History Bodes Ill for Stock Market

"There have been only four other occasions over the last century when equity valuations were as high as they are now, according to a variant of the price-earnings ratio that has a wide following in academic circles. Stocks on each of those four occasions would soon suffer big declines."

Mark Hulbert

Read more of Mark's article by clicking on the above blog post title.

Investing Lesson
I watch the Shiller PE 10 Ratio very closely and am concerned about its current high reading. That said, it has been above 20 for over one year. Markets can remain over or under valued for long periods of time, before a significant adjustment takes place.

Covered Call Strategy Explained

Selling call options against stocks you hold is a great way to generate additional income for your portfolio but there are several problems with executing such a strategy in individual accounts:

(1) Call options can only be sold in 100 share increments.
(2) You need to be approved for selling covered calls by your broker.
(3) Commissions often eat up most of the premium you receive when you sell only one call.

Fortunately for investors in the Wade Core Destination Fund, we are able to execute the covered call strategy within the fund which overcomes the above limitations. In fact, we have sold covered calls against 25% of the individual stocks held in the fund.

When selling a call option in the fund, we allow for a cushion to capture additional upside in a stock's price while collecting a premium from selling the call.

Still Kicking the Can Down the Road

What is going on in Washington is a joke. A dangerous, bad joke.

Our country needs to "restructure our finances," much like a business going through a bankruptcy or foreclosure process. Unfortunately, our leaders are unwilling to chop the fat, and our citizens only want their neighbors to go on a diet and shun any needed changes that would impact them personally.

"There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen... the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."

Frederic Bastiat

Bernanke will be judged later as a "bad economist."

3 "Paid to Wait" Stocks Other Value Managers Like

I have opined in the past that there are only a select few "value driven" money managers that I respect for their skill and have a good track record over complete market cycles. One such fund is the Jensen Fund (JENSX). Click on the above blog title to read an article from www.theStreet.com.

NEW YORK (TheStreet) -- Health-care stocks barely budged last year as worry over legislation kept them from joining the broader equity-market rally. Robert Zagunis, manager of the Jensen Fund, says this year will be different, especially for companies such as:

1. Medtronic(MDT)
2. Abbott Labs(ABT)
3. Stryker(SYK).

I agree with Robert's conclusion. Medtronic was purchased in 2010 in our portfolios, with Abbott and Stryker added the first week of January 2011. All three of the above mentioned stocks qualify as WFG Paid to Wait stocks and are owned in our privately managed accounts and our no load mutual fund.

200 Years Later and Still No Wiser

More than two centuries ago, Adam Smith warned of the dangers of having financial institutions that were "Too Big To Fail." The paragraph below was taken out of a recent Barron's article:

Adam Smith discussed at length the 1772 collapse of the Ayr Bank in Scotland, which ended up costing the Duke of Buccleuch and other investors. It was laid low by "chimerical projectors…who would employ money in extravagant undertakings, which, withal the assistance given them, they would probably never be able to complete." It was important, Smith claimed, to limit the size of enterprises so that one bank failure wouldn't incinerate the entire financial system.

Does the above look familiar to you? Unfortunately, even after our most recent experience with the 2008 financial collapse, lessons still have not been learned. Wells Fargo, JP Morgan, Bank of America and Citi Bank are four major banks that got bigger, not smaller.

Even worse, now more than ever the housing markets are relying on Fannie Mae and Freddie Mac to help finance mortgages--two companies standing at death's door with outstretched hands asking for donations from the taxpayer.

We have come out of the 2008 crisis with even more financial institutions that are Too Big to Fail. What will the next round of profits and greed bring when the cycle turns down? More pain, not less, we suspect.