if you’re smart
The capital markets are torn between a burst of joyous spring fever and complete panic over the potential of a run on banks in Europe and the contagion that could unleash. So what’s an individual investor to do?

Refrain from chasing high returns.
Stock prices are near record highs based on several key indices, but that’s like saying a trapeze artist has reached a new height in the circus tent.  It gives you no certainty whatsoever about what is coming next. Do not jump in to stocks, funds or markets because of hype and momentum, which can change in a second.  The herd mentality is not your friend. Make decisions based on the fundamentals of the U.S. economy, the world economy and the stocks and bonds in which you are investing – not market indices and stock values.

Stick to your plan. 
If you have an asset allocation plan, stick to it. Rebalance by selling assets that have gained value and buying those that have lost value.  It may seem counter-intuitive, but it’s what the pros do, and it pays off over time. Think of it as a systematic way to “buy low and sell high.”

Diversify, and think globally.
The most common error individual investors make is to fail to be adequately diversified in their holdings.  For most people, this involved emphasizing large capitalization American companies and neglecting international and small cap stocks.  Look into buying some low-cost ETFs that specialize in international companies and smaller US companies.  It’s even better if you have a target allocation to those sectors and bring your holdings up to those levels.

This is part of a series of items called “Easy as 1,2,3” brought to you by 360 Investment Advisors, the investment advisory firm for the rest of us.  To continue to receive these insights, go to www.360investmentadvice.com  If you are reading this online, sign up for regular emailed insights here

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Resolutions for Investors for 2013

By Andre Shashaty

When it comes to managing your investments, there are more choices than ever. On-line and discount brokerages offer excellent new tools to manage your money.  New investment options offer easy diversification at low cost. To help you make sense of all the new options and do better with your money in 2013, 360 Investment Advisors presents the following resolutions for your consideration

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1. Don’t get sucked in by hype
The Dow Jones Industrial Average hit a five-year high In January. It was still below it’s all time high in 2007.  But even if it goes past the 1,400 level, it doesn’t mean we are out of the woods economically. Just enacted tax increases and likely-to-be-enacted budget cuts will slow things down. And one must always be careful buying at market highs when the media hypes the market’s performance. It could end in tears.

2. Be realistic about bond fund returns
If you sought returns with less risk by moving from stock to bonds, think again.  Many bond funds have had 2 or 3 years of very good results, so their past performance looks great.  But when interest rates tick up, or the Fed cuts back on its bond purchases, the trend will reverse and values will decline quickly. If you want to quickly check how risky your holdings are, look at the duration, which measures sensitivity to interest rate increases.

3. Think profitably, invest globally
One of the biggest mistakes investors and wealth managers make is to limit their investments in both equities and fixed income to the United States.  If you or your adviser are underweighting international stocks and bonds, you are not properly diversified. Foreign markets do not move in lockstep with US markets, so you risk increased volatility by ignoring them.

4. Forget past performance
There is a standard disclaimer on all mutual fund ads saying past performance is not an indicator of future results.  But yet every mutual fund ad makes a big point of exactly that: PAST performance.  Do not let past performance be a deciding factor for investing. Consider it in the same way professional investors do: By applying a measure of risk, or probability that the same return can be achieved in future.  Even then, it’s risky to assume the funds that are up now will also be up tomorrow.

5. Beware of advice from investment banks
Many of the large brokerage firms also do investment banking for major corporations. It’s easy to forget, but there was quite a scandal a few years back when their research departments were caught making “buy” recommendations on stocks of companies from which they also earned large investment banking fees.  If you think there is no bias in their research and buy/sell recommendations, think again.

6. Read between over and behind the lines
There is a distinct art to reporting on investment performance.  The goal of most investment advisors is to make things sound better than they are.  The most popular trick is to report “gross” returns, that is, returns before the advisor deducts their fees from your account.  This is extremely misleading. Always ask for performance figures net of fees. You should also consider how you make out net of taxes and adjusted for inflation.

7. Make sure your Advisor is earning their keep
If you do work with an investment advisor or a bank’s wealth management department, don’t be afraid to ask them to justify the cost of their services. If they are doing very little work, ask them for a fee reduction. If they have substantial amounts of money parked in money market funds, suggest that they waive their fee on those funds. Parking money involves no effort and yields virtually nothing, so why should they get their full fee?

8. Beware of bankers bearing investment advice
If you have a substantial amount of savings, you might get good treatment from your bank on routine business. But be very careful about entrusting your nest egg to a bank wealth management department. Bank investment operations are not regulated by the Securities and Exchange Commission or the state agencies that oversee investment advisors and brokerage firms. They can and do engage in conflicts of interest regularly, putting your money into specific mutual funds that they own, or from which they get a fee.

9. Don’t leave your money on auto-pilot
The worst money mistake you can make is to put off paying attention to your investments. If you keep saying you will get around to it later, but never do, you are almost certainly costing yourself money. You may think it’s too confusing, or you may fear making a mistake. But you can make good investment decisions. It doesn’t have to be too stressful or time-consuming with all the information and tools right at your fingertips today.

Only you can prevent financial rip-offs.  Talk to 360 Investment Advisors before you waste another dollar on the overpriced, unresponsive services of a large investment management firm – or if you are intimidated by the task of money management. We can help. The first consultation is free, and our ongoing charges are just $125 per hour, with no automatic deductions and with no requirement to give us a percentage of your assets.

Read more at www.360investmentadvice.com or call 415-453-2100  x302

(Andre Shashaty is president of 360 Investment Advisors, a registered investment advisor, and has been involved in managing money for himself and a variety of trusts, corporations and LLCs for 20 years.)

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Why we are here…

Why we are here…

No, I am not talking about the great existential debate, but why we are communicating here on this web site for 360 Investment Advisors. The short answer is this:  To help you a.) make more money and b.) keep more of the money you make.

I have been involved with management of millions of dollars over the past ten years, and I’ve seen exactly how paid managers rip people off.  I’ve seen them charge very high fees for doing next to nothing.  I’ve seem them use people’s money for their own benefit. I’ve seen everything from plain old neglect and laziness to the worst kind of corporate greed and deceit.

We are here because I want to use my hard-won lessons to help you.  I want to empower you to take more responsibility for your own money. I want to help protect you from the rip-off artists and the big institutions that use your account to feather their own nests.

Toward that end, I want to ask this question: Do you currently let a bank’s “wealth management” or trust department manage money for you, your business or your family?  If yes, what has been your experience with their work?

— Andre Shashaty


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