The Financial Shift

BerkAdvisory's ValueAligned Portfolio Up +11.7% in the First Quarter

Click here for my Quarterly Letter to Friends of BerkAdvisory.  Here's an excerpt:

For the 1st quarter, the ValueAligned® Portfolio (VAP) was up +11.7%.  The S&P Total Return Index ended up +12.6%.  (It would have been about +10.6% if Apple (AAPL) was flat). 

As the media was headlining the roaring stock market, the broad stock market, except for a few sectors, started an internal correction early in February.  Our indicators told us then that the "market" needed to rest.  There remains a conflict between extreme price momentum (positive) and extreme bullish sentiment (negative). 

As we started this year, we had just experienced a rare, very positive signal from our sentiment indicators.  Bearishness was at its highest, which is very bullish.  That amount of negativity rarely occurs, and that signal has a phenomenal record of producing above average returns in the coming year. 

As 2012 kicked off, the market continued to rally until sentiment became fairly bullish (which is negative for future returns).  At the same time, however, monetary conditions were still the most bullish for stocks, with short-term interest rates nearly zero, banks could easily make money by lending at much higher rates.  Finally, the valuation of the stock market as a whole was more under-valued than at any other bear market bottom of the last 30 years.  We had no other choice but to urge full exposure to stocks.

So here we are, +12% higher.  Rising stock prices and much better-than-expected economic news made the dumb money a little too much optimistic in early February.  The Fed also seems to be feeling a little better about the economy—not all smiles, but not in the panic mode of last summer.  Valuation still is telling us that stocks are ultra-cheap, the place where your money is being treated the best.

Would you rather clean a bathroom than plan for your financial future?

We all need to engage in some financial planning, but few of us are eager to do so. According to a study from the ING Retirement Research Institute, almost a third of us would rather clean a bathroom than plan for our financial future. Fortunately, there are many resources available to help us, though they're not all equally helpful.

via www.fool.com

BERK: Some of us go to school to be doctors, engineers or accountants.  Some of us learn a trade or start a business.  Some pursue careers in teaching or the arts.  And some of us learn finance. That's me.  Why do so many fear talking about money?  My guess is that you think that you are supposed to know all about it through osmosis I guess...but your not.  Get help.  I beg you my friends to get help.  If it fits I would love it to be me - I know I can help most of you.  But get help - even if you are in the business - you probably are not in the business of actually "investing".

This is the worst period in our lifetimes to be squeamish about getting financial advice.  The worst mistake is avoiding the stock market.  Stocks of Great Companies will be the center of successful retirements for our  generation.  Take one day out from cleaning bathrooms and talk to someone you trust about retirement investments and savings.....

Our homes will no longer be the retirement vehicles we had hoped.  That's gone - now is the time to learn and reorder our savings and investment portfolios.

732-800-2375 (BERK),  if you want to talk.  You don't have to be super rich to deserve great financial and stock market advice.

Record Cash Stockpiles Point to Fatter Dividends - BusinessWeek

After a rough couple of years for investors who rely on cash dividends from U.S. stocks, 2010 is shaping up to be a year when a dividend strategy actually pays off.

"We've definitely turned the corner," says Howard Silverblatt, a senior index analyst at Standard & Poor's.

Historically, dividends have provided a significant portion of investors' total return. For the last 20 years the prices of the S&P 500 stocks have risen an average of 6.1% per year, according to Bloomberg data. If dividends are reinvested, however, the total average annual return for the S&P 500 has been 8.4%.

Ditch mutual funds - Know what you own

Rearview Investing

INVESTORS ARE SURELY FAMILIAR with the ubiquitous reminder that past performance is no guarantee of future success.

Still, when it comes to judging mutual funds, a great deal of weight is often put on historical performance. Standard & Poor's Equity Research thinks there's a better way. Last fall, the firm launched its new Mutual Fund Ranking methodology. S&P is combining its various research offerings, along with a bevy of fund data to rank funds.

Part I: Fourth Quarter Investor Letter-Volatility vs. Quality

Volatile Stocks Hit It Big in 2009; Quality Should Outperform in 2010

Lost in all the debate about the economy and whether the stock market was ahead of “fundamentals”, low quality high volatility stocks were the best performers in 2009 – so much so that out-performance more or less required having significant exposure to these low quality stocks in any portfolio. The Applied Finance Group’s Value Expectations blog reported that the gap between the returns for the top 20% (highest) and bottom 20% (lowest) volatile stocks in the Russell 1000 universe is huge (see chart below).

 

A classic stock in the highly volatile portfolio was EVA company Manitowoc (MTW).  MTW started 2009 at $8.8 a share.  By the beginning of March it had fallen to $2.5 a share on credit crunch concerns due to the high debt it took on to finance the Enodis acquisition.  However, as credit markets thawed and MTW avoided default, the stock began a huge move to close the year at almost $10 a share.  Some investors buying at the low made more than 300% in a few months. 

 

But quality, less volatile stocks did not pay-off in this environment.  We were very grateful that the ValueAligned® portfolio with its quality stocks still performed in line with the S&P 500. 

 

Looking ahead to 2010 we do not think low quality will continue to do so well.  The following chart looks at the returns of high versus low volatility portfolios over the last 10 years.  Notice how the Beta (another way of saying volatility) effect tends to reverse itself following great performances of high Beta stocks like in 1999 and 2004.

via docs.google.com