Lockbox Investing: Actively Monitoring Performance

There has been the misperception that WFG's "lockbox" investing approach is a passive strategy where after conducting research on companies to invest in, we purchase our top picks, put them in the "lockbox" and throw the key away.

While we believe that the stocks of companies we purchase can be held for the long-run, we still actively monitor their performance. WFG will use the key to the "lockbox" to add or remove companies based on stock valuations and our economic outlook. For example, during 2008 as oil was on its way to $147 per barrel, we removed many of the energy names from the "lockbox." In the early part of 2009, we added most of those positions back into the "lockbox," as the price of oil fell and the stocks once again became attractively priced.

WFG will continue to actively monitor all the positions we are invested in and make changes as market and economic conditions change.

Investing Lesson: Buy and hold is not the same as buy and ignore.

401(k) Piggy Bank

In the first half of 2010, 17.5% of 401(k) participants had loans outstanding in their accounts and 2.1% of participants took withdrawals from their 401(k) plan paying a 10% penalty on top of taxes to Uncle Sam.

When taking out a 401(k) loan, you also run the risk of needing to pay the loan back in full within 60 days if you leave your job. If you are unable to pay back the loan, income taxes and the 10% penalty must be paid on the loan amount. To read more on this, click on the following link: Yahoo Finance.

INVESTMENT LESSON: Raiding a 401(k) plan will only serve to delay retirement! No amount of financial planning can overcome spending retirement funds prior to retirement.

The Contrarian "Predictive Nature" of Magazine Covers

It has been well documented that, when it comes to searching for time tested, reliable indicators of where the stock market is headed, magazine covers predicting either a bull or bear market have been wrong the majority of the time.

One of the "professional" indicators I watch closely turned bullish over 30 days ago, but with so much on the line short term, combined with the massive quick run up in stocks, I had been "biting my lip of patience" a bit. As of today, I have released my lower lip and am comfortable being a bit bearish with the latest from Barron's, dated 11/1/10:

INVESTING LESSON
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the "momentum of the herd" vs. fundamental valuations.

Great Data From Fellow Contrarian, David Rosenberg

The quote below is from David Rosenberg's, "Breakfast With Dave," dated 11/01/2010.

"In any event, the survey of the Big Money Poll from Barron’s shows that 62% of portfolio managers see equities as the top performing asset class in the next 6-12 months — versus 15% for precious metals, 6% for cash and 3% for bonds.
You don’t have to be much of a contrarian to understand what it means to have twice as many investors more bullish on cash than on bonds. It’s otherwise known as a herd mentality. Fully 72% are bearish on Treasuries, only 5% are bullish (versus 60% and 15%, respectively, for equities) and yet 62% believe bonds are in a bubble.

How can bonds be in a bubble and at the same time be so detested? One of life’s greatest inconsistent thought processes at the current time!

Not only that, but 70% see little chance of another economic contraction. And, 70% favour the stock market on expectations of better jobs data, a stronger economy and rising profits. To top things off, BusinessWeek runs with this article to boot — Stocks and Bonds Are Bullish on the Economy (come again?) on page 47. At least we know where the surprise will be, if any!"

INVESTING LESSON
Only by standing against the prevailing winds – selectively, but resolutely – can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the “momentum of the herd" verses fundamental valuations.

How To Avoid Losing Your Money, Part 3

Click on the blog title above for an outstanding article from TheStreet.com, titled:

"4 Fraud Traps to Avoid"

INVESTING LESSON
Print and save my recent three-part blog series "How To Avoid Losing Your Money" and then place them in between you and "hucksters" that will try and separate you from your hard-earned money.

How To Avoid Losing Your Money, Part 2

Above is a sample of "financial lewdness" that passes as financial journalism to consumers that they use too often to make investment decisions. Please do not forget the following:

1. 99% of financial information comes from organizations that generate 100% of their revenue from selling advertising.
2. Just as entertainment, in the form of gossip and indecency, sells so do great sounding article headlines.
3. A news organization is funded by advertisers, has no investment professionals, but too often portrays their "words" in such a way that it both sounds like advice and people actually use it as if it were reliable advice.

Let me expose what the above article contained:

1. "They just get more attractive" is a great teaser headline. Just as effective as, "You'll never look better," from a plastic surgeon. It may sound good, but you better stay away or you will end up with irreversible results!
2. Master Limited Partnerships, many of which have gone up over 75-100% in value over the past several years.
3. REITs, many of which have already gone up over 75-100% in value over the past several years.
4. Telephone company stocks, which operate in a vicious, dog-eat-dog business. WFG recently sold one of the stocks profiled, Century Telecom (CTL). They are suggesting you now buy it!

The S&P 500 index barely yields even 2%. WFG's Paid to Wait stock portfolio currently yields around 3.5%. So, am I stupid or smart based upon the above? I will let my 26 years of experience lead you to the right answer.

INVESTING LESSON
Never, ever use financial lewdness as the basis for making investment decisions. Just as freedom of speech is permitted, so is being unintelligent. Kind of harsh I know, but needed if I am going to make even a small dent in the armor of the billion dollar Wall Street and Madison Avenue marketing machines.

Savannah Film Festival Movie Reviews

This is my second trip to the Savannah Film Festival (SFF). It used to really upset me when the majority of the awards kept going to Indie movies at the Oscars. A number of years back, thanks to Ebert and Roeper constantly plugging independent movies that I had never heard of, I ventured out to my first Indie movie. I have been hooked ever since.

I quickly understood that Indie movies represent the exact opposite of big budget movies. They walk at a slower pace and often fill your heart with the fullness of what life is all about. I knew I was really onto something when I was finally able to get my brother to go see a movie with subtitles and then have him turn around and suggest that I go see, "The Girl With The Dragon Tattoo."

Last year, I had the pleasure to see the final Indie film circuit screening of "The Hurt Locker." A then undiscovered actor, Jeremy Renner, took the the stage after the movie, along with the film's female producer and talked about how the movie came about. You all know what happened after that. At the Oscars, a movie America had never heard of came home with a number of the big awards. It is similar to what happened with my beloved Butler Bulldogs last year in the NCAA finals. You go from "nobody knows who you are" to worldwide recognition overnight!

I am now three days and six movies into the seven-day festival. For the coming week, I will, in addition to blogging about finance, also blog about some of the films I am seeing. We all need to live a full and balanced life.

The first film I will start with is one by Edward Burns. The "new normal" for the world is definitely making its way into the movie business. "Nice Guy Johnny" was filmed for $25,000 and will likely not make it into mainstream theaters. Instead, they are using viral marketing and social networking to launch the movie. It is currently ranked number seven on iTunes rentals and is available on Comcast via Video On Demand (VOD). This movie is a modern day, "The Graduate," and in my opinion a solid 8 out of 10.

Another "ah hah" moment happened Tuesday night while watching the first ever "slasher musical." It was a movie called, "Don't Go Into The Woods." The concept that came from Mark Twain was quoted that you need to "kill all of your darlings." More on the personal and business use of this metaphor as the week unfolds.

At this time each year at the SFF, there is a treasure trove of both emotions created by the magic of film and actual take aways that will impact both my personal and professional life. Stay tuned for the reviews that will follow.

Kass: The Fed's Quantitative Easing 2 Is a "Con Game"

Click on the above blog title to read a vivid summary from Doug Kass regarding why he and I believe we currently have a very fragile U.S. economy and world stock market.
INVESTING LESSON
Cash is not trash!

How To Avoid Losing Your Money, Part 1

I recently met with a client that asked me to explain how bright people get sucked into Ponzi schemes and other high risk investments. My answers were very simple and straightforward:

1. Humans are motivated by two primary emotions: Greed and fear.


2. Greed is what leads to being swindled and/or losing money with an investment that had much more risk, but the only "song you wanted to hear" was how great it was going to be.


3. Investors seldom read the fine print.


4. Investors seldom request personal financial information from someone selling them an investment. Doing so would be very revealing, usually in a bad way.

In the last week, I also had the opportunity to write the narrative for a new Comprehensive Wealth Management client, who desires to find out what their retirement picture looks like. Below are some of the "hits" from their financial plan:

Avoid getting sucked in by any investments or people selling investments that seem to offer projected annual rates of return that exceed that of what WFG is projecting as safe, reliable returns.

• Rule # 1, there is no such thing as a free lunch (IPM Realty, Madoff, Markman).


• Rule # 2, there is no such thing as a free lunch (Oxford, Trevor Cook, Tom Petters).


• Rule # 3, there is no such thing as a free lunch when it comes to annuity products. They promise the moon but deliver the lack of oxygen found on the moon.

We will take the first sentence back; there is such a thing as a free lunch (or dinner) as this is the number one marketing method for staging the annuity “pitch."

Jerry Wade sold annuities while at IDS/AEFA for 10 years.

He has not sold them the past 16 years. There is a reason!