Hard Working Money

Throw Out The Calendar, Invest By The Rules

noreply@blogger.com (Phil Fragasso) — Wed, 21 Dec 2011 14:03:00 +0000

Individual investors can find many ways to lose money in the stock market, but the most frequent is their tendency to buy-high and sell-low. It’s human nature. We get more confident when things are going well, and we become cautious and fearful when they’re not. So we load up on stocks when the CNBC talking heads are cheerleading the latest highs in the market, and we sell when their tone leaves little doubt that Armageddon is just moments away. Sadly, this natural tendency is exacerbated by the stock market’s unfailing ability to rocket too high and plummet too low. With all due respect to the oft-repeated fallacy regarding the market’s efficiency, there’s always a bubble somewhere and the popping is getting louder and far more frequent.

Read the rest of the article on SeekingAlpha

"Accidental" Gold Discovery Is 24-Carat Scam

noreply@blogger.com (Phil Fragasso) — Tue, 14 Jun 2011 12:35:00 +0000

You can imagine my excitement when I received the envelope with 24-point type telling me that an "Accidental Gold Discovery in Arizona Baffles Top Geologists." But even better, the stock being promoted — Gunpowder Gold — was anticipated to surge 369% in the next 3 weeks, "with potential gains as high as 1,333% to follow." I was a little taken aback that Tim Cole, the editor of Secret Gold Stocks, had made the rookie mistake of naming the stock on the outside of the envelope so anyone could share in this unprecedented opportunity. But, hey, the guy is an investment genius not a marketing genius.

Inside, the 16-page newsletter was jam-packed with tidbits that would help me "lock in massive potential profits" with "one of the most spectacular American gold plays that ANYONE has seen in more than 14 years" and I was urged to avoid "one of the biggest mistakes inexperienced investors make [by] acting too late."

I was so excited about the opportunity that my fingers were too nervous and jittery to even place the online trade order — at which point I feared that Mr. Cole was correct. I had delayed too long and lost my chance to party like a gazillionaire. But I still had an opportunity to subscribe to Mr. Cole's newsletter for only $949 per year. That was about $949 more than I felt it was worth, so I passed on that as well.

Fast forward to today, three months later. Gunpowder Gold, which had been trading at $1.05 when the envelope arrived, is now at 0.48. The good news is that now I can buy twice as much for the same price. The bad news for Mr. Cole is that I read the fine print. I learned that parties affiliated with Gunpowder Gold paid Mr. Cole $600,000 to tout the stock. Mr. Cole stresses that "this inherently makes the report biased" and his publication "is not, and should not be construed to be, an offer to sell or a solicitation of an offer to buy any security."

Inside, the 16-page newsletter was jam-packed with tidbits that would help me "lock in massive potential profits" with "one of the most spectacular American gold plays that ANYONE has seen in more than 14 years" and I was urged to avoid "one of the biggest mistakes inexperienced investors make [by] acting too late."

I was so excited about the opportunity that my fingers were too nervous and jittery to even place the online trade order — at which point I feared that Mr. Cole was correct. I had delayed too long and lost my chance to party like a gazillionaire. But I still had an opportunity to subscribe to Mr. Cole's newsletter for only $949 per year. That was about $949 more than I felt it was worth, so I passed on that as well.

Fast forward to today, three months later. Gunpowder Gold, which had been trading at $1.05 when the envelope arrived, is now at 0.48. The good news is that now I can buy twice as much for the same price. The bad news for Mr. Cole is that I read the fine print. I learned that parties affiliated with Gunpowder Gold paid Mr. Cole $600,000 to tout the stock. Mr. Cole stresses that "this inherently makes the report biased" and his publication "is not, and should not be construed to be, an offer to sell or a solicitation of an offer to buy any security."

Article first published as "Accidental" Gold Discovery Is 24-Carat Scam on Technorati.

Will The Real Ford Earnings Stand Up

noreply@blogger.com (Phil Fragasso) — Sat, 29 Jan 2011 14:01:00 +0000

Ford released its Q4 and full-year 2010 earnings this morning, and it serves as a poster child for the media's determination to turn everything into a good-news/bad-news, black-or-white headline. The New York Times article proclaims that "Ford Reports Largest Profit in 11 Years." Wow, that's pretty darn good. But then why does the WSJ report that "Ford's 4th-Quarter Profit Falls 79%"? How is such a dichotomy possible in an age where everyone has instant access to every conceivable data point? Well, as gravelly voiced Tom Waits tells us, "the large print giveth and the small print taketh away." So the small-print story of Ford's quarter is that the company took a one-time charge related to the conversion of debt. If you choose to focus on that event, which served to reduce debt and cut annual expenses, then the quarter was bad. If you exclude the one-time charge, Ford had a blow-out quarter. In either case, the moral is to not buy or sell Ford based on a single quarter: but especially don't buy or sell based on headlines.

Article first published as Will The Real Ford Earnings Stand Up on Technorati.

Don’t Buy into the GM IPO Even If You Can

noreply@blogger.com (Phil Fragasso) — Mon, 15 Nov 2010 16:26:00 +0000

There’s been a lot of angst and gnashing of teeth in recent days about the likelihood that average investors will be shut out of GM’s forthcoming IPO. The very fact that this is newsworthy shows how little understanding there is in the media and among individual investors about how the IPO process works.

IPOs are universally viewed as the sexiest way to play the stock market. They’re also the riskiest, least understood and most fraught with hyperbole. Nonetheless, most individual investors would do pretty much anything to get a piece of the action -- even for a suspect post-bankruptcy company like GM -- and that’s a serious mistake.

An IPO refers to the process of a private company converting to a publicly traded company by selling stock to individual and institutional investors. IPO companies are usually younger and smaller companies in need of additional capital to expand. The less politically correct reason for an IPO is to pay back the venture capital firms and angel investors who supported the firm during its early years. Similarly, an IPO allows the companies’ founders to monetize their ownership stake. These are the folks who become instant millionaires on IPO day. The people who buy stock in the IPO are rarely as lucky.

Notwithstanding the speculative nature and relatively poor performance of IPO companies, investors excitedly line up to buy shares. Fortunately for them, most investors are excluded from the process. As explained on the Securities and Exchange web site (www.sec.gov), brokerage firms usually “sell the IPO only to selected clients. For example, before you can purchase an IPO, some firms require that you have a minimum cash balance in your account, are an active trader with the firm, or subscribe to one of their more expensive or ‘premium’ services.” This is a key point because it highlights the unwavering truth about IPOs: If the average investor is offered an opportunity to buy an IPO, it means that the smart money has declined -- and you should do the same.

That’s why most individual investors can’t participate in the GM IPO. It’s not part of a government conspiracy, and no valid argument can be made that this IPO should be different simply because the U.S. taxpayer bailed out GM. In truth, most retail investors would have no idea what exactly they’d be investing in other than the GM brand name (which has lost most of its former luster). I’d bet your right arm that the average investor who desperately wants a piece of the GM IPO wouldn’t be able to answer basic risk-management questions like what are GM’s normalized earnings, what is the firm’s global strategy, how will long-term pension funding requirements affect earnings, etc.

Anyone who’s still interested in buying the GM IPO is advised to remember this sage advice from Groucho Marx: “I don’t care to belong to any club that will have me as a member."

So if you can buy the GM IPO, don’t. If you can’t buy it, follow the stock in the weeks and months after the IPO, wait for the price to settle at fair value, and make a decision to buy or not based on logic and intellect rather than emotion and an artificial sense of urgency.

Article first published as Dont Buy into the GM IPO Even If You Can on Technorati.

Apple's Apt App Language & Why It's the Apple of Our Eyes

noreply@blogger.com (Phil Fragasso) — Wed, 22 Sep 2010 00:56:00 +0000

Apple recently released a revised set of guidelines for apps sold in its App Store for use on iPhones, the iPod Touch, and iPads. As opposed to the mind-numbing legalese that would likely have been used by the Intels and Microsofts of the world, Apple's approach was entertaining and engaging.

For example, Apple writes that “We have over 250,000 apps in the App Store. We don’t need any more Fart apps. If your app doesn’t do something useful or provide some form of lasting entertainment, it may not be accepted.”

How many S&P 500 companies have ever used the word "fart" in any public document?

The Apple guidelines go on to state that “We will reject apps for any content or behaviour that we believe is over the line. What line, you ask? Well, as a Supreme Court Justice once said, I’ll know it when I see it. And we think that you will also know it when you cross it."

Apple is winning because the company does indeed think different. Or perhaps it's simply that the company thinks.

Over-Reacting to Mosques, Children and Investing

noreply@blogger.com (Phil Fragasso) — Sun, 19 Sep 2010 18:19:00 +0000

I live in Wellesley, Mass. -- a suburban town best known as the home of Wellesley College and Babson College, as well as a pioneering recycling program. But now Wellesley has been thrown into the whole anti-Muslim, Mosque-paranoia debate. Why? Because a middle school class that was learning about world religions visited a local Islamic Community Center and -- drum roll please -- a few kids chose to kneel during a prayer session. The video shows up on YouTube and now Fox, CNN and the ultra right-wing "American Thinker" are having a field day denouncing the "indoctrination" of these innocent children. Interestingly, the visit occurred back in May. No one in Wellesley was at all concerned about it -- especially considering that similar visits were made to Christian, Jewish and Hindu places of worship. But in today's America where citizens routinely paint Hitler mustaches on our president and denounce socialism while gladly cashing their social security and unemployment insurance checks, hate-mongering rules the day and an innocent act can be twisted into a disingenuous battle cry for life, liberty and the American way. Very sad.

So what does any of this have to do with the HardWorkingMoney approach to investing? Simply that similar over-reactions to news and rumors occur every single day -- providing fodder for a parade of CNBC and FoxBiz talking heads. Mark Hurd gets fired by Hewlett Packard for cause, and the stock is down about 15%. Hurd was not a particularly good CEO -- certainly not in a league with Steve Jobs, Jamie Dimon or Alan Mullaly. But investors over-reacted. The Apple "antenna-gate" nonsense was another example, as were the recent huge drops in companies like Teva and Qualcomm based on "news" that was misinterpreted just to make news.

And that's the key point. Radio talk shows, newspapers, and cable TV have to fill their 24/7 formats with news. And sometimes -- or almost always -- there's not enough real news to suffice. So the solution is to make up news, bloat non-stories into propaganda-like horror stories, and focus more on talking rather than educating and informing. So be careful what you read and hear, be careful to interpret it correctly, and you can make a fortune in the stock market and be a better citizen of the world.

How Does Peter Schiff Live With Himself?

noreply@blogger.com (Phil Fragasso) — Thu, 26 Aug 2010 12:37:00 +0000

I'm sure he's nice to children and dogs, but Peter Schiff has to be the most self-serving economic analyst in the history of talking heads. First off, please note that the name of Schiff's company is "EuroPacific Capital." Then note this recent verbatim comment from Schiff: "It's patriotic for Americans to invest abroad." That would be like Tiger Woods saying that "I cheated on my wife because I loved her so much."

It's also interesting that he makes this ridiculous comment from a Connecticut mansion with a maid working in the background and a pool and tennis court in the backyard. Looks like America-bashing has been very profitable for this Tea Party favorite.

Schiff sees the day when tens of millions of Americans will want to flee the country but, oddly, he never mentions where they might go. I would love to know the country that would welcome an onslaught of Tea Party crazies who can find nothing but fault in the greatest country the world has ever known.

Schiff believes that things will get very bad in this country and people will want to leave but it will be illegal to leave with your money or gold. So guess what? Schiff offers clients the ability to buy gold and have it stored in an Australian firm he partners with. The man is brilliant -- a brilliant shill.

Schadenfreude On Wall Street and Washington

noreply@blogger.com (Phil Fragasso) — Fri, 13 Aug 2010 12:53:00 +0000

Have you noticed how the talking heads like Rick Santelli, Peter Schiff, and Nouriel Roubini take absolute delight in reporting poor job numbers, predicting hyperinflation (except, of course, when they're predicting deflation), and announcing the inevitability of a double dip? Along the same lines, you've got senior Republicans and wannabe-senior Republicans criticizing every statement and policy decision of all three branches of the government. You've got certifiable crazies like Newt Gingrich chastising Obama for his socialist ways while simultaneously recommending we manage our economy more like China -- the sole remaining communist powerhouse.

What is wrong with us as a society? Many of our Wall Street analysts and political leaders seem to prefer economic pain and human suffering just so they can say "I told you so." We've become a nation of hypocrites. We hate the Federal deficit but love tax cuts. We're still debating where Obama was born. We've turned Bristol and Levi -- an unwed mother and an unemployed high school dropout -- into one-name celebrities like Sting and Madonna.

We are in the worst economic period since the Great Depression. There can't be a double dip because we've never recovered from the first dip. Recovery -- including unemployment, retail sales, consumer confidence, etc. -- is going to take longer than any time since the Great Depression because of the depth of the 2007-2009 Great Recession. Why is that so difficult to understand?

Americans have traditionally come together in periods of fear and uncertainty -- e.g., the weeks and months after Sept. 11, the assassination of Pres. Kennedy, and bombing of Pearl Harbor. Why aren't we reacting in the same way to the current economic turmoil? Instead of pointing fingers, why aren't we joining hands? I'm not a Pollyanna, but life is short. Let's live it well and leave the world and our nation in better shape than when we arrived. We can only accomplish that if we work in harmony. It sounds simple and it is simple. I promise to do my part if you do yours.

For more investing insights, please see my newest book, Your Nest Egg Game Plan, and my website www.HardWorkingMoney.com

Years Count More Than Nanoseconds

noreply@blogger.com (Phil Fragasso) — Tue, 10 Aug 2010 13:33:00 +0000

Does anyone invest for the long term anymore? Have we truly become a nation -- or even a world -- of day traders who expect immediate gratification for every stock buy? Should today's productivity numbers or small business confidence index really affect what stocks you buy with the intent of holding for a year or more?

I know I'm getting old, but I do yearn for the days when we were not so fixated on every tick of the market and every obscure statistic re hiring, firing, manufacturing, interest rates, and the like. I yearn for the days when the dumping of a mediocre CEO like HP's Mark Hurd would not cause the stock to drop a full 10%. And, as an HP shareholder, I yearn for the days when a fired CEO (yes, I know Hurd officially resigned but so did Richard Nixon) would not walk away with millions of dollars in severance benefits.

Investing should be about achieving your long-term financial goals. Warren Buffett likes to say that you should only buy stocks that you'd be happy to own if the market closed for ten years. So turn off CNBC and FoxBusiness, check your stock portfolio once a day not once every five minutes, write down your goals and write down your strategy to achieve those goals. (You can download a free template for a personal Investment Policy Statement from my HardWorkingMoney.com website here)

And you know how you're always complaining that there's not enough time to do everything you want to do? Stop fixating on every up or down move in the market and spend more time with your family and friends, reading, exercising, and truly living life the way it was before cable TV and the internet hijacked our lives.

Three Asset Classes Do Not A Portfolio Make

noreply@blogger.com (Phil Fragasso) — Tue, 03 Aug 2010 13:59:00 +0000

CNBC just featured a market analyst from a major Wall Street firm. He was prognosticating on where the markets were going and what individual investors should do. So far, so good. But then he crashed and burned. Like so many of the talking heads featured on CNBC and Fox, this guy had tunnel vision. He was comparing opportunities and forecasts for what he described as the three major asset classes -- US stocks, Treasuries and cash. Of those, he recommended stocks as the asset class of choice.

But anyone who ran out to buy stocks based on this guy's remarks will likely be sorely disappointed. There is a whole other world of investing opportunities out there, but they are usually ignored by individual investors. But it's not their fault. Investors are bombarded with Wall Street's solipsism, so it's no wonder that they believe they're diversified with a portfolio that consists of 3, 4, or 5 different asset classes. True diversification, however, can only be achieved via a broad portfolio that includes non-correlated asset classes like real estate, commodities, natural resources, emerging market stocks and bonds, and junk bonds. All of these asset classes outperformed the S&P 500 over the last decade and deserve an allocation in most everyone's portfolio -- despite what CNBC says.

LeBron James and Wall Street

noreply@blogger.com (Phil Fragasso) — Fri, 09 Jul 2010 13:40:00 +0000

At 9:06 this morning, CNBC interrupted an interview from the floor of the NYSE with "breaking news." For a moment my heart skipped a beat. Had it just been determined that the iPhone antenna caused Droid phones to explode? Was BP about to attempt another oil-gushing stopgap measure by stuffing Rush Limbaugh and Glenn Beck into the open well? Or perhaps Michael Steele now blamed Obama for US involvement in Vietnam.

But no. The breaking news was the huge audience that watched last night's television spectacular when LeBron James announced where he would deign to play basketball for the next few years. OMG. LOL. WTF.

While it is not news that we've become a culture of celebrity, this might actually constitute a new low. But more importantly, it's further evidence that the media coverage of Wall Street and the business of investing has been similarly bastardized. A large percentage of the analysts and "experts" pontificating on the market's direction are made-for-television shills. They don't appear on television with the intent of helping individual investors; they are there to promote themselves and their firms. Not that there's anything wrong with that. But it should give pause before you run out and act on their recommendations -- especially when many recommendations are either based on nonsense or designed simply to attract attention. A case in point. Apple announced they had sold 3 million iPads as of June 21. Today, three of the analysts who follow Apple estimate that the firm sold between 2.5 and 2.75 million iPads in the second quarter. Either they assume Steve Jobs is lying (and forget that Apple always under-promises and over-delivers) or they're idiots. You decide.

Is It Too Early or Too Late to Invest in Stocks?

noreply@blogger.com (Phil Fragasso) — Wed, 30 Jun 2010 15:49:00 +0000

As the first half of 2010 becomes a memory, and the S&P 500 delivers its first losing quarter in a year and is now down about 8% from the beginning of the year, it's an opportune time to consider when is the best time to invest. When the market is falling like it has over the last two months, people are afraid to invest because the market may fall further. Conversely, when the market is steadily rising, folks feel they've lost the opportunity and wait for a pullback. In both scenarios the key word is "market." People spend far too much worrying about market gyrations. A far better approach is to focus on valuations -- and that's as true for broad indices like the S&P as it is individual stocks. When you focus on valuation and paying a fair price for earnings, growth and dividends, it doesn't matter whether you are early or late to the party. Over time you will win. Just adhere to Warren Buffett's advice to "only buy something you'd be perfectly happy to hold if the market shut down for 10 years."

Lose "Drawdown" From Your Investing Vocabulary

noreply@blogger.com (Phil Fragasso) — Tue, 08 Jun 2010 14:01:00 +0000

I just came across an article in one of the financial services trade publications that rekindled my hatred for Wall Street doublespeak. The article focused on alternative investments and highlighted how an allocation to hedge funds and managed futures could lower the risk of a portfolio while boosting return. So far so good. But then the author illustrated the 10-year performance of the portfolios and compared the worst one-year losses of the portfolio with and without alternative investments. Except he didn't refer to "losses." Instead, he referred to the worst one-year "drawdown."

Now, before I continue with my rant, let's look at the dictionary definitions of "drawdown." The OED defines the term as "the act of raising money through loans" and the World English Dictionary defines it as "the process of reducing or using up a supply or store of something." Now, in fairness, the Investopedia web site defines the term as "the peak-to-trough decline during a specific record period of an investment, fund or commodity."

Notwithstanding Investopedia's attempt to legitimize "drawdown," the term is a sophisticated way to mask the concept of a loss and/or imply that the loss is temporary. And because the term is only applied to hedge funds and other alternative investment vehicles, it gives the impression that the hedge fund portfolio manager's shit smells far sweeter than a traditional manager's (why else would they be able to charge egregious fees of 2% annually plus 20% of gains?).

So, if you come across or hear this term from your broker or investment advisor please ask him or her to explain how a drawdown differs from a loss. And please smile knowingly as he/she stutters and mumbles himself/herself out of a sale.

Expensive Stocks, Cheap Companies

noreply@blogger.com (Phil Fragasso) — Wed, 02 Jun 2010 17:29:00 +0000

I had an interesting conversation yesterday with a potential client of my investment advisory firm. We were discussing buy-write strategies where you buy the stock and sell a call against the stock. I used Apple as an example and explained how she could buy the stock at roughly $260 and sell an October $300 call for about $11.50. Her immediate reaction was "why would I buy Apple at $260?" My response was that while Apple stock was at an all-time high, the valuation based on price-to-earnings was at an all-time low. I then asked a follow-up question: would you buy Apple if the stock were at $26.00? She nodded. "So," I asked, "if Apple split its stock 10-for-1, and the share price went to $26.00, you'd be a buyer?" She nodded again. And most individuals would nod right along with her.

And that's why companies split their stocks. It makes the stock more attractive to individual investors even though, in reality, it's all smoke and mirrors. Given the choice, most toddlers would opt for two shiny nickels rather than a single thin dime. The more mature of us would recognize that neither choice is better or worse than the other. Nonetheless, the opportunity to exchange a dime for two nickels invariably excites investors and Wall Street exploits this tendency via meaningless stock splits.

Wise investors -- like Warren Buffett who has never split his Berkshire Hathaway stock (BRK-A) which trades for $107,000 per share -- focus on the intrinsic value of a company's stock based on measurements like PE, cash flow, dividends, etc. If you like Apple as a company, but can't afford 100 shares at $260, then buy 10, 20, or 30 shares. You buy stocks to own a piece of the underlying company, and that's how you should determine a fair stock price. For $2600, would you rather own 10 shares of Apple, 2600 shares of Sirius, or 100 shares of Microsoft. That's the decision tree. How much can you afford to invest and where best to invest it.

Where Is The Love: Uncivil Unrest Among Gold and Forex Traders

noreply@blogger.com (Phil Fragasso) — Mon, 24 May 2010 19:11:00 +0000

My mailbag recently included these verbatim comments:

"is this guy freakin stupid or what?"
"you retard"
"what in the world are you smoking?"
"is this a joke?"

And what did I do to prompt such vitriol? I merely suggested that gold and currencies should constitute a very small percentage of one's portfolio. I recommended that gold be limited to a 5% allocation and the currency trade should be ignored by all except the most savvy and speculative investors. One of my "fans" suggested that I was ignoring "2400 years of history that awards gold the sole winner." I'm not quite sure what gold is the sole winner of, but I suspect that the writer of that pithy declaration was not alive during the last gold bubble of the late 1970's and didn't have to endure almost 30 years of declining and flat gold prices.

The crassness of these comments would seem to suggest that the commentators are not innocent bystanders who have decided to invest their own life savings in gold. Rather, I'd bet my own gold stash (which, in full disclosure, is nil) that these folks are in the business of touting gold to other innocent bystanders who are being brainwashed into believing that the world is about to end and hyper-inflation is upon us.

Bob Marley had it right when he coined the lyrics, "Don't gain the world and lose your soul; wisdom is better than silver or gold."

It's fine to disagree with me and others, but please be civil about it. Life is short. We're all trying to do the best we can do. Buy all the gold you want; but remember, every time you buy a gold coin or a share of GLD, someone else is selling it. And who's guaranteed to make money? The broker.

"Highly Suitable" Is a Euphemism for Investment Scam

noreply@blogger.com (Phil Fragasso) — Thu, 20 May 2010 15:32:00 +0000

This is the text of a promotional email and ad that has been inundating financial advisors over the last few months. It promises huge annuity commissions for minimal work. The key phrase that you need to focus on is "highly suitable annuities." Part of the current debate over financial regulation is whether brokers and financial advisors should be held to a "fiduciary" standard rather than the current "suitability" standard. The former means that the advisor must put the client's interests first; the latter means that the advisor can sell a product that benefits his or his firm as long as it's considered "suitable" for the client. Most investors who read that statement would have absolutely no idea what it means, and that's the problem. Suitability almost always means that there is a conflict of interest. So when I see a phrase like "highly suitable" it means an exceptionally high conflict of interest.

The moral is to take pause whenever a broker, financial planner or insurance agent tries to sell you a product. In many -- if not most -- cases he or she will benefit more than you.

Gold Bugs Have a Short Memory

noreply@blogger.com (Phil Fragasso) — Wed, 12 May 2010 13:54:00 +0000

The surest sign of a bubble is when everyone is positive about the same thing. And when individual investors hop on the bandwagon preaching the same gospel of buy-buy-buy, the bubble is about to explode.

I think that's where we are today with gold. Gold prices are hitting a new all-time high pretty much every day and it's impossible to watch the talking heads on CNBC and Fox without hearing somber -- albeit exuberant -- predictions of gold at $10,000 per ounce. UBS reports that demand for gold coins is so high that suppliers are struggling to meet demand and gold producers are ramping up production.

Perhaps most tellingly, web sites touting and selling gold are now more prevalent than purveyors of porn. The come-on for these gold-bug web sites is the same -- "gold is soaring and it's not too late to make a fortune." Interestingly however, when I was looking for a chart of historic gold prices (like the one included in this piece) all I could find were 10- and 15-year charts depicting a strong upward momentum. When you look back over 35 years however, the story is quite different. Investors who bought gold at its peak in 1979 did not get back to even until 2007 (and that doesn't take into account the effect of inflation). In addition gold prices were flat -- i.e., delivered a 0% return -- for over twenty years beginning in 1982. And that's actually okay if you're owning gold as a hedge -- i.e., as a very small percentage (under 5%) of your total portfolio -- but it's a disaster if you view gold as an investment.

What I find most interesting and troubling about today's gold buggers is that they refuse to acknowledge the existence or potential for a bubble in gold prices. They insist that inflation fears will continue to drive up gold prices. My counter argument is that inflation is already priced into gold via the huge run-up of the last few years, and the golden days for gold are over.

For additional investing insights please check out my new book Your Nest Egg Game Plan co-authored with Prof. Craig Israelsen of BYU.

Expert Idiocy Rules The Day on Wall Street

noreply@blogger.com (Phil Fragasso) — Thu, 06 May 2010 20:20:00 +0000

There's nothing like a day like today to remind you that -- unlike individual investors like you and me -- the titans of Wall Street make money on the way up and the way down. A key element of Goldman's defense against the SEC charges of fraud is that the firm acted as an "intermediary." And that's true. Goldman, Morgan Stanley, Merrill Lynch and the rest of the gang are brokerage houses at their core. They bring together buyers and sellers and they make money on the brokered transaction (via fees and bid-ask spreads). Both the buyer and the seller of any given trade think they're getting the better of the deal. Using today's moronic price action as an example, the person who sold Apple at $199.25 as the stock gapped down during the mid-afternoon freefall thought he was making a smart move (though he/she now regrets the decision as Apple closed at $247) while the buyer feels like a genius and is telling everyone he knows about his stock-picking prowess.

The titans of Wall Street, however, pocketed the transaction fee and the bid-ask spread for that trade and millions of others just like it. The titans don't care whether the buyer wins or the seller wins, because they win regardless.

So if there's a moral to this story it's to keep your head during a panic and focus on investments that will make money for you. The market never goes straight up or down, but it always goes up too high and down too low. You want to watch what the herd is doing but not necessarily follow.

The Market's Up - and the Scam Artists Want Your Money

noreply@blogger.com (Phil Fragasso) — Mon, 26 Apr 2010 23:39:00 +0000

The stock market has been on a huge run for the last 13 months. Good stocks and bad stocks have enjoyed double- and sometimes triple-digit gains. Good stock-pickers and bad stock-pickers have both made money, and it's difficult to attribute any of it to prescience or plain old dumb luck. What's easy, however, is for the get-rich-quick charlatans and con artists of the financial world to sucker investors into believing they've discovered a foolproof road to riches. Like this banner ad that's been running on several well-known web sites.

When you click this link, you're offered a book for $50 (plus $245 worth of additional crap) so that "you can get Crazy-rich -- FAST."

The claim that especially caught my eye was this. "I recently used this strategy to increase my wealth four-fold in a single weekend." The proof-reader should have caught the fact that the markets are closed on weekends. But even if the claim is referring to Friday's price versus Monday's, either the guy's "wealth" wasn't much to start with or he possessed inside information. Just do the math. Assume this fourfold increase occurred long before he hit the $87 million level that his ad boasts about. Assume he had modest wealth of $100,000 and invested $10,000 in a single options position. In order for his $100,000 to increase fourfold, the $10k position would have to increase by a factor of 30. It's a moronic claim.

Rather than belabor the rantings of a con man, I'll leave you with another frightening quote: 'Options are arguably the best money-making opportunity on planet earth, yet very few people understand them. If they did, most of them would ditch their 9 to 5 "noose" and start cashing in on the exciting world of option trading!"

Where the hell is the SEC when you need them?

For more investing insights please check out my new book, Your Nest Egg Game Plan (Career Press 2009) co-authored with Prof. Craig Israelsen of BYU.

Goldman Sachs' Apple Hacks

noreply@blogger.com (Phil Fragasso) — Wed, 21 Apr 2010 21:59:00 +0000

If you needed any additional proof that most Wall Street stock analysts are delusionally incompetent, here it is. Last night, after Apple reported unbelievable earnings that crushed estimates and after the stock jumped $15 to $160 and change, Goldman Sachs increased its target price for Apple to $170 while maintaining its neutral rating. That piece of information by itself provides little if any information to determine the competence or credibility of the analysis. But here's the kicker. That was the eleventh time in the last year that Goldman has raised its price target for Apple -- all the while maintaining a neutral rating. If you're wondering how many of Goldman's buy-rated stocks or "conviction-buy-rated" (whatever the hell that means) stocks required even half as many upward adjustments to their price target, the answer is precisely zero.

So, once again, Wall Street analysts are not on your side, they are not all-knowing and, frighteningly, you can't make this stuff up.

Performance Update on 10 Stocks with 20% Upside Potential for 2010

noreply@blogger.com (Phil Fragasso) — Wed, 21 Apr 2010 00:22:00 +0000

Back on December 24, 2009, I published a blog entry listing 10 stocks that I believed had 20% upside potential for 2010. Here's an update on how these 10 picks have performed. During the period from 12/24/09 to 3/31/10, the S&P 500 increased by 3.81%. On average the 10 stock picks increased by 7.42%.

Interestingly, but not really surprising from a mathematical standpoint, half of the stock picks underperformed the S&P. The portfolio out-performance was driven by two factors. None of the stocks that underperformed were clunkers. The worst stock, Nucor, underperformed by about 7.5%. On the flip side, three of the stocks that outperformed the index were red-hot. Apple, Bank of America and CVS all delivered double-digit returns. And there is a moral to that story -- you can't be right all the time, but your wins have to be big and your losses need to be small.

We're now about three weeks into the second quarter and I still like all these stocks. Some, like Broadcom and Fluor, are up dramatically since 3/31, but their fundamentals remain strong. One way to hedge some of these high-fliers (and Apple is certainly a candidate for this) is to sell out of the money calls against your position. You can generate additional income and lower your cost basis. The downside is you may limit your profit potential -- but no one ever lost money taking a profit.

For more investing insights, please check out my new book, Your Nest Egg Game Plan, co-authored by Prof. Craig Israelsen of BYU, and subscribe to my iTunes podcasts.

Maybe It's Me -- But Most Stock Analysts Don't Make Sense

noreply@blogger.com (Phil Fragasso) — Wed, 14 Apr 2010 14:51:00 +0000

Here they go again.

On April 13, Wedbush Morgan downgraded Seagate Technology from "Outperform" to "Neutral." At the time, Seagate was trading at around $19.00. Interestingly, however, Wedbush set its one-year price target for Seagate at $23.00. Now follow me on this. "Outperform" should imply precisely that -- i.e., that the stock in question will outperform the overall market. "Neutral," on the other hand, should imply that the stock will lag, or at best, match the market. Since Wedbush's target price of $23.00 is 21% higher than Seagate's current price, they would appear to be suggesting that the overall market will rise more than 21%. If Wedbush did not believe that, then why would they assign Seagate a neutral rating? And if they do believe the overall market will rise more than 21% over the next year, then you're better off ignoring their analyst recommendations and buying a low-cost index fund or ETF instead.

This whole ratings game has become increasingly idiotic and meaningless for individual investors. So don't really on inane prognostications. Do your own research and make your own decisions. It's not rocket science -- and it's abundantly clear that Wall Street analysts are pretend rocket scientists.

For more investing insights, please check out my new book, Your Nest Egg Game Plan, co-authored with Prof. Craig Israelsen of BYU.

Name That Investment and Quantify That Fee

noreply@blogger.com (Phil Fragasso) — Sat, 10 Apr 2010 15:51:00 +0000

In a recent speech, former Supreme Court Justice, Sandra Day O'Connor pointed out that "Only 1 in 7 Americans know that John Roberts is chief justice of the Supreme Court, but two-thirds can name at least one judge of 'American Idol'."

A similar analogy can be made to Americans' knowledge of their investing approach and strategy. If you ask most people what they're invested in, they'll say something like "Vanguard" or "I'm with Fidelity" or, most frequently, "I have no idea." And if you ask them how much they're paying their mutual fund company, financial advisor, brokerage firm or 401(k) provider, they'll shake their heads cluelessly. But those same people will know the exact brand and model of television they own and where to get the cheapest gas.

As a society we give undue importance to the trivial and pretty much ignore what's important. We tend to be unwilling to devote an hour a month to our investment portfolio, but will waste two hours every Tuesday night watching less than twenty minutes' worth of singing on "American Idol."

Thirty or forty years from now, you won't be wondering who was the second-to-last contestant to get booted off of "Idol," but you might be second-guessing yourself about why you let your financial advisor sell you egregiously expensive B-share mutual funds or equity-indexed annuities, why you ignored the diversification opportunities in emerging market stocks and bonds, and why you always tended to buy high and sell low.

You don't need to be a rocket scientist to be able to name the Supreme Court justices or to know how and where your money is invested -- you simply need to be aware of the world around you. That world is far more real and meaningful that reality TV can ever be.

For more investing insights, please check out my new book Your Nest Egg Game Plan, co-authored with Prof. Craig Israelsen of BYU, and my consumer advocacy web site www.HardWorkingMoney.com.

The Apple iPad As A Metaphor For Successful Investing

noreply@blogger.com (Phil Fragasso) — Sun, 04 Apr 2010 14:52:00 +0000

Let me begin with the caveat that I am not touting Apple stock. Rather I think the iPad, as the latest incarnation of Apple's technological ecosystem, serves as a perfect metaphor for how individuals can build a successful investing strategy.

The iPad is a direct result of Apple's singular focus on design, function, and ease-of-use. Rumor has it that a tablet device was in development during Steve Jobs' leave of absence last year, but Jobs called off the launch until the product met his expectations. Apple (and Jobs) is maniacal about every detail of every product and service. Apple literally re-invented retailing with the design and operation of its retail stores, and Apple unleashed the power of mobile computing with the iPhone. In both cases -- along with the iPod, iMac, iMovie, iTunes, and now the iPad -- Apple saw the same problems and opportunities as everyone else, but it delivered a decidedly different solution. This consistency is what has driven Apple to become the third largest company (in terms of capitalization) in the country.

Apple doesn't do anything by consensus. They don't conduct focus groups to test their ideas because they understand the dynamics and limitations of group-think. They don't rush into markets (e.g., netbooks) or rush products out the door to meet arbitrary deadlines. They don't strive to be a low-cost provider -- instead they deliver value that consumers are willing to pay a premium for. Apple has a well-articulated strategy and they never waver from it.

So what does this have to do with you and investing? Individual investors need to have an equally well-articulated and unwavering strategy. Like Apple, they also need to ignore the consensus. The most successful investors do not follow the crowd because it's the frenzy of crowds that creates market bubbles. Successful investing revolves around insight and forethought, not snap decisions based on the recommendations or rantings of a talking head or anonymous blogger. And successful investing means understanding how every portfolio holding and every decision to buy or sell affects the overall portfolio composition and risk profile. Everything you do as an investor should be incrementally beneficial to your long-term game plan -- just as the iPad will help Apple sell more music, videos, apps, laptops and desktops.

Apple didn't invent mp3 players or touchscreen computers, they simply did it better than the other guys. Using the same principles of focus, strategy and insight, individual investors can do substantially better than their amateur and professional counterparts.

For more investing insights please check out my new book, Your Nest Egg Game Plan, co-authored with Prof. Craig Israelsen of BYU, and my website www.HardWorkingMoney.com,

Count The "Number" Out

noreply@blogger.com (Phil Fragasso) — Thu, 01 Apr 2010 14:46:00 +0000

Why is it that we go through life complaining about how often we feel that we’re being treated like a number rather than a living breathing human being and yet, at the very same time, we’re inundated with stupid messages like the ING commercial telling us that we’re losers unless we calculate and embrace a retirement number we can call our own. It’s ridiculous on many levels.

First off, the numbers in the ING ad are designed to terrify rather than inform. The numbers -- which typically include seven digits and run as high as $3.5 million -- are simply out of reach for most middle-income Americans.

Second, most of the calculators designed to provide your number are based on suspect assumptions (e.g., retirees will need to replace 80% of their working income) and often ignore key elements of the individual’s financial situation (e.g., Social Security benefits, part-time work, home equity, etc.) as well as lifestyle differences (are you the world-traveling country-club type or are you more comfortable hanging out at home with a good book?).

And third, the very concept that you can plan 20, 30, or 40 years into the future is nonsensical. There’s not a corporation in the world that can confidently build a 5-year plan let alone a 40-year plan. So how are individual investors like you and I supposed to do it?

So what’s the alternative? Instead of fixating on the size of the nest egg you’ll need at retirement, focus on your income needs. That’s really the Holy Grail of investing. You don’t invest to accumulate a nest egg bigger than your neighbors. Rather, you invest to create a diversified portfolio that will generate a consistent income stream that will last a lifetime. Take a few minutes and calculate how much money you would need to live comfortably today, assuming your mortgage was paid off and the kids were out of school and on their own. That number -- your annual income number -- will probably be a lot lower than you would expect. And then offset it with your expected Social Security benefits, part-time income, and pension or annuity benefits. If you feel you absolutely must have a “Number” to aim for, you can multiply your annual income number (after the offsets) by 25. If that number seems out of reach, you need to make some calculated lifestyle choices today -- e.g., save more and spend less -- to ensure a comfortable lifestyle at retirement.

The bottom-line: spend more time calculating your financial choices and decisions rather than your “Number.”

For more investing insights, see my new book, Your Nest Egg Game Plan, co-authored with Prof. Craig Israelsen, and check out my www.HardWorkingMoney.com website.