Tuesday, March 31, 2009

Is it time to buy stocks?

This is a question many people are asking now that they have seen a 20% run up in the stock markets over the last three weeks. My question is, why weren't you a buyer three weeks ago? For some reason, everyone likes to buy TV's, cars, and clothes on sale, but not stocks? Why? If you are an investor with more than 15 years to go to the time you would possibly need to withdraw some of your investment, then stocks are always a buy. One way to take some of the emotion out of it is to use a technique called Dollar Cost Averaging. This is basically a strategy which says you will invest the same amount of money each month into your portfolio. When the market is up, you buy less shares, when the market is down, you buy more shares. Over time, the markets will tend to go up more than they go down. The next strategy is to determine how much stocks, bonds, and cash you should hold in your portfolio. This is called asset allocation. Conservative investors may only want 20 to 40% of their portfolio invested in stocks or stock funds, while aggressive investors may have 80 to 90 percent in stocks. If you are uncomfortable with your allocation or cannot sleep at night because you are worrying about your portfolio, then you may need to adjust your asset allocation mix. There are many online questionnaires you can take, called risk tolerance quizzes, to determine how your portfolio should be constructed. Sometimes it pays to seek the help of a professional. Ask yourself this question, when Tiger Woods needs help with his swing, does he go to a professional golf instructor or pick up the latest copy of Golf Digest?

Monday, March 30, 2009

Back to the drawing board

News from Washington over the weekend that the CEO of GM was ousted at the recommendation of President Obama, gives new meaning to the power of the Presidency. Headlines hitting the internet and newspapers this morning has it that not only GM, but Chrysler is in trouble of surviving much longer, without filing for Chapter 11 bankruptcy protection. It seems their business plans did not pass muster with the White House and now must go to plan B. Chrysler has 30 days to make a deal with Fiat and improve their outlook, while GM will be given 60 days to tweak their restructuring proposal under their new President and CEO, Fritz Henderson. The plans that were previously submitted were deemed, "not viable". Read the full story here:

Obama aides flunk GM and Chrysler

If Chrysler succeeds in a setting up a "viable" plan with Fiat, they can expect to receive up to $6 billion more from the government to keep them alive. GM doesn't have a set amount of cash on the table, but will be under the close scrutiny of the administration to restructure the company or else. So what does this mean for you and me? Hard to say, so far, except that we taxpayers could be on the hook for at least $6 bil more. The real pressure is on the people who's jobs are on the line right now. Things could get real interesting in Detroit right now, and I'm not talking about the Final Four! The Big 3 might just be the Big 2 or the Big 1, a couple of months from now! But hey, at least our warranties are safe!

Friday, March 27, 2009

First 100 Days

This isn't a post about President Obama and how he's doing in his first 100 days in office. No, this happens to be my 100th entry on my blog. I have to say that this has been a fun and enjoyable way for me to chronicle my life and my thoughts, and perhaps make a few comments or pass along some words of advice than can help someone out there in the Blogosphere.

So my thanks to all of you who read my blog and especially those who take the time to make a comment or two.

Happy Friday and go Jayhawks!

Thursday, March 26, 2009

Gold as an investment

During the stock market crash of '08 (seems weird to say that), I heard a lot of radio and TV ads (and saw a lot of newspaper and magazine ads) promoting gold as an investment. This is normal during bear markets and times when the economy is in a recession. Last year saw gold break through the $1000 price for the first time ever. But is gold a good investment? Like stocks, it depends on your time frame. For the last several years, gold has certainly beat the return of stocks (as measured by by the S&P 500) but does that mean it's the right asset to own now? If you had bought gold back in 1980, you would not have broke even until about 2007. That's a pretty long time. Stocks were, in fact, the best asset to own from 1982 to 1999. But who invests for long periods on time anymore? Not many. The average holding period for most mutual funds is something like 1.2 years. People are fickle. Investors may say they invest for the long term, but their actions prove otherwise. If you are a buy low, sell high investor, the best time to have purchased gold was around 2000, at the peak of the stock market. But how many people did? Not many, I suspect. So after a bull market in gold from 2000 to 2009, would this seem like the best time to buy gold? Perhaps not. It's like asking the day traders who watched stocks run up from 1987 to 1999 if it was the right time to buy stocks. We all know what happened in March 2000. The beginning of a 3 year bear market in stocks. With the direction the stock market has been going lately, it would seem like a better time to buy stocks than gold. Only time will tell. At least with most stocks you can also make money on dividends, which is one thing gold does not do. Gold is strictly an appreciation play. I might add a little gold to my portfolio as an extra layer of diversification, but I would not put all my money in gold right now or any time. Good luck Glenn Beck! I like you as a radio host, but not as a financial advisor.

Wednesday, March 25, 2009

A bank that loans money?

Today I am featuring a guest blog written by Dennis Carey. He writes about small business issues out of Tulsa, Oklahoma. Yesterday he wrote about a creative small bank in Oregon and I wanted to share his blog with my readers. Read his post below:

My Gosh! Banner Bank in Oregon

The news media likes to focus on the bad things that have happened with big banks and corporations, but small banks and small businesses are what keep this country going!

Tuesday, March 24, 2009

Don't buy stuff you can't afford

A friend of mine sent me a link to a video clip from a recent Saturday Night Live show which had one of those fake commercials that seem real. You know the ones I'm talking about. Usually right after the opening skit. In recent years, the commercials are probably the funnier things they do, but I digress. The "commercial" was a promotion for a new book called "Don't Buy Stuff You Can't Afford". It was obviously aimed at the people who seem to find themselves buried in credit card debt all the time. While a very funny skit, the point rings true loud and clear, don't buy stuff you can't afford, or another way of putting it: save the money up, before you make the purchase! One thing a lot of people don't understand is, all the work you did to find the best deal in town is blown when you finance the purchase on your credit card. Credit cards are great tools, and necessary for purchasing airline tickets, rental cars, and booking hotel rooms and cruises, but if you don't have the money sitting in your checking or money market account to pay the monthly credit card bill when it arrives, you will be slapped with some nasty interest charges. It is not a coincidence that in these economically challenging times for American families, an old-fashioned way of paying for things at department stores is making a comeback: layaway plans. People without credit or those wanting to cut the cord to their destructive credit card use, are purchasing items on a store payment plan. When the item is paid in full, you can pick it up and take it home. Simple as that. So take a lesson from the comics at SNL, watch the clip and don't buy stuff you can't afford! Suzy Orman must love this one!

Monday, March 23, 2009

What about my "bad-asset" plan?

News that the Treasury Department will unveil their new plan for bank "bad-assets" has the stock market futures pointing towards a positive opening this morning. But what does that mean for people like you and me who have our own "bad-assets" still in the market, i.e., stocks and mutual funds that are down considerably since last year in our 401k and IRA plans? There are basically 3 things you should do:

1. Keep adding new money to your retirement plan each month. This is called dollar-cost averaging. You add the same amount of money each month and buy shares of your funds at the market price. This takes the emotion out of investing and you will come out ahead in the long run.

2. Don't worry what the talking heads on CNBC say. Media focus is short term. Almost all discussion is centered on what to do in the short-term, but most people are or should be, long-term investors.

3. Save more for retirement. If you are able, increase your monthly with holdings by a percentage point or two. You will ultimately save more for retirement and make up your losses faster. If you can't save more, take a look at your family budget and trim expenses where possible to free up cash.

The light is beginning to shine at the end of this bear market tunnel. Don't give up this late in the game. As hard as these tips might seem to do, it could make the difference in how comfortable you live in your future retirement years, and it might help you be able to retire on time. Nobody wants to come out of retirement, except Brett Favre!

Friday, March 20, 2009

Are bonuses bad?

AIG outrage has consumed the radios airwaves, blogs, and even Jay Leno's Tonight Show discussion lately. I would of course agree that AIG had no business paying bonuses out to executives of a failing business that has received multiple bailouts from the US government. However, to say that all bonuses are bad would be a mistake. Lots of people earn part of their annual pay on bonuses. Most salespeople, business professionals, and professional athletes get bonuses of some type as a reward for meeting or exceeding their goals for the year. Bonuses, if constructed properly, can motivate individuals to perform to higher levels than they might otherwise do on their own without any incentives. Most people who are upset about people getting bonuses, I suspect, are people who are salaried folks or hourly wage earners. But what would happen if you took away bonuses? What would happen is that companies would have to pay their sales force much higher salaries to attract talent. And salaries, as you know, are paid out regardless of performance. So if a star salesperson has a bad year, he gets paid the same as he would if he had a good year, or a great year. How do you reward performance now? Give him a watch, or a trip to Hawaii? Look what happens in the sports world. Marc Bulger was given a high salary without any incentives a few years ago after Kurt Warner was released, and he hasn't done squat since (of course he didn't get much help from his offensive line either). Most people are motivated to do better by a monetary incentive. It's the carrot on the end of the stick principle. AIG should not have paid out bonuses to their already highly paid executives, but commissioned sales people who are just trying to make a living like everyone else should be able to get bonuses to reward good years.

Wednesday, March 18, 2009

Courtesy Wave

Even though this spring has begun to feel more like summer, I have enjoyed venturing out on my motorcycle lately. Other than the irritating sound of cicadas, this past Saturday was a gorgeous day in St. Louis with temps in the high 80's and plentiful sunshine. Besides experiencing driving in a completely different way from behind the wheel of an automobile, the neat thing about being on a motorcycle is the camaraderie with fellow riders. When passing another motorcycle going the opposite direction, it is customary to wave. This is usually done by extending your left arm out low and to the side. Now the thing I like about waving to another biker dude (or dude-ette) is that it makes you feel good and respected. The really neat thing is that for the most part it makes no difference what kind of bike you're on. For example, I ride a Harley, but guys on Honda's and sport bikes wave to me and I wave to them. It makes no difference. This doesn't happen in cars. When was the last time you waved to someone you didn't know, while driving in your car? (and I don't mean the one finger salute!) Motorcyclists are all brothers and sisters on the open road. So check us out, and if you don't have a motorcycle, look into it. With gas close to 4 bucks, it's nice getting 45 mpg and feeling excited about being on the open road instead of dreading the commute.

Tuesday, March 17, 2009

Bonus outrage

In light of all the outrage, from Washington to Main Street, on the recent announcement that AIG will hand out scheduled bonuses to their executives, even after they have received government bailout money on more than one occasion, I thought it might be interesting to post a blog "re-wind" on bonuses, that I originally posted on January 30th. It was called "How big was your bonus?".
At that time I was talking about bonuses that were being handed out by Wall Street, to their investment bankers. If you think President Obama was mad about that, image how infuriated he must be about this AIG deal! Enjoy!

Friday, March 13, 2009

Friday the 13th

What is it about Friday the 13th that makes people weird? Is there really something to it or is it a case of self-fulfilling prophesies? And which is worse, Friday the 13th, April Fool's Day, or Halloween?

I will be thinking about this as I take some time off today to play golf (in 40 degree weather!) with some old college buddies. This will probably be some future blog material in the making!

Thursday, March 12, 2009

Social networking more popular than e-mail

It would seem that Mark Zuckerberg (the founder of Facebook) is seeing his vision become a reality. Studies show that social networking sites such as Facebook and Twitter, along with blogs, have over taken e-mail as something that the average person now considers a daily necessity.

"A Nielsen Online report says two thirds of us now use what it calls “Member Communities,” which includes both social networks and blogs. MC's now make up “the fourth most popular category online – ahead of personal email,” says Nielsen Online. The others are search, portals, and PC software. Nielsen Online says: Facebook - the world’s most popular social network - is visited monthly by three in every 10 people online across the nine markets in which Nielsen tracks social networking use."

Read the entire article here: Social Networking and blogs now more popular than e-mail

I read recently than Mr. Zuckerberg's "plan" is for Facebook to actually replace e-mail, at least on a personal basis. I can attest to this personally. While I, like most, can't escape e-mail in my work related activities. I use my Blackberry to check messages and status updates on Facebook, not e-mail. In fact, my wife checks her e-mail about once per week, while she checks her Facebook pages, daily. She has told me that if someone wants to send her a message, they need to send it through Facebook, or she might not see it. Now, I send her messages and post notes on her "Wall", so I know she'll see them! Speaking of Blackberries, iPhones, and most other smart phones all have Facebook applications for download, so that you can keep in touch with your "friends" all the time. So one day in the not so distant future, e-mail programs like Outlook, Eudora, and GroupWise, will bite the dust like the pager, the Visor, and the Walkman. I wonder how many people can't start their day without reading "my" blog?

Wednesday, March 11, 2009

Don't stop thinking about tomorrow

"Don't stop, thinking about tomorrow,
Don't stop, it'll soon be here,
It'll be, better than before,
Yesterdays gone, yesterdays gone."

These lyrics, by Christine McVie of Fleetwood Mac, are not just for those who may long for the Clinton years. They are a good motive for today's investors to not give up on saving for retirement. It will be here sooner than you think, too! My recent time on Facebook has been a reminder of just how fast time can go by. I have been reconnecting with high school friends that I have not seen in over 28 years! For those of you who have given up on the stock market because of the recent carnage over the past 16 or so months, my question is: what are you doing about your retirement savings? Just because your 401k has lost 30-50% of it's value and your employer is no longer matching a portion of your contributions is no reason to stop saving altogether. If anything, you may now need to save more! Social Security will only amount to perhaps 30% or less of what you will need to live on when and if you do actually retire (future blog). 401k and IRA savings plans are tax deductible, and if set up properly, are on automatic pilot. This means that you do not have to write a check to any financial institution to get your money to them. If you save automatically from your payroll or checking account, you will save more. Why? Because you are paying yourself first. When you pay yourself first, you are making sure that you are saving, instead of getting to the end of the month after the bills are (hopefully) paid, and realizing that you don't have any money left to save. So don't stop saving because you have lost money in the stock market, maybe you need to revisit your tolerance for risk. Saving for your future retirement is more important than ever, now that people are living longer and healthier lives. Oh great! Now I can't get that song out of my head!

Tuesday, March 10, 2009

Ask the Advisor

In order to get some new blog topic ideas and to put a fresh spin on my blog, I thought it might be interesting to hear from people in the blogosphere. What's on your mind? Is there a question you have always wanted to ask a financial advisor? Let's hear from you? Post your question in the comment section or you can e-mail me your question at scottw412@gmail.com and I will respond to you directly. Remember, there are no dumb questions. We can all learn from each other!

Rewind: Where's my bailout?

In the spirit of The Tonight Show and Late Night with David Letterman, I am posting a "rerun" of a blog I did on Nov. 19, 2008. It was titled "Where's my bailout" and I thought it would be interesting to run it now since in a way, much has happened since then, but much has stayed the same. Some if my newer readers might have missed it the first time, and if you read it before, well, leave me a comment!

Go to the original post: "Where's my bailout?"

Monday, March 9, 2009

Liquidation sale!

You've seen them, men and women standing on street corners holding signs that are as tall as they are, exclaiming: Going out of business! Liquidation sale! 50% off! During this current recession and down economy, more and more companies are going out of business. The most recent example that made local news in St. Louis was Circuit City. Shoppers scrambled to peruse the stores for "bargains". TV's and computers were "on sale"! Hey wait a minute! I thought we were in a recession? I thought thousands of people were losing their jobs? Who are all these people shopping at Circuit City? Mostly people who are behind on their bills, late on their credit card payments and over extended on their budgets. So why do they do it? The retail industry has done a very good job at "educating" people that they can "save money" by buying things on sale. While this may be true in principle, you have to take a closer look to see if these "sales" are really worth it to you and me. For example, when items are marked up 100% over cost, an item on sale at 30% off is still very profitable to the retailer. But more importantly to you, the consumer, you need to ask a couple very basic questions. Number one, do I need this item? If your TV went on the fritz and you need another one, great. Go get a new TV on sale. But if your TV still works, buying a new one that you didn't really need is not going to save you any money at all, even if it's on sale for 90% off. Number two, just because an item is on sale at one store, even a store that's going out of business like Circuit City, does not mean that you can't find a better deal somewhere else. Many times, you can find better deals at Sam's, Costco, Walmart, or other outlet stores by doing your homework and comparison shop. Another important thing to remember about stores going out of business. There are no warranties. Once you buy something at a store that is going out of business, it's yours! No returns allowed. Think about that before you plunk down 8 large for that new flat screen TV. One last question. Why do these liquidation sales last so long? I bet you know why. Sometimes being a smart shopper means not buying at all!

Friday, March 6, 2009

Buy when there's blood in the streets!

Fear and panic are now setting in to this bear market. This is normal. People tend to follow each other and act more on emotions than on anything else. This is called the "herd mentality". Now that the stock market has surpassed the November '08 lows and have now reached levels not seen in 12 years, people are finally starting to throw in the towel. While I cannot say (like anyone else) when this bear market will end, I am beginning to see indicators (based on investor sentiment and actions) that we are near the bottom, which in the industry is called, "capitulation". In the past two weeks I have fielded calls from scared investors who have wanted to move their investments out of stocks and into cash, money markets, and gold. I have even spoken to an old high school friend who has decided to short the market! He believes that the Dow (Dow Jones Industrial Average) is going to go below 5000 before it bottoms, and a client I spoke with yesterday thinks it may go as low as 2000! That would be another 70% drop from where we are now! Again, while I nor anyone else cannot say when the bear market will end or how low it will go before it bottoms, I can say that it WILL end and history proves it. There has never been a bear market that did not end. So what can you do? If you are an investor, you can still invest for the future. There's an old stock market adage, "buy when there's blood in the streets". What does this mean?

"Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that "the time to buy is when there's blood in the streets." He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own!"

This is contrarian investing at its heart--the strongly held belief that the worse things seem in the market, the better the opportunities are for profit.

To read more about this topic, click on this link:

Buy When There's Blood In The Streets

In the meantime, decide if you are really an investor. Someone who buys CD's is not really an investor. This market is brutal, but it will eventually end. So what will you do?

Thursday, March 5, 2009

What are you giving up?

If you've been following my blog, you know that I gave up drinking sodas on January 1st as my New Year's resolution. It was part health related, part fun, and mostly an experiment that I thought of for myself, to see if I could do it for the whole year, and if so, how much weight would I lose. So far (64 days and counting) I have lost 9 pounds. Now that Mardi Gras is over, Catholics and other faiths who participate in Lent, have had to decide what to "give up" during this time before Easter (a 40 day period) to draw believers into a closer relationship with God and their faith. Traditionally many people choose to give up certain kinds of food, like chocolate or candy. Others get more creative. A neighbor down the street has decided to give up gossiping. My wife has not disclosed what she is giving up, claiming that it is personal. Today, I read a story that I found very interesting. The Catholic Church is recommending some ideas for people:

"The Italian branch of the Roman Catholic Church wants its followers to forswear text messaging, social-networking Web sites and computer games in the run-up to Easter."

For the full story, click here:

Thou Shalt Not Text Until Easter, Italians Told

What makes this even more interesting to me is that I have read where the Catholic Church wants to embrace new technology by having a presence on facebook and UTube and other social networking websites. The St. Louis Archdiocese has even told people to sign up on their website for a text message to announce the new St. Louis Archbishop as soon as the Vatican makes the official announcement. So is this a contradiction? We want you to use facebook and text messages to communicate with the Catholic Church, just not during Lent? Ultimately, each person must decide what her or she will give up for Lent. While I am not Catholic, I consider myself a friend of the Catholic Church, as I am married to a Catholic. So while I am not giving up anything for Lent, I will continue my Water Experiment, which may not be a religious endeavor, but it is a noble one. At least I think so...I better lay off the chocolate anyway, the dentist told me I have 2 new cavities yesterday! Bummer.

Wednesday, March 4, 2009

A game of chicken

This nasty bear market that we are stuck in is starting to play on the nerves of investors, traders, advisors, economists and anyone else with an investment portfolio, including Warren Buffet. By most measures, this current bear market is worse than any seen since the Great Depression. This latest downturn has caused more people to throw in the towel, go to cash or gold, and swear off stocks forever. All the "so-called" experts say to hang in there and wait for the rebound. Indeed, history shows us that all bear markets have eventually ended and new bull markets began. The question is when? We seem to be over due for a turn around yet nothing good seems to be happening. So what to do. The question for most people has become what is your time horizon? When will you need to pull money that you have put into the market, out? Current wisdom would suggest not to invest money into this market that you do not need for the next 5 years. The real mistake though is to sell all your equity positions and go to cash, bonds, or gold at this late stage in the game. The market is playing chicken. How much can you take. Remember, your "losses" are only on paper until you push the sell button. Past history would suggest riding this market, as terrible as it is, out. Consider this (from a story pulled on Smartmoney.com):

"A bull market may be hard to imagine right now, but as Fidelity points out it can be very costly to miss the beginnings of one when it does happen. Researchers at the mutual fund company found that within six months of a new bull market more than a quarter of the gains have already been booked, while more than 40% of the gains come within the first year. Standard & Poor's has found that investors on average recoup 80% of their bear market losses within the first year of the next bull."

And this analysis by Pinnacle Group, a wealth manager in Midlothian, Virginia:

"If you remained fully invested in the S&P 500 for the 20 years between 1987 and 2007, your average annual return came to nearly 12%. However, if you missed just the 10 best days during that span, your return fell to about 9%. Miss the 30 best days in 20 years? Your average annual return came in at less than 6%. In other words, missing a trading months' worth of rallies over 20 years lopped about six percentage points off the annual average return. The upshot? The fully invested saw $10,000 grow into $93,000, while those missing the 30 best days got $28,000 for their trouble. Now get this: Pinnacle notes that investors who did nothing at the bottom of the market during the Great Depression watched their portfolios take more than four years to be made whole. On the other hand, those who plowed another $10,000 into stocks on June 1, 1932, recovered all their losses in just three months."

Read the full article, here.

So there it is. This is a serious game of chicken. Will you get hurt, or dodge the bullet? This is real life. Jim Cramer and Suzy Orman can't help you now.

Tuesday, March 3, 2009

Did we really need to know this?

Scientist Solves Mystery of Belly-Button Lint

The "mystery" has been "solved", so the story goes. But that begs the question...do you care? And the even bigger question is...would you pay $31.50 for the full report? I wonder if this is where some of this stimulus package money is going.

If you have not seen this article and are dying to know more, click on this link for the...rest of the story. Good........................day!

Ode to Fear

Today's blog is being brought to you by my high school friend Rich Harrison, who writes a blog out of Cincinnati. He wrote a poem which I thought was appropriate for this bear market we all find ourselves in. It's called Ode to Fear. Enjoy!

Thanks Rich! I'll be back tomorrow with more thoughts on the market.

Monday, March 2, 2009

The winter of our discontent

As we move into March, most people are turning their eyes toward spring. People everywhere are making plans for spring break, St. Pat's, or at least a 3 day weekend. Sports fans are gearing up for the NCAA tournament, and the return of major league baseball. Globally, everyone is hoping and praying for an end to this cruel bear market and a sense of direction from our government leaders instead of promises for the future and talk of more bailouts for broken corporations who are deemed too big to fail. The markets are oversold but there do not seem to be any buyers in the wings. To make matters worse, the eastern half of the country has just been pelted with another layer of snow! Well, spring does not officially begin for 3 more weeks. I guess everyone's favorite groundhog was right 4 weeks ago! But fear not! There are plenty of good things happening around us. Tiger Woods is back! He has played his first tournament and the knee surgery appears to have been a success! U2 is coming out with a new album this week! Their first one since 2004. Gas is still selling below $2 per gallon. This is a personal economic stimulus package that keeps on giving. Homes and cars are selling at terrific discounts. If you are in the market for something new, this is a buyer's market! Banks are actually lending money. Despite the media's broadcasting to the contrary, most banks are lending money to qualified people who are looking to borrow. Give your banker a call, he's wants to make a deal.
There are plenty of opportunities in bonds. If you're looking for better yields on your cash, forget CD's and money markets, go for bonds. Bonds are the new stocks! Forget gold. Didn't you learn anything from 1999? Buy low, sell high. Stocks and bonds are selling at a discount, gold is not. OK, class dismissed...see you tomorrow!