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Has your alma mater or favorite team already been bounced from the NCAA basketball tournament? My Portfolio Guide can’t change that fact but we can offer you a fresh chance with our annual spin on March Madness. For the ninth year in a row we are rolling out our unique way to share investment themes and overall thoughts on the stock market.

We’re proud to say that My Portfolio Guide was the first financial advisory firm to publish a March Madness investing tournament where we share our picks and match them up against each other! We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

Click here to see Final Four Investing Bracket Picks 2019

Large Cap

The most boilerplate of portfolios has won out by riding the safe bet over the past few years. This is akin to the March Madness office pool where your coworker, who knows nothing about sports and couldn’t differentiate between a basketball and a football, wins the whole pool of money by simply picking the highest seed in each bracket. What we mean by this with regards to investment asset classes is that since 2013 the Large Cap asset class has been the easy money pick. If you had a decently diversified portfolio (which by design should include exposure to International and Emerging Markets), you lost to the boilerplate and simpleton portfolio that is mainly weighted towards Large Cap.

Even though Large Cap lost money last year it lost far less than Small/Mid Cap, International, and Emerging Markets (-4% relative to -14%, -13% and -17% respectively). How long will this trend last though? Eventually we believe there is either a shift in leadership due to economic cycles and/or a reversion to the mean. Incidentally, if you digest and believe the latter, consider this factoid as it relates to Large Cap (S&P 500) vs hedge fund managers: Hedge fund managers (as measured by the HFRI Fund Weighted Index), have underperformed the index for 10 years in a row! Keep this top of mind the next time anyone is telling you what the “smart money” is doing or barking about…

Key Match-up:

#7 Boeing (BA) vs. #6 Apple (AAPL)

Leading up to this blue chip match-up our Large Cap bracket has some back stories that are worth touching on.

First off you may notice that the #1 seed of the entire bracket gets knocked off. Merck (MRK) had a 12-month return of +51% to earn this seed and a bye in the first round but it is quickly knocked out by the stock market darling of 2017… Amazon (AMZN). Amazon may not give investors quite the run it did that year (+56%) but we still believe the stock will outperform. Eventually it gets knocked off by a lower seeded Boeing (BA) but we’ll touch more on that in a minute.

Secondly, a major theme we’ll highlight this year is that you’ll see our S&P 500 Index (SPLG) not make it out of the first round. While we constantly pound the table that the majority of mutual funds and active money managers (82% to be precise) do not beat the market, we believe this year there will be an opportunity to do so. We believe this is especially the case in one asset class (Fixed Income/Bonds) but for once we actually see it being possible in what is historically the most efficient of them all (Large Cap).

Back to our coveted match-up with struggling Boeing knocking off another market favorite in that of Apple (AAPL). Over the past two years Boeing has dramatically outperformed both Apple as well as the S&P 500 (110% to 33% and 21% respectively) however recently everything has come to a crash…pun intended. With the devastating headlines on Boeing’s 737 Max crisis, the stock has been punished accordingly. Boeing is down -12% the past month while Apple and the overall stock market have done quite well (+10% and +2% respectively). All this being said, we believe at some point the headlines will have been fully baked into the pie and investors will see that Boeing is still a world class company that is still being led by strong management and has tremendous upside along with a decent dividend of 2.21%.

Small and Mid Cap

The Small and Mid Cap asset class (or region in this annual exercise) is one of the most unpredictable in the bracket. If you have an appetite for risk or are looking for that potential shocking upset that nobody saw coming….stay tuned here!

Historically small and mid sized companies have actually outperformed the other asset classes over time. This past year, however, they were both clobbered towards year end with the sharp stock market correction we saw in the last quarter of 2018. At one point in December both Small and Mid Cap were down -24% and -22% respectively and deep into bear market territory from their peak levels. Each asset class peeled off over -15% in just one month reminding people that while the long-term returns can be enticing here it does indeed take a strong stomach.

All that being said, both of these asset classes are leading the overall market back with a strong bounce. If you pull a rubber band back far enough it will either break or snap back fast and we just witnessed the latter. The big question, specifically in this “region” (asset class), is whether professional stock pickers can beat an unmanaged index? The data says NO but as we know in March Madness anything can happen. Did you know that as of the most recent SPIVA report 89.4% of Small Cap mutual funds underperformed the index over 5 years?

Key Match-up:

#4 SPDR Portfolio Small Cap ETF (SPSM) vs. #1 KushCo Holdings Inc. (KSHB)

If you fancy yourself as a good stock picker you’ll eventually be completely humbled when it comes to this asset class. We believe that this year there will be some massive dispersions in who outsmarts the index and who gets clobbered. Earlier in our bracket the Hodges Small Cap Fund (HDPSX) battles its way out to eventually square off against the index. Although it beats out Smart & Final Stores (SFS) you may want to give this overly punished stock a look as it currently trades just over $5 per share. While this company has some work to do it was once trading over $15 and in our opinion will potentially see $7 again in the near future.

Going back to the theme of undervalued stocks, we point you again to the Hodges Small Cap Fund as one that looks to capitalize on companies with undervalued earnings prospects as well as those who have a high barrier to entry. The fund has had a rough past few years relative to the index but over 10 years it actually has outperformed the Russell 2000 unlike many of its peers.

Our main stock pick of the bunch is KushCo Holdings (KSHB) this year. We’re so confident in it that we’re telling you right here and now that they will win our bracket and potentially rise over 30% before year end! We’ve written about the company before and have owned it back when it traded under $3 per share to now where it’s right around $6 per share. Click here to revisit the original article we wrote on cannabis stocks in general and take a look at the starting prices of some of these. We still believe we’re in the early innings of a long ballgame with this industry and there is plenty of upside left. If we were investors in the times of the gold rush, we think about KSHB as investing in the “picks and shovels” instead of the actual miners. As the industry becomes more accepted and legal in additional states you’ll see them remain and expand their leadership position in the packaging business.

Lastly, we’ll cover more about KSHB in future articles but for now we’re not only excited about their strong growth prospects, solid management, but also the potential increase in visibility if they are to be up-listed to a more credible stock exchange.

International

The International region of our bracket offers investors with stronger stomachs a huge opportunity. As we alluded to earlier in this article, a model portfolio that was overweighted to Large Cap domestic stocks was the winner compared to anyone who diversified into Europe, Asia, or especially Emerging Markets. On the equity spectrum these got absolutely blasted in 2018 and reached bear market levels (-20% or more). That all being said, bear markets in asset classes like Emerging Markets happen all the time and once you’ve been around the block a bit you should see this as a fantastic opportunity to “buy things on sale”.

Key Match-up:

#11 SPDR Emerging Markets (SPEM) vs. #4 iShares MSCI New Zealand (ENZL)

It seems like every year in the NCAA tournament a mid-major school or college that you’ve never heard of makes the tournament and becomes everyone’s favorite. This year we have a newcomer to the region with New Zealand (ENZL) making some noise and advancing all the way to the Final Four.

We still see Emerging Markets as a must have in your portfolio but as mentioned previously one has to have a strong stomach lining to tolerate all the volatility. This year is off to a surprising start and for those of you who think we’re out of the woods and that volatility is history….stay tuned because it will be back! While many parts of the world economy may seem to be cooling off we believe there are some economies that fly under the radar and can rise with the tide but not necessarily crash as hard as others if (when) turbulence kicks up again.

There are no safe or sure bets in this region but the New Zealand economy is still growing at a decent clip and expanded further this past quarter. Nine of their 11 service industries expanded and there is continued demand for home and commercial building. Lastly, much like here in the US, the chances of interest rate hikes have been muted.

Bonds and Alternatives

Last year we proudly donned our Captain Obvious hats and warned investors that owning generic bond funds might not be the smartest thing to do. Yes, on one hand owning bonds can help mitigate a rough year in equities, but on the other hand every bit of “writing on the wall” spoke to the fact that with interest rates on the rise there could be some disappointed investors who were positioned in a what historically is a safe asset class.

Lumped in with Bonds in this asset class is the often nebulous category of “Alternatives”. They too have had a really rough go as of late but aside from cash a few of them managed to be the only positive performers in 2018. True alternatives are not always easy to own but in this case two of them managed positive returns. If you like to drink fine wine and look at fine things (art) you saw returns or +10% and +10.6% respectively. For most of us, however, we look at lesser barriers to entry in this category.

Our main piece of advice this year (aside from avoiding Bitcoin which was down -75%) goes against the grain of much of what we normally preach. Do NOT own the index this year! In other words if there was ever an environment to not own an index in bonds or REITs (Real Estate Investment Trusts)…it is now. Look for an active manager that understands and can navigate with flexibility the nuances of a rapidly changing landscape.

Key Match-up:

#8 SPDR Gold Shares (GLD) vs. #11 BTS Tactical Fixed Income (BTFIX)

Similar to last year we’re not huge fans of the Bonds/Fixed Income menu of choices. That being said, they became a critical piece to the risk mitigation formula during the recent stock market correction. If you weathered the worst December storm in the past 80 years you either were on vacation, ignored your portfolio, or owned something from this “region”. In other words, you had some assets in Bonds or Alternatives which hopefully took some of the volatility out of your overall portfolio.

This year we have two rather low ranked seeds making it farther than their peers that may have come in on a winning streak. For those who pounded the table to avoid REITs last year they sure missed the mark (again!). The #1 seeded REIT index (USRT) was up almost 15% over a rolling 12-month period. We see REITs being knocked out by Bonds this year but not by some random collection of them. Our main take-away this year is that this is the one asset class we’re stressing to NOT own the index; yes…you heard us right…we are advocating active management in this area for 2019.

While the Fed seems to have cooled down on their rate increase bonanza, this market is still ripe for more corrections. Additionally, index owners in this area (both REITs and Bonds) can be unwillingly exposed to portions of their respective asset classes that will underperform in this new environment. We can’t do a deep dive here but in short make sure you have a manager that has flexibility and is skilled enough to not just be a glorified index.

Lastly, while we’ve stated many times that we’re not gold bugs, it should be noted that GLD actually did its job over the past correction. Over one year and two year time spans gold is still basically dead money but from the market rumbling beginning in September of 2018 all the way to Christmas Eve…it really helped offset the free fall in stocks. If stocks continue to recover as we approach the midway point of 2019 we will likely add another 5% to our overall exposure in gold.

Final Four Summary:

The fun part of producing this article each year is that it allows us to share some of our thoughts, strategies, and the investment themes we believe will likely play out in the months ahead. It’s all done with the caveat that we may only own a handful of the 48 investments listed on our bracket. Truth be told…most experts who pick stocks are no more successful than you would be doing the same job! The real winners are the ones who are able to pick enough stocks in the right areas and maintain the proper asset allocation relative to their investment goals.

Obviously every tournament (in the case of March Madness) only has one final winner. With this exercise, however, we are able to build an intelligent portfolio that will have a number of “winners” along with some stinkers. As an investor you actually have the opportunity every year to own multiple “teams” in different “regions” (asset classes).

Long story short, don’t fixate on the one stock that wins it all; take a look at the whole picture.

This year we’re stepping up the game a bit with opportunity to put our money where our mouth is. How would this March Madness Investing Bracket perform if we actually allocated money towards each pick? This year we’re going to not only track the performance of our picks but assign a dollar amount to each of the 48 picks.

Just making the Big Dance is worth something so all 48 picks are assigned at least a $25,000 investment even if they don’t make it out of the first round. From there each pick “costs” more and is weighted accordingly by either how it beats other picks or how highly it was initially seeded.

Here’s how we’re allocating each pick/round:

First round $25,000: TOT, EFG, AIA, BKF, USRT, SPIB, GOVT, DBC, INPIX, FTSL, EV, DF, SFS, LAZ, T, CVX, SPLG, R

Second round $50,000: TEF, ERUS, SPAB, UUP, GULF, BP, TTC, HDPSX, SPMD, GGG, PFE, XOM, PG, MRK

Third round $75,000: AMZN, COST, SPSM, LDOS, SPEM, MGGIX, DBV, SLV

Fourth round $100,000: AAPL, CY, EWH, GLD

Fifth round $125,000: (Final Four) ENZL, BA

Sixth round $150,000: (Finalist) BTFIX

Seventh round $200,000: (Champion) KSHB

If one were to invest per the dollar breakdowns above it would amount in total to a $2,750,000 portfolio. If that gives you sticker shock just scale back the numbers according the portfolio size you’re managing. While these picks and amounts are in no way actual investment advice (there’s our legalese and proper disclosure!)…feel free to check in with us periodically on how this portfolio mix is performing.

Enjoy the rest of the tournament and check in with us next year to see if your portfolio beats this one!

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Dear Mr. Market:

Over the past couple of months we’ve had all eyes on you and to state the obvious it’s been a wild ride!  With all the recent volatility, the risks (and rewards) of the stock market were on clear display but today we switch gears to a different asset class and share some insight from our friend and guest author, Mr. Brian Chou, Esq.

Owning investment real estate can be a very rewarding and profitable experience, but it can also be a huge headache and a drain on resources. I remember when I purchased my first investment property several years ago, my head was filled with conflicting images of myself sunbathing on my private island and lying penniless in a gutter.  The possibilities and the liabilities seemed endless.

While real estate is often a great way to store wealth and create streams of passive income, it does come with a myriad of strings attached. Unlike stocks or bonds, real estate often requires a “hands-on” approach and exposes an owner to significant liabilities. Here is a sampling of situations where an owner may incur liability for their property:

  • A tenant trips and falls down a flight of stairs due to a defective handrail;
  • A tenant’s child drowns in a pool which isn’t adequately fenced off;
  • A branch on a tree on your property which isn’t adequately trimmed falls on a third party’s car;
  • An environmental survey reveals significant contamination on your property which needs to be remediated.

These are all situations which could involve a lawsuit or a claim against your insurance. In certain examples, the liability may be so great that insurance doesn’t cover it, allowing the injured party to come after your investment properties or even your personal assets. The question here is “how do we reduce this risk?” In an estate planning context, our goals for investment real estate are to:

  • Protect ourselves from liability while we are living;
  • Preserve our assets to maximize what we pass on to our children or other beneficiaries;
  • Make it as easy as possible for this transfer to occur upon our passing.

One simple and relatively inexpensive way of reducing the liability on investment property is by purchasing an umbrella policy. An umbrella policy is a policy that provides additional coverage above and beyond your primary policies. For instance, if you have insurance on your investment property for $300,000 and an auto policy with limits of $500,000, a $1,000,000 policy will increase those limits $1,300,000 and $1,500,000, respectively. This provides a greater cushion in case you incur significant liability.

Another way to protect yourself is by creating a limited liability company (LLC) to hold your real estate. An LLC is a legal entity that provides significant benefits to its members. The primary benefit is that the liability of the owners of the LLC is limited to the assets of the LLC and does not extend to the personal assets of the owners. By holding your real estate in an LLC, you can compartmentalize your liability to the assets in that LLC. Let’s say that a tenant unfortunately falls down that flight of stairs we mentioned earlier, suffering severe injuries. In that case, the tenant can only go after the property held in that LLC. He can’t get at your personal home or other investments that you have outside of the LLC. If you have multiple properties, you can create multiple LLCs to maximize the amount of protection you have.

Another benefit of LLCs is that they can be seamlessly blended into an existing estate plan. It is relatively simple to transfer LLCs into a living trust to allow your loved ones to manage things in the event of your death or incapacity. Furthermore, as you acquire more assets and build your net worth, you may want to start transferring some of your assets to your children to reduce your estate tax liability. Transferring fractional shares of your LLCs is not only a easy way to make gifts to your children without losing control of your real estate, but it also allows you to qualify for significant valuation discounts from the IRS when calculating your estate taxes.

Brian Y. Chou, Esq. is an estate planning attorney based in Southern California at the Law Firm of BarthCalderon, LLP. If you’d like to contact him or have feedback/questions with regard to this topic please leave your information below or you can reach Brian directly at: brian@barthattorneys.com or (714) 704-4828 Ext. 120 

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Dear Mr. Market by Matt@dearmrmarket.com - 5M ago

Dear Mr. Market:

Since 1950 you (the market) have risen an average of +1.4% over the last five trading days of the year. We typically see some tax loss selling in the early part of the month and then a positive finish to the year. Over the past 45 years, 34 of them have helped make this seasonal phenomenon seem real but this year is looking like Santa will bring a massive lump of coal instead of a rally.

While most Decembers in general are positive, this one so far has literally been the worst since 1931. It actually goes beyond just a bad month that is normally positive; as you can see from the graphic we put together below this market has been struggling for the entire fourth quarter.

Large Caps, as measured by the S&P 500, are very close to touching bear market levels. Whether we need to officially hit the -20% (official bear market definition) or not shouldn’t matter; it’s flat out dismal out there. Notice how both Small and Mid Caps have already reached bear market levels. Even though bonds have not had a great year they have at least mitigated some damage for those who have exposure to the asset class.

All that said, there has been very few places to hide and the fear levels are mounting. If you don’t have any alternatives or bond exposure in your portfolio you are basically at the will of the market and will have to either throw in the towel or ride it out. Those that do have an allocation with exposure to other asset classes outside of stocks have options.

We recently wrote a rough sketch on how we would approach portfolios if this indeed turned into a bear market. Many investors will fold up and do the worst thing you can do; sell and cement losses with no strategy aside from quitting. Our goal is not to “throw good money after bad” and keep buying into a market that is getting slaughtered but rather tactically take advantage of asset classes that are more resilient than equities.

Going back to our grid above…let us ask you a question:

What should you buy and what should you sell?

Our short answer is that we will gradually sell some alternative assets (not listed in the above grid but mentioned in this blog many times) and about 5% of our bond exposure. From there we plan to first nibble at Small Caps and the Mid Caps as those have been hit the hardest the past three months.

We’ll update our readers and clients more later but just because Santa didn’t delivery a rally this year doesn’t mean the stock market is broken forever; it’s merely giving you an opportunity to do something different than you did last time.

Merry Christmas!

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Dear Mr. Market by Matt@dearmrmarket.com - 5M ago

Dear Mr. Market:

In all of our letters to you it’s been well documented how volatile and irrational you can be. You clearly have a temper and even when there is an abundance of good economic news you can still make us squirm and sweat with how you may react. What compounds your behavior is how traders and investors label certain charts and patterns. Most recently we’ve been alerted that you have signaled another mess on the horizon with an ominous reading of the “Death Cross”.

Could you (and that description) be any more dramatic?!?

The proverbial Death Cross is when a short-term moving average (50 day) crosses to the downside on a longer-term moving average (200 day). Incidentally, the reverse of this is when the short-term moving average passes the long-term moving average to the upside and that is called a “Golden Cross”. Technicians will point to the fact that some of the most brutal bear markets over the past century revealed a Death Cross in their trading patterns. Should we pay attention?

The short answer is yes….(perhaps) if you are an active trader. If you’re a longer-term investor or follow a strategy that is not based on reading tea leaves, the answer is far different.

On Friday the stock market just indicated the first Death Cross since the summer of 2016. What if you had followed the hype of selling your investments at that point? What you would have seen was basically a false indicator. This last Death Cross occurred in the middle of a normal market correction and in retrospect was a fantastic buying opportunity. Those who sold not only missed out on the rest of a good year but a fantastic 2017 as well.

The following points are a few things that will hopefully give you some perspective on whether you need to join the drama or ignore it:

The Death Cross is a Lagging Indicator

A moving average will show a natural lag due to the very nature of what it’s tracking; in other words…it tells us what has already been happening. We’re basically looking back at a certain period of time (50, 100, 200 days etc) and an average is then presented. A lot can happen in just one month but when you extrapolate to averages even on the shorter end of say 50 days…you are essentially showing up late to the party since the trend has already materialized. Those who act on these patterns often pull out of markets right when a buying opportunity is almost at its ripest!

Everybody Knows

While we admit to not relying solely on technical analysis it of course cannot be ignored. We find it ironic that the more something is being reported the less likely it may occur. One could almost use the Death Cross as a contrarian indicator in many instances! (take a peak at the chart towards the end of this article) Much of the process in following patterns becomes self-fulfilling behavior. Everybody is watching the same things nowadays and the idea that seeing this pattern develop before someone else can give you an edge or portend what will happen tomorrow is a bit naive.

What Typically Happens After a Death Cross?

First off let us remind you that there are many parts to the market. It drives us nuts when we hear “the market” and someone is referencing the Dow Jones. (that’s only 30 US stocks and the index is poorly designed to begin with). The Dow, by the way, has given us about 60% false Death Cross indications so if you’re comfortable investing with those odds please do so (just not with our money!).

Speaking of other parts to the market, if we take a look at the Russell 2000 and track how accurate the Death Cross was in predicting a bear market you may not be very convinced in following it any further.

The above chart is just a sliver of recent history but it captures several scary market environments (including 2008) and if you sold out of the market based on what the Death Cross indicated, on average you would have lost immense amounts of money/opportunity just one year later.

Make your own decisions based on what you see out there but at least take into account that just because something has happened before it certainly doesn’t negate all the times it was more hype than reality.

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Dear Mr. Market:

We typically write you letters about your volatile actions and the erratic behavior you bestow upon us as investors. Many of our letters also try to put certain economic events into perspective so that people don’t let your wild stock market swings force them into making bad decisions. All that said, it’s come to our attention that we can finally roll out the answer to a question that is not always obvious:

What should an investor do if a standard stock market correction turns into a bear market? 

First off, let’s revisit the basic definition of a correction versus an official bear market. Click here for an article we wrote during the last correction in February, which incidentally at the time felt like the end of the bull market had finally come. Although the market sold off almost -10% in a short span, it clearly came back to reach record highs until October came around.

So…can we now apply the four most dangerous words in investing?

“It’s different this time”

Secondly, before we wave the “bear market” flag let’s inform you that very few stock market corrections ever turn into actual bear markets. The chart below shows you that only four have ever done so since 1974 so be prepared but odds are this is another correction.

What if it isn’t? We’re often asked what we do differently from other financial advisors and how we would react during a bear market. 

If you haven’t read any of our previous material on how we design and allocate portfolios you’ll first need to know that we have long prepared for this potential storm. The old adage of “the best time to fix a leaky roof is on a sunny day” truly applies here. Almost all of our model allocations will have a portion of their respective mixes in the “Alternative Investments” bucket. A simple way of describing this are of investing is anything that doesn’t behave exactly like stocks or bonds.

Many years ago we started with a small (5%) allocation to Real Estate via REITs. We then gradually added in  (3% to sometimes 7%) exposure to things like Managed Futures and Currencies. We even sprinkled in other investments like Long Short funds.

Most financial advisors and wealth managers will have you in a boilerplate portfolio that is nothing more sophisticated than a “60/40” mix (60% stocks and 40% bonds). Some may throw in a few other investments of the “alternative” variety but typically no more than 5% to 7% total. Very few investment advisors know (or admit) that to really move the needle on alternative investments in the hopes of helping your portfolio when you need them is that you should have at least 20% (sometimes up to 30% in that area!). Although it has been a drag for us on the way up, every single portfolio of ours has this allocation built into it! 

What to do now if this indeed becomes a bear market lasting upwards of one year or possibly more? While most investors will simply have to ride it out we will actually gradually buy into stocks. No…we won’t simply be “chasing a falling knife” and mindlessly buy stocks as they fall deeper into a hole but rather strategically buy them back at cheaper valuations. Another way of positioning this is by ‘buying low’ (stocks) and ‘selling high’ (alternatives).

A very simple but potentially realistic approach to this is doing so in four distinct phases. Assuming you had your portfolio built up to at least our minimum of 20% allocated towards alternatives, you would now peel off about 5% from that part of the pie and buy stocks that have been beaten up. Moving forward into Q1 2019 and if we’re now indeed past correction territory (worse than -10%) we sell off another tranche of alternatives and put 5% more into equities. Let’s say there are a few more bear market rallies but all the while the stock market continues to basically struggle and we’re deep in a bear market; you then shave off another 5% and continue to reallocate towards stocks per your model allocation. At this point we’re at least six and maybe nine months into what now is a bear market and most investors are licking their wounds or sucking their thumb in a fetal position. Not you…nope….you still have at least 5% of “dry powder” left and you can sell the final piece of alternative investments you have and buy stocks as cheap as they’ll likely be!

Long story short, and as dumbed down as we could make this strategy appear…you did something very few investors will ever be able to do. You not only survived the bear market but on the upside and recovery that follows, you will almost assuredly have a larger portfolio than when it began to crumble. You’ll also be emotionally healthier and more stable than your neighbor who either buried their money in the back yard or is back at ground zero with nothing to show for it. It’s easier said than done but we’re telling you exactly how simple and void of emotion it can be.

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Dear Mr. Market:

Let’s get this part out of the way…You’ve made a lot of people ill the past few days. As a matter of fact you’re following through on staying true to form by making October another historically miserable month.

After a two day blood bath we’re seeing a little bounce leading into the weekend but the stock market basically negated what was a surprisingly pleasant summer stretch. We’re now sitting around July levels and the previous correction in February of this year is suddenly somewhat deja vu. What’s not much different is the fact that most financial advice remains the same : “Stay the course. Don’t panic” Diversify.”

What happens in September often follows through and even intensifies in October. That being said just because “X happened last time” doesn’t mean “Y will happen this time”. We believe there will be more anxiety than normal this time around. The stock market and it’s bull run are not only long in the tooth but we also have mid-term elections coming up which regardless of real substance…they will stir up emotions and uncertainty.  If we get a “red wave” you’ll likely see the market advance even higher for a few months and if we get a “blue wave” it’s our opinion there will be a sell-off. This is not a political opinion on which party is “better” so please remain calm; it’s simply a fact that if we have a meaningful shift in power there will be political gridlock for a couple of years. Long story short…one result will cause increased volatility and in our opinion the other will lead to that long grinding slow down where we actually could see the stock market finally roll over and enter a new cycle.

So…”don’t panic”? Well….sort of.

We’re going to share some of that same counsel but with hopefully a bit more actionable advice; do something! Granted…sometimes “doing nothing is actually doing something” and can be the best course of action. In this case, however, we believe you need to prepare for a real panic moment but it won’t come for about another six months or so. We’re not saying that we suddenly acquired a crystal ball and see some sort of calamity coming; after all nobody can tell you that with any reliable accuracy.  The reality is that most people have short memories and don’t even remember what they had for lunch yesterday.

What most investors don’t realize is that this year has actually been a pretty crummy year (if you have an intelligently designed portfolio). A boilerplate portfolio that is tech laden or primarily weighted in domestic stocks is going to outperform whereas anyone that has a proper and healthy dose of other assets classes (like International exposure) is going to be down. The all world global market is actually down almost -10% from peak levels in January. This environment reminds us very much of 2015 when the S&P 500 barely eked out a positive return just over 1% (mainly from dividends) but international stocks got pummeled. This frustrated most novice investors to either complain to their advisor or worse yet sell international and emerging market investments (which subsequently rallied hard).

The four most famous and perhaps dangerous words in all of investing are “this time it’s different”. Indeed…the way this bull market eventually comes to a halt will be different but several things will be the same. (1) People will panic (2) “Experts” will tell you I told you so, and (3) someone will eventually come out and explain they have been in cash since the peak.

Bull markets don’t always die due to a sudden or singular event. What’s more common is that they come to a grinding and treacherous phase when the economy begins to slow down. Right now is the time to revisit your allocation and ask yourself if you have enough dry powder available in six months. Our advice is to make that happen because you will have a major opportunity to outperform traditional boilerplate portfolios that will be forced to “ride it out” when ‘you know what’ hits the fan…

We’ll leave you with this relevant quote:

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” -Sir John Templeton

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Dear Mr. Market:

We don’t make it a regular practice to be ambulance chasers every time there is a tragedy or natural disaster. That being said, almost every major event (whether it’s considered good or bad) can create an opportunity for your investment portfolio.

Conversely, the old adage of “less is more”, could certainly apply here. We’re not simpletons just for the sake of it but in general the ‘less is more’ approach can greatly benefit your finances. Think about it…and if you haven’t already, we’ll spell out several major ways that having less of something will benefit your wallet:

Trading: Trade less and you will typically save more in transactions costs, tax issues, and emotional mistakes. Here’s another favorite saying to remember: “Trading stocks is like a bar of soap….the more you handle them the smaller they get!”

Media noise: Listen to the media less and you might actually use your own noggin more, therefore less inclined to believe something false or misleading just on the premise that is was reported. This is not necessarily a “fake news” rant but rather a reminder that making decisions that are not driven by strategy or discipline, ends up in you losing control of your independent thought process.

Fees: This one is basic but often ignored…The more fees you pay, the harder your investments have to work just to earn the same performance as an equally comparable investment does. We love the two horse analogy; if two horses are racing each other but one jockey has eaten too many doughnuts (higher fees) than the other…which horse wins?

Conflicts of Interest: The less you have of these the better decisions your financial advisor will make on YOUR behalf. Work with a fiduciary (like a Registered Investment Advisor) that has your interest at heart and not his/her commission schedule as their driving compass.

Emotions: We’re not asking you to be a zombie but when was the last time you saw a job posting for a portfolio manager who had the following qualities: Volatile temperament, greedy tendencies, fearful of misperceived dangers, stubborn to a fault, and lack of self control? The more you let your emotions drive your finances the less of them (moolah) you’ll have!

So now that you have been reminded that in finance, “less is more”…how might that apply to Hurricane Florence and your portfolio? Well….you could certainly go short (i.e. bet against) certain stocks in sectors that may get hit, such as insurance companies. While these companies prepare for such events and can absorb the near-term shocks, they would obviously do better if disaster was avoided, right?

Another way of “less is more” is to simply ignore this event. The majority of headline driven events, especially highly telegraphed ones, are often overblown. Most novice investors rack their brains trying to think of how to profit in advance of something major and one of two things usually happen: (1) The resulting effects are already ‘baked into the cake’ and they barely capture anything from making a move, or (2) Nothing you expected.

Oh wait…we promised you the “Top 3 Stocks” to buy in advance of Hurricane Florence landing, right? OK…that was just another typical eye candy headline that we’ve hopefully trained our more seasoned readers to digest with caution. The way we look at this event is maybe it’s a chance to nibble at a few companies that we either already like and had on our radar or possibly might do even better than expected due to post hurricane events.

Home Depot (HD) – One could argue that Lowe’s is a better value right now but we believe the leader of the pack will continue to be the best bet. Home Depot has enjoyed a tremendous rally as of late hitting an all-time high and from a technical standpoint it looks like it could run up some more. Hurricane momentum aside, we believe that with the way the real estate market is trending there may be more people interested in fixing up their current homes as opposed to trying to move and HD will benefit from that. Home Depot closed at $211.98 today.

Ryder System (R) – Hurricane Florence will likely boost prices with higher demand but we like the stock based on it’s valuation and it being oversold. Ryder closed at $78.73 today and we believe this stock could easily be at $90 over the next 12 months. R is cheap, trading at just over 5 times earnings (P/E of 5.37) and in our opinion ready to break out to much higher levels. The stock also kicks off a nice dividend yield of 2.37% which we’re guessing is beating what your cash at the bank pays you…

Dominion Energy (D) – Most power companies will have to deal with outages and some of the negative outcomes associated with that so this may not appear as an obvious candidate to benefit from a hurricane. Our main premise on this particular stock, however, is actually that it’s been oversold for a while now and poised to recover. D is down -10.85% YTD and closed at $71.57. We believe it has potential to hit $80 within 12 months and while you wait you can enjoy a healthy dividend yield of 4.62%!

Thanks for reading and please feel free to share with anyone you know that may be interested. In the meantime, let’s pray for everyone’s safety and well being as Hurricane Florence makes its way towards the eastern seaboard.

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Dear Mr. Market:

Our letters to you typically center around the stock market, the economy, and related investment topics. At the end of the day, however, what is wealth (the accumulation, growth, and preservation of it) all really for? That answer is different for everyone but from our experience in meeting with thousands of investors ….it means nothing without family. Losing a loved one is always painful but when it’s your spouse there are also several financial issues that arise and knowing how to navigate is critical.

The following article is written by a guest contributor, Lucille Rosetti (see credits at the end): 

The loss of a spouse leaves an emotional void that’s never really filled. It’s an experience that leaves one feeling disoriented and directionless. For most people, there are important decisions to make at a time when strong emotions can make it virtually impossible to concentrate and think clearly. It’s not a good time to make tough decisions that can have a lasting impact on one’s life and ability to lead a happy and fulfilling lifestyle after the loss of a life partner.

Fortunately, many of these decisions don’t need to be made immediately after such an emotionally crippling loss. Take some time to carefully consider when it’s easier to focus and think unemotionally. If that’s proving too difficult, seek the aid of someone close to you and your departed spouse who can help make informed decisions.

Due Diligence

One of the first harsh realities you’ll face is the need to prove that your spouse has passed away. That means providing copies of the death certificate to credit card companies, insurance companies, the Social Security Administration, and mortgage company. Make sure to get around 20 copies so that you can use them as needed. This is an important step because it’ll help you change the names on accounts or obtain money/payouts that are due you. And don’t forget to update your will, which is an easy thing to overlook when you’re emotionally distraught.

Meet with Those Who Know Best

Making the best decisions for you and your family is difficult if you’re not in possession of all the facts and pertinent information. Arrange to meet with a financial advisor, tax accountant, and an attorney with expertise in estate planning. Make sure you walk away from these meetings with good notes or printed information you can refer to as necessary and with a plan.

Keep Your Own Counsel

Remember during this difficult time that advice is important and desirable, but it doesn’t mean you should allow others to make decisions for you or push you into making hasty ones. It can be very easy to make snap judgments when you just want to get it all over with. Bear in mind that there’s too much at stake to act without careful consideration concerning your property, investments, and other financial assets. Give yourself time to heal, and think before signing any important documents. And don’t be afraid to tell friends and family members it’s too soon to make those kinds of decisions. Loved ones can be more useful by helping make sure you keep up with bills, get to appointments, and gather the information needed to make good decisions.

Don’t Be a Target

Widows/widowers are frequently targeted by unscrupulous salespeople and others looking for ways to take advantage of your confusion and emotional frame of mind. If you have assets and available cash, you can expect to hear about “can’t miss” investment opportunities that sound too good to be true — because they are. Always ask for credentials and whether they’re registered or fully accredited in their field. 

Your Home

As a homeowner, you have a lot of money tied up in what is probably your biggest investment. The loss of a spouse can be a good time to consider selling a home to free up cash for financial and health care expenses. Selling a house in a healthy housing market can earn the profit you need to settle your financial situation and begin a new life. Discuss your situation with a realtor, who can help weigh the pros and cons of selling based on market conditions, the physical state of your home, how much equity you have built up, and what it’s worth

Remember that making momentous financial decisions in the wake of a spouse’s death is not a good idea. Take some time to heal first and process all the complex emotions you’re feeling. When you’re ready, talk to financial professionals and loved ones who can give you good advice.

Lucille Rosetti created TheBereaved.org as a means of sharing tools to help people through the grief process. Having lost some of the people closest to her, she understands what it’s like, and how it can be an emotional roller coaster that doesn’t always seem to make sense.

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Dear Mr. Market by Matt@dearmrmarket.com - 11M ago

Dear Mr. Market:

Apologies in advance for our clickbait headline. We usually aim to talk financial shop in our letters to you…but today is not about the stock market. Today, July 4th, is about independence, freedom, and the greatest nation on earth….the United States of America.

Lately the news headlines have been on an absolute overload of division and finger pointing. Truth be told..we’re absolutely tired and fed up with it. Watching and reading almost all sources of media simply takes its toll on you whether you realize it or not. As it relates to finance it has forced the untrained and emotional investor to make poor decisions. To every person who said I’m 100% out or in the stock market because of [insert political name/party]…you’re part of the problem. Holding this mindset is not using your brain as one may initially think but rather allowing another side of emotion and bias to drive your decision making process. 

My Portfolio Guide, LLC is a fee-only Registered Investment Advisor…not a political machine. While we may have our biases and opinions on certain matters, we aim to stick to what we do best…personal wealth management. Keying in on the word “personal” connects us to each client in a different way. We fully realize that there are some who are passionately liberal just as there are some who are passionately conservative. That said, today should be one where instead of focusing on the “red wave” or “blue wave”…we admire a flag that has both red and blue together.

Today we also want to touch on two other aspects of “independence”; financial independence! We, at My Portfolio Guide, are truly grateful to actually be independent. Call this a shameless plug but it’s as true as it gets and we never take for granted that we answer to nobody but our valued clients. Unlike so many other financial advisors who are essentially influenced or controlled by a bank, insurance company, or brokerage firm, we are 100% independent. Working with us allows you complete peace of mind that you’re getting advice based solely on what’s right for you and your goals and not by commissions or sales goals. Ask your current financial advisor to write down on paper if they make a commission or receive any incentives based on how you are invested.

Here’s a quick example: Do you like Vanguard? We do too! Although we custody assets at TD Ameritrade Institutional we often will use Vanguard indexes (or other instruments) for a client. Imagine asking your Charles Schwab or Fidelity advisor to recommend a Vanguard product. How would your Merrill Lynch or Wells Fargo investment advisor react if you asked to invest in a Morgan Stanley or UBS product? (they would likely cough up on the lush mahogany desk that you’re silently overpaying for).

The other piece of financial independence we want to touch on is YOURS! We’re often tasked with how a family can get to the point where they retire and no longer rely on a paycheck. In some cases the answer is easy and you have saved to the point where it’s simply a matter of protecting the assets and making sure nobody outlasts them. More often than not though…we have to provide people a plan and the disciplined strategy to literally choose a date (or make necessary adjustments) to maintain a certain lifestyle in retirement. The greatest reward we see is watching an investor or family being able to live like they dreamed of without worrying about the stock market or where their next paycheck is coming from. True financial independence is absolutely liberating and makes all the choices and decisions leading up to it worthwhile.

Now back to the matter at hand and our regularly scheduled programming…

Can we all agree on one thing today? How about we start by taking a step back and truly appreciating the freedoms we all have to even hold differing opinions? The United States of America is like no other nation on earth. If you haven’t traveled the world or your only litmus test is a television….you are uniformed on just how blessed and fortunate we are. There are of course many other wonderful countries and parts to this planet but what we have here as Americans is special and unique.

We’ll never forget one horrific day on September 11, 2001 where shortly thereafter our nation came together and people temporarily put their political differences on hold. In our opinion it shouldn’t take another tragedy like that to be able to connect or feel patriotic. Let’s use today as one where we all agree how blessed we are to be living in this amazing country. Just like any nation we have things to improve on and fix but we have more to soak up and be grateful for than any other place on earth. Today is about independence, freedom, and truly being appreciative of it. Let’s use this day to reflect, gather, enjoy, celebrate, and appreciate the amazing freedom we all enjoy.

Happy Independence Day!

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Dear Mr. Market by Matt@dearmrmarket.com - 1y ago

Dear Mr. Market:

We have discussed many times how emotionally driven you are. On some days you tempt us with your record setting high wire acts and on others we have our lips virtually wrapped around the barrel of a gun in desperation; the stock market is a wicked playground.

We don’t believe that computers or sophisticated investment algorithms can completely mitigate the perils of the stock market or protect everyone from getting out of their own way, but it can at least be used as a starting point. My Portfolio Guide relies on some very unique tools that assess the stock market each month with a fresh set of eyes. While our method of “reading the tea leaves” is not necessarily a crystal ball, it’s definitely not what most investment advisors use….which is the rear view mirror. Sadly enough, many investment advisors are just like you…they’re human and they chase recent returns and mistakenly look back in history as to what has done well. While this method of analysis is the easiest to sell clients (and themselves) it’s not as effective as taking a completely fresh look at what is happening right now and how that is statistically likely to play out in the near-term.

My Portfolio Guide’s signature investment strategy, the Columbus Adaptive Asset Allocation Strategy, is driven by such an algorithm and it’s interesting to note that we’ve been in a defensive posture for almost the past three months. While this doesn’t necessarily mean we believe we’re headed for a bear market, the shift out of equities since March has clearly signaled that reaching for near-term upside does not warrant taking on more risk or increased volatility. Earlier in 2018 the Columbus Strategy was over 72% allocated towards stocks and we saw a drastic shift away from them in April and May (down to 20.65% and 16.15% respectively).

If you’ve ever lived in Southern California the term “June Gloom” is more than a rhyme…it’s a real weather condition. We don’t enjoy being a joy kill so understand that is not point of this article, but the way June is shaping up we’re content with how Columbus has us positioned.

Uncertainty is still in the air and as we all know that is perhaps the number one ingredient that Mr. Market does not care for. The month opened up with more volatility due to Italy’s political crisis and how that could impact the Eurozone. We quickly moved off of that to banter about whether any meeting would materialize between President Trump and Kim Jong-un of North Korea. The latest news was of course more discussion around another interest rate hike. Long story short…there is plenty for Mr. Market to have us talking about and our Columbus Strategy has effectively decided to hit the mute button for at least a few more weeks.

While the model is not completely out of stocks it’s also interesting to note that a shift in asset classes amongst equities took place. Only our clients will see the specific percentages but a fairly meaningful position rotation from Large Cap to Small and Mid Cap equities occured. Large Cap had been the answer  last year but for those who are nostalgic and miss being in this popular asset class…you haven’t missed much. Columbus has actually kept up with the S&P 500 but done so with less overall volatility and to us that’s one of the main objectives of the strategy. 

The most major change that we see our Columbus Strategy establishing is a very sizable position towards the US Dollar Bullish Index ETF (UUP). With all the global uncertainty and the Trump stimulus passed earlier this year, there has been some momentum fueling the dollar’s rise. How long this will last we don’t know but for now we’re in a position to take advantage of it and the model is signaling it to be more worthwhile than being heavily exposed to stocks. Lastly, we reduced our exposure to Gold (GLD) but continue to hold near our maximum allocation that the model allows towards Commodities (DBC) at 25% of the overall portfolio.

Until next time friends… and regardless of what the stock market gives us…we wish you a bright, safe, and enjoyable summer!

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