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August
24, 2010 - Vol 4, Issue 34
Dear Reader,
Using a mean-variance optimizer to construct a retirement
portfolio that sits on the efficient frontier is tantamount to dining
on a well-prepared meal that was pureed in a blender, believes Meir
Statman, a professor of finance at Santa Clara University.
Statman's research focuses on behavioral finance, and how advisors
can help investors make smarter decisions.
Most long-term stock market investors follow a buy-and-hold
strategy, one that makes big losses unavoidable when major
downturns strike the stock market. This strategy assumes that an
investor cannot know when to switch from one asset to another and
that if one avoids the bad days of the market, one is also likely to
miss the best days. In this guest contribution, Georg Vrba presents
a way to resolve this dilemma, based on various economic indicators
that provide timely buy and sell signals for the S&P 500
index.
One of the things that high net worth clients look for in
selecting advisors is a sense that they are part of a strong team,
with backup should they be unavailable and a broad array of expertise
behind them. For some advisors, however, effectively
communicating the team behind you can be a challenge. Dan
Richards provides a solution.
In the latest edition of the HCM Market Letter, This is No
Way to Run a Railroad, Michael Lewitt says the railroad known as
the United States economy is chasing its own tail these days.
Driven by misbegotten fiscal and monetary policies that ignore the
lessons of history in favor of discredited financial and economic
theories, the economy is trapped in a cycle of boom and
bust. Lewitt also comments on the bond market, the
European stress tests, GM, and the private equity industry.
A skeptical attitude toward new products has long served the best
interests of advisors and their clients, almost without fail.
However, in this guest contribution, Hildy Richelson argues
that advisors should not be afraid to embrace one of the market's
most prominent recent innovations: the Build America Bond (BAB).
As a portfolio manager it is important to know when to call
it quits and how to "cut your losses". Daruma's
Mariko Gordon explains why, and offers four lessons for cutting your
losses in life.
Advisors who have embraced social media as an important component of
their marketing and service toolbox must monitor and manage the
content they distribute. In this guest contribution, Blane Warrene
discusses how to collect and store postings and comments made by
you and others on social media platforms and store the information in
a readily accessible database.
Lastly, we highlight the most popular submissions to Market
Commentaries.
We welcome guest submissions from our readers. For more information,
here are our guidelines.
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 What Investors Really Want
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Improving on Buy and Hold: Asset
Allocation using Economic Indicators
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Georg Vrba's model
typically provides sell signals before contractions of the economy and
buy signals when economic recovery is imminent, with all signals
occurring well before the market has responded much to the perceived
economic changes. Acting on the model's signals is instrumental
to avoiding major market downturns while still being invested in the
market at all other times.
Improving on Buy and Hold: Asset Allocation using
Economic Indicators
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Telling Your Team Story to
Prospects
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If it's important to communicate a key message to prospective
clients (such as the breadth of your team), you need an explicit
strategy to do that -one that goes beyond just words, connecting at
both a rational and emotional level.
Telling Your Team Story to Prospects
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This is No Way to Run a Railroad
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HCM does not think the stock market is particularly cheap
in view of the economy's prospects despite relatively low
valuations.
This is No Way to Run a Railroad
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Build America Bonds Power the US
States
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While BABs are different from traditional tax-exempt
municipal bonds, they are still issued by the same state and local
governments. Because they are new, they yield more than either agency
or corporate bonds. They are backed by a federal tax credit that gives
them added support, and their many large issues provide market
liquidity.
Build America Bonds Power the US States
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Should I Stay or Should I Go
Now?
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"Stockpicking forces you to eat large doses of
humble pie, but it also turns out to be a pretty good diet for the
soul," says Mariko Gordon. "And while I make just as many
mistakes in life as anyone else, I'm able to cut my losses and move on
a lot faster, thanks to all that practice I've had."
Should I Stay or Should I Go Now?
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How to Choose the Right Social
Media Archiving Strategy
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Highlights from Market
Commentaries
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Below are the three most
widely read market commentaries during the past week:
On May 25, 2010, Dr. Paul Woolley, former head of the International
Monetary Fund's investment and borrowing activities and founder of the UK
arm of Grantham, Mayo, van Otterloo, laid out 10 policies that if
adopted, could increase annual returns after inflation by 25 percent and
long-term returns by at least 50 percent. He addressed his comments to
the world's biggest public pension and charitable funds. His 10-point
manifesto, however, will work just as well for individuals, offering the
same, if not greater, potential return benefits to their portfolios.
Ten Ways to Improve The Returns on Your Portfolios by
Kendall J. Anderson of Anderson Griggs
The world is entering a period of rising interest rates on a secular basis.
While inflation is not a concern in the near term, the seeds of inflation
are likely being planted now, even though it could take quite some time
for them to overcome powerful disinflationary forces at work today. If
anything, the recent events in Europe and the deceleration of global
growth suggest interest rates could remain low for longer than
anticipated. The economy will likely grow at a disappointingly meager
pace, but it will grow nonetheless.
An Investment Strategy for a Market in Transition by
Dan Fuss, Kathleen Gaffney, Matt Eagan and Elaine Stokes of Loomis Sayles
The recent few quarters of economic expansion are the result of enormous
fiscal and monetary stimulus, without much 'intrinsic' private sector
expansion at all. Now that inventories are replenished and the fiscal
stimulus is tapering off, the underlying and still uncorrected fragility
in the economy is likely to reassert itself for a time. While the
Economic Cycle Research Institute has expressed increasing economic
concerns, however, it has not yet warned conclusively of a double-dip.
A Fragile Economic Outlook Continuesby John P.
Hussman of Hussman Funds
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