We Hear About This Subject Concerning Social Media And Politics.
It Applies To Investments As Well!
We are all influenced to some degree by media, propaganda and even celebrity opinions. Consider Warren Buffet, Bill Gates or Bill Gross, the bond king.
The most successful thieves are often people who live in mansions, drive a Rolls Royce or a Bentley, live large, entertain the elite and attract others who wish to be part of their circle of influence because of their apparent success. Bernard Madoff is an excellent example. We are all influenced in our desire to be part of the elite. High school attitudes do not end after senior year.
My expertise is in investments and this headline certainly applies concerning investor behavior. I am the founder and president of a small advisory firm named Advisor’s Capital Investments, Inc. I started my career at Bache & Co in 1969. Bache was then the second largest brokerage firm next to Merrill Lynch at the time.
Early in my career I learned to think for myself because the average mutual fund declined by about 75% from 1969 to mid 1974. The Dow Jones Industrial Average bottomed at about 540. During the period from 1969 through 1974 I was given a great deal of advice. Most of it was wrong. I watched as wealthy investors lost enormous fortunes especially those who invested using margin.
I found a way to buy out of favor stocks at very low prices. I developed a rules based formula to find the best ones. The results were extremely positive for my clients over a four to ten year period.
For advisors and students of the stock market it is important to determine what is predictable and what is not. Seldom do serious students find the lowest common denominator. Students focus on earnings estimates and valuations. I found the lowest common denominator to be long term cycles in individual stocks and industry sectors. I believe that in all markets, real estate, commodities, and stocks you make your money when you buy. The key to wealth creation is to buy low. The question is how to do this on a consistent basis.
What has all this to do with the headline of this article. I believe a great deal because you need to determine what you believe between two different schools of thought. Whether you are an advisor or an investor you have to make this choice. For advisors the wrong choice make take away your value proposition.
Today, more than ever before investors, even institutions are focused on index investing using mutual funds, ETF’s and large stock portfolios designed to track with indexes. If as an advisor you are simply making allocations, you are not adding enough value for your fee. Larger firms will charge less, advertise more, use artificial intelligence and specialized software to connect better with your client and develop a stronger brand to out compete you. At the same time compliance costs will rise ruining you margins.
I believe your opportunity is to take the other side of this argument.
This started back in March of 1973. Burton G. Makriel wrote a book which has become a classic entitled, ” A Random Walk Down Wall Street”. Professor Makriel explained that mutual fund managers had not performed any better than a random selection of stocks.
What about my own history of stock picking and the rules based approach leading to more consistent substantial long term gains?
In 1978, Raymond Hanson Jr. and I coauthored the book, entitled, “Non Random Profits”, a counter thesis to professor Makriel’s book. His book was the inspiration for the creation of index funds, but our book would win the argument on facts alone.
The history from 1930 to present is conclusive. Even more recently from January 2003- December 2013 the non random type stock selections outperformed the S&P 500 by about 8 times. The Non Random Profits approach selected 280 stocks that on average rose 10 times in price. If sales were made at extremes the profits would be far higher. This has been the case for over more than eighty years.
Check out what others have to say about the study and view a 2 minute video. Go to www.nonrandomprofits.info
The language of truth in investing is mathematics. Most investors have not learned the mathematics of investing and depend on large banks, brokerage firms and well known money managers. They end up buying investments that are heavily owned by institutions at high prices. Yes, during rising markets they make money, but generally do not create wealth.
Fact: 50% of daily market activity is unpredictable.
Growing earnings are an important factor during a bullish stock market trend. However, historically stocks peak a year to a year and a half before earnings peak.
Understanding cycles and investor psychology is most valuable.
Profits are based on the second derivative of investor expectations.
Wealth is created when an under-owned stock is discovered by a number of large institutions. As the issue makes progress more institutions buy. Often the largest emerging stock moves occur before a company has earnings.
The best time to buy this stock was late in 2012 before the stock story was understood and before heavy institutional interest. Why would you buy? Because of Non Random Profits.
There is a law, irrevocably decreed in heaven before the foundations of the world upon which all blessings are predicated–
Concerning this subject it means that to achieve the maximum result you need to do the work. An example would be the law of the harvest. Planting in good soil in the right season. doing all that must be done to insure fertilizer and rain, protecting the crop from insects and varmints and harvesting in the right season. Doing everything right does not insure success because every good thing is under attack. However over time the odds of success are great.
Investing is the same. If you plant at the harvest season you are likely to lose. If you are not diversified and have no plan for risk control you probably will not fare well either.
Diversification is an intelligent tool, but over diversification reduces profits.
I believe investing in indexes does make sense over a long time. However like the law of the harvest, if you plant in the wrong season and don’t do the work of the gardner, history shows you may go twenty years without a profit. In addition over a ten year period you may experience drawdowns several times like in 1987, 2000, and 2008. If you are nearing retirement or become too discouraged you may sell at a low and never recover.
In truth the science of investing is more complicated. An active management approach which is diversified appropriately but not over diversified has advantages. Each asset held can be in an uptrend. Weak issues can be eliminated and a daily plan for risk control on each asset can be maintained. An advisor with a smaller base of assets has an advantage. Institutions call these managers Emerging Managers, but instead of taking more risk they can be more risk adverse. Of course there are a limited number of managers who do this well. The high level of expertise should be observable as positive alpha against a benchmark. The difference between index performance and a manager like this should easily observable over a ten year period.
Many of these managers are not found on investment platforms because of the cost and reduced margins. Managers under $200,000,000 are not easily discovered by other advisors. Some brokerage firms will not allow their advisors to use them.
My firm, Advisor’s Capital Investments, Inc seeks to help these emerging firms find advisors who are independent and can use them.
Consider a few examples, one is a professor of biochemistry who has developed a moderate risk portfolio called The Disciplined Equity Portfolio. Over a 10 year period he has performed about 8 times the S&P 500 index with less risk. The manager uses a time-tested approach that includes three major factors related to stock movement: market co variance; industry cycle analysis; and individual investment factors including market leadership. These factors are calculated across major investment sectors. His disciplined decision system and his real time trades have been audited from 2007 through 2014. This is not a recommendation but a discussion about successful emerging managers. For detailed disclosure information send a request to email@example.com. Of course past performance is no guarantee of future results. Over any given time accounts may incur loss instead of gain.
The best of the emerging managers that I like are more concerned with buying the right value by paying the right price than they are attempting to keep up with the market itself. They believe as I do that you make your money when you buy correctly keeping your risk/reward opportunity calculation in your favor.
A second emerging manager is a bond manager. He buys oversold investment grade bonds at a discount. He focuses on maturities of 3 to 12 years. He is properly diversified and intends to hold each bond to maturity unless the price rises to an extent that capturing the gain is appropriate. He does use margin for accounts that desire double digit cash flow. His minimum account size is $300,000. He believes he can generate index fund type returns over time with less risk. His performance over the past six years shows he is right on target.
A third emerging manager uses Artificial intelligence to manage a diversified portfolio of ETF’s. He has reported to Informa Investment Solutions, a subsidiary of Informa Plc. He won the Investor Choice Award for Independent Asset Management firm of the year -USA in 2014. In addition he was ranked number one for PSN Top Gun ETF categories in 2013. He has won Top Gun recognition multiple times.
It is my job to bring recognition to these very special Emerging Advisors. We will provide detailed information to you and share our institutional research with you upon your request. We also are willing to teach and to guide you through the process.
Click on the red heading at the top of the page “Make an Appointment With Bob”. Set up a free on line session and learn how you may use stock and industry sector cycle research to improve your portfolio’s performance. This knowledge is useful for investment professionals as well as less knowledgeable investors. I believe it will give you a significant advantage and lessen the risks you take.