SIA Charts Daily Stock Report (siacharts.com)

The SIA Daily Stock Report utilizes a proven strategy of uncovering outperforming and underperforming stocks from our marquee equity reports; the S&P/TSX 60, S&P/TSX Completion and S&P/TSX Small cap We overlay these powerful reports with our extensive knowledge of point and figure and candlestick chart signals, along with other western-style technical indicators to identity stocks as they breakout or breakdown. In doing so we provide our Elite-Pro Subscribers with truly independent coverage of the Canadian stock market with specific buy and sell trigger points.

Note: Subscribers can screen all Canadian and U.S. stocks and mutual funds, or as components of equally weighted mutual fund sectors indices (e.g. Income Trusts, Precious Metals), and fund groups by issuer (eg. AGF, Dynamic, Franklin Templeton), all Canadian ETFs, ETF Families by issuer (iShares, Horizons, BMO) or as components of Equally Weighted ETF Sector Indices (e.g. 2020+ Target date, Cdn Equity Lg Cap), and create and monitor their own, or SIA’s existing model portfolios. Finally, subscribers benefit from being able to generate BUY-WATCH-SELL Signals on demand with SIA Charts proprietary Favoured/Neutral/Unfavoured, SMAX scoring algorithm (see green-yellow-red graph 1 below).

BOEING CO (BA) NYSE – May 24, 2013

GREEN – Favoured / Buy Zone
YELLOW – Neutral / Hold Zone
RED – Unfavoured / Sell / Avoid Zone

BOEING CO (BA) NYSE – May 24, 2013

Important Disclaimer

SIACharts.com specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment. None of the information contained in this website or document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. Neither SIACharts.com (FundCharts Inc.) nor its third party content providers shall be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon.

Copyright © siacharts.com

  Latest AdvisorAnalyst Stories

Here are this week’s reading diversions for your personal enlightenment. Have a great weekend!

Daniel Boulud Gets ‘Grilled’ On Best Canadian Restaurants

It’s no secret that New York star-studded chef Daniel Boulud is obsessed with poutine, but don’t confuse a cheap food thrill with his sophisticated knowledge of classic Canadian foods, from caribou to wildflower honey.

*****

How To Get Flight Upgrades: Survey Reveals Who’s Most Likely To Get Upgraded (INFOGRAPHIC)

Few things are as coveted as a free flight upgrade and according to a recent survey released by Skyscanner, the chances of travellers being bumped up to business class or better are slim, unless they’re a lone, smartly-dressed male in their 30′s.

*****

How to Reduce Water Retention: 11 Steps (with Pictures) – wikiHow

Water retention, formally known as edema, is a symptom of a number of conditions including dehydration, constipation, hormonal changes, excess sodium in the diet, heart conditions and kidney problems. Symptoms of water retention include feeling heavy and bloated, noticeable swelling in the feet, legs and other areas of the body, and an increase in body weight of up to several pounds

*****

How to Get Your Husband to Help out Around the House – wikiHow

In order to avoid a marriage meltdown, creating an action plan that will not only motivate your hubby to help around the house, but create peace and balance within the marriage, is one way forward.

*****

How Pool Shock Works | eHow

In other words, shock is simply a “mega dose” of chlorine. This super infusion of chlorine chemical works to clear up most chlorine-based algae and bacteria problems.

*****

7 superfoods for supermen – body+soul

Superfoods can help protect against cancer and heart disease, lower cholesterol, protect the organs from toxins and improve digestive health. Some nutritionists even say superfoods can help you live longer.

*****

Are Your Allergy Medications Making You Fat? | Women’s Health Magazine

Allergy season is upon us, and the record pollen levels we’re experiencing this year may have you heading to the allergy relief aisle at your local drugstore. But what you take to alleviate your symptoms could have unpleasant side effects on your waistline. Researchers have suggested that allergies and weight gain go hand in hand, and that could have to do with the drugs you take or more subtle underlying problems.

*****

Vitamin D supplements could fight Crohn’s disease

A new study has found that Vitamin D, readily available in supplements or cod liver oil, can counter the effects of Crohn’s disease. John White, an endocrinologist at the Research Institute of the McGill University Health Centre, led a team of scientists from McGill University and the Université de Montréal who present their findings about the inflammatory bowel disease in the Journal of Biological Chemistry.

*****

Sunshine could benefit health and prolong life, study suggests

Researchers have shown that when our skin is exposed to the sun’s rays, a compound is released in our blood vessels that helps lower blood pressure.

*****

  Latest AdvisorAnalyst Stories

No one accused Apple of having violated US tax laws. The Senate subcommittee investigation and hearings merely exposed how Apple is dodging income taxes by doing what multinationals do: taking advantage of the handouts and loopholes that the US Congress and governments around the world are handing them. Tim Cook emerged smelling like a rose, the triumphant CEO of America’s most iconic welfare queen. Alas, much of the discussion was based on a fairytale.

Apple got into this pickle because it had decided to fund a juicy stock buy-back and dividend program by taking on a record $17 billion in debt rather than paying income taxes on “repatriating” part of its $102 billion in “offshore” cash.

The Senate investigation showed that Apple sheltered at least $74 billion from US income taxes between 2009 and 2012 by using a “complex web” of offshore mailbox companies. One such Irish subsidiary with no employees made $30 billion and didn’t pay a dime to a single government anywhere, not even Ireland. Another Irish mailbox company paid 0.05% in taxes on $22 billion in profit. Over the years, these untaxed “offshore” profits accumulated to $102 billion held by Irish subsidiaries – the moolah Apple refused to “repatriate.”

Turns out, Apple wouldn’t have to repatriate it. The money is already safely ensconced in TBTF banks in New York. The Irish mailbox subsidiaries, on whose books this money is for accounting purposes, transferred it to bank accounts in New York; it is managed by an Apple subsidiary in Reno, Nevada; and Apple’s accountants in Austin, Texas, keep the books, according to the Senate report that vivisected Apple’s tax dodge strategies.

“Apple does not use tax gimmicks,” Apple wrote lamely in response. It’s just that money doesn’t stop at borders or oceans; accounting does. So, in these crazy times of ours, where fairytales are reality, “offshore” actually means “onshore.” The difference between taxed income and untaxed income.

In this manner, US corporations have stashed away a $1.6 trillion of untaxed profits in “offshore” subsidiaries. And yet, as in Apple’s case, much of that is actually in the US. Just because the cash is nominally held by an offshore mailbox company doesn’t mean that it can’t be transferred to the US, where it can do the job money is supposed to do – beget more money.

That explains another corporate mystery. When Congress, after heavy lobbying by the largest US corporations, declared a “repatriation holiday” in 2004 to encourage the “return” of $300 billion to be invested in the US, nothing happened. The “repatriated” profits were taxed at the minuscule rate of 5.25% – less than the payroll taxes withheld from their US working stiffs. The companies made some adjustments on their books. But there were no investments and no hiring because the money had already been deployed in the US. The New York Times reported:

On the contrary, some of the companies that brought back the most money laid off thousands of workers, and a study by the National Bureau of Economic Research later concluded that 92 cents on every dollar was used for dividends, stock buybacks or executive bonuses. A study by the Congressional Joint Committee on Taxation estimated that a similar program would result in $79 billion in forgone tax revenue over a decade.

Apple is among the two dozen multinationals that are flailing their arms at Congress to obtain a new “repatriation holiday” that would allow them to “repatriate” hundreds of billions at a super-low tax rate. In return, they dangle in front of us the promise of investment and jobs. Yet much of that money is already in the US. It would not cause any additional hiring or investment. It would simply be a handout benefitting the largest behemoths, but not the hundreds of thousands of smaller companies that don’t have the resources to lobby Congress or make special deals with governments around the world. They don’t have the time and money to create that “complex web” of offshore mailbox companies but are instead struggling on a daily basis to stay alive in their dog-eat-dog world.

Beyond the unfair advantages that these loopholes bestow on a few large companies, but not on smaller ones that get raked over the coals by the tax code, there is a broader fairness problem, as Senator John McCain pointed out in his opening statement: “As the shadow of sequestration encroaches on hard-working American families, it is unacceptable that corporations like Apple are able to exploit tax loopholes to avoid paying billions in taxes.”

To identify the root cause of the problem, the Senator doesn’t have to look far. The only entity to blame is Congress. It’s addicted to the corporate money flow that keeps campaigns greased. It threatens or promises changes to the tax code to milk these companies. And it loves to succumb to lobbying. That’s how these loopholes ended up in the tax code. They didn’t get there on their own.

Last month, Senators Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, introduced a resolution calling for the end of the implicit subsidies that TBTF banks enjoy and that put taxpayers at risk. The Senate voted 99-0 in support. Now they’re turning their ideas into actual legislation. Read…. Can Two Senators End “Too Big to Fail?” 

  Latest AdvisorAnalyst Stories

An exclusive interview with Financial Thought Leader Charles Ellis about “what it takes” to be the best in the business. Ellis shares fifty years of wisdom learned from advising firms and governments on where to invest. Originally Broadcast on May 3, 2013.

Full Transcript:

CONSUELO MACK: This week on WealthTrack, what does it take to be the best in the business? Legendary financial consultant and thought leader Charles Ellis gives us his lifetime course from his new book, What It Takes: Seven Secrets of Success from the World’s Greatest Professional Firms. An exclusive with Charley Ellis is next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack, I’m Consuelo Mack. How many of you trust your investment advisor to put your interests first, ahead of their own or their firms? How do you know which investment firms are also the best in the business and can be relied upon to deliver exceptional service and results over the long term? Given the deep seated distrust most Americans have of Wall Street and the turbulent economic and market years we have been through, those questions seem almost pointless to many. Do any firms put your interests first? Can any be expected to produce excellent performance over many years?

Those are key questions this week’s guest has asked himself continuously over the last 40 plus years and after extensive research, he has come up with some definitive and positive answers. He is Charles Ellis, a legendary financial consultant who launched Greenwich Associates in the early 1970’s, which became the premiere international strategy consulting firm to leading financial services firms around the world. Ellis still serves as a consultant on investing to large institutional investors, government organizations and wealthy families. He has been chair of the CFA Institute, an associate editor of both the Journal of Portfolio Management and the Financial Analysts Journal; he has taught advanced courses on investment management at both Harvard and Yale business schools, and at Yale, he was chairman of the investment committee overseeing Yale’s endowment. He is also a prolific writer. Among his some 16 books is the investment classic, Winning the Loser’s Game, 6th edition: Timeless Strategies for Successful Investing. He co-authored a wonderful guide to investing called The Elements of Investing with Professor Burton Malkiel, wrote Capital, an in depth history of Capital Group, the parent company of the American Funds, and a history of Goldman Sachs, called The Partnership: The Making of Goldman Sachs.

Ellis’ latest book What It Takes: Seven Secrets of Success from the World’s Greatest Professional Firms is the culmination of his 50 years of working with businesses to advise his financial services clients. The five firms he identifies as the greatest in their professions are McKinsey in consulting, Cravath, Swaine, and Moore in the law, corporate law in particular, the Mayo Clinic in healthcare, and not surprisingly, Capital Group in investment management and Goldman Sachs in investment banking. I began the interview by asking Ellis how he decided those five firms were the best in their professions.

CHARLES ELLIS: Basically I asked around. Every time I met a lawyer, I’d say, “Which is the best law firm?” and they would say, “Well, my firm is very good and …”

CONSUELO MACK: Cravath.

CHARLES ELLIS: Cravath, and then I’d say to someone in consulting, “Gee, you’re in consulting. That’s really interesting. Which is the best consulting firm?” “Well, my firm and McKinsey,” and then if you asked anybody in investment management, they would say, “Well, my firm, of course, and I guess Capital Group,” and in a securities industry, increasingly people would say, “I guess it’s Goldman Sachs,” and then in health care, honestly, it’s a little harder because physicians don’t trade notes back and forth. They don’t compete across institutions very much, so you could have argued some others, but I had a personal reason for choosing Mayo Clinic, and then as I got into it I realized what a wonderful organization it is.

CONSUELO MACK: So that’s so interesting. So it was the peers and the competitors who decided how you got to these five different firms.

CHARLES ELLIS: Absolutely.

CONSUELO MACK: So, Charley, you conducted 300 interviews, lengthy interviews with senior execs all over the country. What was the biggest surprise from those interviews?

CHARLES ELLIS: I think the biggest surprise by far was all these different firms and all these different fields, the ones that are really terrific are the same in very few really important characteristics. And the analogy that I’ve learned to use since then is Olympic athletes are all the same. They say, “No we’re not. She’s a swimmer. I’m a downhill skier, and he’s a miler. We’re completely different.” Your events are different, but who you are as athletes is the same. You’re a terrific natural athlete. You’re very competitive as a human being. You do all kinds of things in your sport to master it, and your parents worry about you’re never going to settle down and have a family. You’re never going to settle down and get a job and a career, and your friends think you’re nuts to get up and do wind sprints so early in the morning, but you’re all basically the same, and these great firms are all basically the same in the really important characteristics.

CONSUELO MACK: So let’s talk about those really important characteristics, because you have identified seven secrets to success, and let’s take them one by one. For instance, take the first one, defining and creating an inspiring purpose and mission. Explain why that is such an important characteristic and give me an example of one of the firms.

CHARLES ELLIS: Sure. First of all, most firms get started without having taken the time to figure out what is the big idea that we’re after. What would be our purpose? What would be our mission? What would be inspiring to other people so they’d really want to join with us? They just sort of get going and think they’ll figure it out later. Big mistake, because if you think about it from the beginning, figure out what you really, really, really want to do, it makes a big difference. So Cravath would be an easy organization to identify. Their intention is to be the best firm for U.S. law period.

CONSUELO MACK: Across the board.

CHARLES ELLIS: Period. Now, there are specialties within law that they don’t do, but within their interest group, corporate law, they are simply marvelous.

CONSUELO MACK: So next one is recruiting the very right people, not just the right people. You specifically said the very right people, people with the will to excel. Give me an example.

CHARLES ELLIS: Well, Goldman Sachs would be the obvious example there, because Goldman Sachs for years has been following a rule laid down by John Whitehead who said very, very simply, “We are not now the best firm. We intend to be the best firm. The only way we’re going to be the best firm is to have the best people, so our highest single priority is recruiting the very best people,” and for years, Goldman Sachs has always had one of their most senior executives responsible for recruiting that year. It is his single most important job, and he organizes a very elaborate and complicated system by which they go out to do their recruiting, and they are more intensive, more vigorous and more detailed than anybody else is.

So what are they looking for? I laughed. I said, “You guys are probably looking for consistently top quartile,” and the fellow I was talking to said, “No, we’re not.” Nice straight face. I said, “Oh, okay, top decile.” He said, “No, we’re really not.” I said, “Okay, tell me. What are you looking for?” He said, “Well, we’re looking for, first of all, the first five percent, and then we know we’re going to have to sort them out after they get here, because nobody knows who’s going to be really good at our kind of work, but we know if we can find people who are in the top five percent, we’ll do it.”

I said, “Fine. How do you find the top five percent?” “Well, first we can tell from their academic records whether they’re really smart. We require that. Secondly, it’s pretty easy to tell whether they’re natural leaders. They’ve either been captain of the team lot, president of the class a lot, head of the student council a lot, or they haven’t been, so we look for that group, and then we need to know what their personality is like, and that we have to do the interviewing for.”

CONSUELO MACK: So fascinating. So it’s a very extensive and continuous ongoing process.

CHARLES ELLIS: The real purpose is they know that 15 years from now, 20 years from now, everything that they stand for and are will be determined by the people they recruit, and that is so different from the people that say, “We want to get our fair share.” Goldman Sachs couldn’t care less about fair share. They wanted unfair share, and they’re very deliberately, very openly selfish about trying to get the very best.

CONSUELO MACK: So training, and along these lines this is the business culture we’re talking about and the people that you hire, so that the third of the seven secrets of success is training more extensively and intensively and continuously developing each person’s talent.

CHARLES ELLIS: Right. Anybody who is really terrifically talented knows they’re terrifically talented. They’re not surprised, and they know they’ve got a chance to make a really great life, and they choose a firm that is terrific because they really want to make a fabulous career. So the best thing you can say to them is, “We’re going to make you work really, really hard. We’re going to force you to do an awful lot of training. We’re going to teach you some things that nobody else ever learned, and it will never, ever stop. It will go on and on and on and on,” and that intensive training commitment is so characteristic of all of these firms. They do more training than anybody else does, having selected more carefully than anybody else does and, of course, that gives them a double jumpstart towards being really terrific.

CONSUELO MACK: And that requires the people who work for these firms as well to be very committed to their jobs and their professional development.

CHARLES ELLIS: Absolutely.

CONSUELO MACK: And so that’s where that will to excel comes in.

CHARLES ELLIS: Huge, consistent, continuous reinvestment, reinvestment, reinvestment in developing the capabilities, skills and teamwork of the different people in the organization. It’s just wonderful to watch that double commitment by the individual coming into the firm and by the firm reaching out to the individual, and there’s no surprise. Once you hear it, no surprise at all.

CONSUELO MACK: The next three I view as kind of being very client-centric as opposed to employee-centric, and the fourth one is establishing a strong culture that unites everyone on teamwork to serve clients, and so to serve clients. Give me an example of establishing a strong culture that is specifically designed to serve clients.

CHARLES ELLIS: I was going to go a little bit differently. Let me give you a lighthearted one, and then we’ll come back to the client service. Goldman Sachs never capitalizes the word F as in firm. McKinsey always capitalizes the word F as in Firm. It’s who they area, and it’s an easy way to identify it. The commitment to service to clients is another characteristic of the organizations that become truly successful. Clients do tell when somebody is really working for them rather than for the firm that they represent, and that service to clients shows up in a lot of different ways. The one that most easily comes to mind is it’s nine o’clock at night. It’s time to go home, and there’s one more piece of work to be done. Do you say I’m going to get it done and then go home as soon as I can, or do you say I’m going to do the best piece of work for that particular client I can possibly do and then I’ll go home? It looks like an instinct. It’s certainly a very short-fuse reaction, and that kind of intensity of engagement and caring about the clients first over and over and over again makes all the difference in the world when you want to attract the very best clients.

CONSUELO MACK: And you can measure that? I mean, you can actually in these five firms?

CHARLES ELLIS: The clients can.

CONSUELO MACK: The clients can and the patients can.

CHARLES ELLIS: The clients feel it. They know it.

CONSUELO MACK: The next one is, which is related, developing great client relationships, and the sixth one is innovation at all levels, again to serve clients better. So once again, these five firms have done that. So give me an example.

CHARLES ELLIS: Well, the really important proposition is if you do a really great job for your clients, the profits will come along behind, and that’s true of every service or relationship business anywhere. It’s true of every marriage. It’s true of every family relationship. It’s true of every friendship. So once you get that down pat and you realize if I do a really good job of being the best I could be for my client, profits will take care of themselves. That’s crucial.

CONSUELO MACK: So Charley, the final secret to success, the seventh, is leadership that brings everything together. So give me an example of a leader that has brought it all together in one of the five firms.

CHARLES ELLIS: Well, I don’t want to give you one, so I’m going to give you a couple. Sam Butler at Cravath has been the leader of designing an organization that facilitated absolutely spectacularly talented people becoming proficient at law and serving clients over a long period of time. His ability to do that goes all the way up and all the way down, pruning out partners who were really not at the very highest level of skill. Fine, but he also is the man that would go down into the basement to meet with the people who provide the services underneath Cravath’s partners to show that he really cared about the people in that level and responsibility, too. Keep bringing it all together.

Another example is Ron Daniel at McKinsey who was remarkable in his effectiveness at recruiting individual people, empowering them with responsibilities, urging them to be innovative and creative, discipline around the service to clients and made a tremendous impact in that organization because the values became so strong to clients that it was perfectly appropriate for the fees to go up to enable the firm to be profitable enough to attract the quality and talent enough to be able to do work skilled enough to really help the major clients they’re serving, and it’s all the way around. John Whitehead at Goldman Sachs…

CONSUELO MACK: At Goldman Sachs, a legend.

CHARLES ELLIS: …would be the obvious illustration.

CONSUELO MACK: So the question is the sustainability of these models, and that’s where I can hear the voices of my viewers in my ear, and some of your so-called greatest firms have had significant problems in recent years.

CHARLES ELLIS: You bet.

CONSUELO MACK: And I mean, for instance, the former CEO of McKinsey, Rajat Gupta, was convicted of insider trading. You know, passing privileged information from Goldman Sachs boards of directors, not a reflection on Goldman Sachs at all, but here he was the CEO of McKinsey. I mean, what a fall from grace. How could this have happened in the kind of culture you’re describing?

CHARLES ELLIS: Well, first he had been the senior partner.

CONSUELO MACK: Yes, no, I know, but he was the CEO of McKinsey.

CHARLES ELLIS: Clearly identified as one of McKinsey’s all-time leaders, high visibility. That is not what caused the real troubles and scares at McKinsey. What really caused the difficulty at McKinsey was in the trial proceedings in the Galleon case. It became evident that one of the bright younger consultants at McKinsey who was clearly a mentee of Rajat Gupta, a very close personal relationship, had been leaking client information to Galleon. That’s what caused the outrage at McKinsey, which they rose to the occasion that very day and terminated the relationship with Mr. Gupta and started going around the horn to each individual client to tell them. “Here’s what we have done, retained an outside law firm to come in and examine every part of our practices. Is there any way we could improve or strengthen?”

A whole bunch of different things that they did to be sure everything was as tight as possible and then went around to apologize to each individual client and explain what was being done in person, senior partner at the firm. Virtually every one of those clients said, “You know, we understand this better than you think we do. We understand that McKinsey is an outstanding organization. You’re nice enough to come by and talk to us about this, but we’re okay about this.” They’re not okay about it at the firm. They’re really concerned, and that’s the quality of an organization that you really want to have.

CONSUELO MACK: So Goldman Sachs, and you wrote a book about Goldman Sachs as a matter of fact, The Partnership, and it found out through the financial crisis, through e-mails, that Goldman Sachs, basically the employees are incentivized on how well their particular department does or division does, how good the deal is for Goldman Sachs, not on what the outcome is for the client. So isn’t that really a direct kind of contradiction to Goldman Sachs serving the client first? Because in a lot of cases, it looks like it did not.

CHARLES ELLIS: First, it’s a more complicated thing than any of us realize. Secondly, you’re dead right, and there’s no denying that some of the things that took place were wildly inappropriate to the way Goldman Sachs would like to be seen and the way they have assured other people they could be seen. Their first reaction after they made the mistakes and got criticized for it is and really faulted for it, quite properly, was basically defensive, protective. Now they’re in a different mindset, and they’re catching on in a variety of different ways that I think are really quite interesting and instructive. You can argue forever that they were way too slow. I’ll accept that, but they haven’t been just slow. For example, they have put on their website the results of an exhaustive internal study that came up with 37 specific recommendations for change, all of which are substantive, some of which are really important, all of which appear to have addressed every one of the single different questions that people were able to rise, and they’re working their way through every single one of those recommendations.

Now, I don’t know of any other company ever to put on their website or in public “here’s what we found faulted in ourselves and our system, and here’s what we’re going to try to solve and get corrected.” I think that’s really impressive. The second thing they’ve done is they’ve sure as the dickens have taken a very strong view internally that that’s no longer possible or acceptable in that organization. It’s still a very complicated organization. It’s still in a very combative business. Trading is a tough, tough business to be in, and lots of people are involved in making very powerful decisions. All over the world every minute of the day, somebody’s making bet-the-firm decisions all the time. So it’s going to be hard, but they are really working hard at it, and Lloyd Blankfein, with his wonderful sense of humor, very, very bright guy and very devoted to that firm, has his single highest priority- getting past this terrible period that the firm got themselves in. And one last thing that they’ve done is to shift their public relations activities from “oh, no, you’re wrong; we were always right” over to a different tone, a different style, a different way of communicating, and they’re increasingly acting as they should as a truly public company. Not only are they publicly owned, but they’re so darned important to all of us that they are very much a part of the public fabric.

CONSUELO MACK: So let’s take What It Takes and to the level of the individual investor. So what is it that we should look for in a financial firm as individual investors to serve our best interests?

CHARLES ELLIS: The main and most obvious thing is that that particular firm really, really cares about you as an investor, and it’s not that they say they care about you, because every college boy knows how to say, every movie producer knows how to say all those standard jokes all over the place. No, this is really, really care, and what have they done that was not in their economic interest that demonstrated their commitment to the service to clients. The second is, how have they been doing it for a long time, not what have they done recently, but what have they done for a long time, and how is it built into their culture and their values, their sense of mission and purpose and the way they train people, and if you can’t get good answers to those questions, then you should go somewhere else.

CONSUELO MACK: Now, you made a very important distinction to me when I talked to you earlier, and one was that are you a client or are you a customer, and you say that there is a distinction, and with a financial firm as an individual investor, you want to be a client. Right? So tell us what the difference is.

CHARLES ELLIS: A customer, it’s caveat emptor. You’re on your own, and my job is to give you products to buy, and the products will be fine.

CONSUELO MACK: But it’s up to you as the buyer to decide whether it’s an appropriate product for you. All right, now a client.

CHARLES ELLIS: A client is more parental, and it’s I’m am responsible for being sure you buy what is really right for you, and it starts with I need to understand you, and separately I have to understand the products, and I have to put them together in a way that you can feel comfortable and confident I really started with you and end with you.

CONSUELO MACK: And that’s called a fiduciary. As a firm, I’m acting as a fiduciary. Your interests come first. So give me an example of a firm that puts my interests first, that is a fiduciary in one of your great firms.

CHARLES ELLIS: Well, let me take one that I happen to favor a lot but isn’t in the study specifically- Vanguard, easy to understand. They have clearly the lowest pricing of anybody, and pricing turns out to be important as you and I have shared in another context. We say one percent of fees. That’s the wrong calibration. How about as a percent of returns? It’s about 15% of returns if it’s one percent of assets. Well, how about incremental returns over what you can get in an index fund? There it appears that investment fees are about 100% or more. So there’s Vanguard going for lowest fee, because it really does matter. Secondly, wonderful product consistency. Third, very good customer service, really good customer service. Put those together, and you’re really getting something that’s pretty easy to say they’re working for me.

CONSUELO MACK: And Capital Group, which is an actively managed firm or manages actively managed accounts, that you also wrote a book about Capital, and you feel that they also act as fiduciaries, sometimes not to their best interest.

CHARLES ELLIS: Over and over and over again. First, they’re relatively low cost. Secondly, they are very high valued. Their commitment to research resources is way higher than any other organization of comparable scale, and their attitude. They will not bring out a mutual fund at a time when it’s popular. They just won’t do it.

CONSUELO MACK: So they didn’t come out with the tech funds right in the 1990s, and right.

CHARLES ELLIS: And they wouldn’t come out with a specialized fund that did something like tech or financials or some other specific ever because they just do believe you got to have more diversification than that, and they will insist on it. If you don’t want to do business with them because they’re being a little bit cautious or deliberate or conservative, that’s fine with them, because they wouldn’t want to do business with you if you were going to get hurt.

CONSUELO MACK: Charley Ellis, it is always such an honor and a treat to have you on WealthTrack. Thank you so much for joining us and to talk about your most recent book, What It Takes: Seven Secrets of Success from the World’s Greatest Professional Firms.

CHARLES ELLIS: Thanks, Consuelo.

CONSUELO MACK: At the conclusion of every WealthTrack, we give you one suggestion to help you build and protect your wealth over the long term. This week I have two Action Points to recommend. One is simple: read Charley Ellis’ latest book What It Takes. No one has more experience or insight than Charley does about what makes a business great.

The second Action Point is a bit more complicated. It is know when you are a customer or a client. There is a place for both. As Charley explained, as a customer you are being shown a product. It is up to you to decide whether you want to buy it or not. Want a hot stock or fund? Caveat emptor. As a client, you should expect the firm advising you to put your interests first, to act as a fiduciary. But it’s still up to you to do the homework and make sure any investment firm you deal with has a long history of doing so before entrusting them with your financial future.

If you have missed any of our past Great Investor or Financial Thought Leader guests you can find them on our website, wealthtrack.com. You can also see additional and extended interviews with Charley Ellis among others in our WealthTrack Extra feature. In the meantime, thank you so much for watching. Have a great week and make it a profitable and a productive one.

  Latest AdvisorAnalyst Stories

I continue to survey the market landscape, trying to get a better sense of just how much further this rally has to go. I’ve written here before that I expected a correction last month, however I obviously underestimated the magnitude of internal strength in this recent move higher, despite the many developing bearish divergences. Until a few weeks ago, I maintained a bullish outlook on the market, a stance dating back to last September. During that period, I fully detected and appreciated the impressive underlying thrust that would propel the market to new highs. But again, it’s only been during these last several weeks that I’ve increasingly observed disturbing negative divergences, many of which I’ve discussed on this blog.

I will emphasize that it’s very important to avoid getting seduced into a particular mindset at any point in time. Becoming “married” to a viewpoint and constantly seeking out confirmation of this view is a behavioral finance cardinal sin. I am always trying to poke holes in my current take on things, ever fearful that I might have missed something. That said I continue to uncover items that just serve to foster more concern.

For one, the market’s advance as per the S&P 500 appears stretched historically:

The chart above shows the 120-day rate-of-change (ROC) in the upper inset and the S&P 500 in the lower inset. The more/less 6-month ROC is just shy of 20%, a level that in the past has identified peaks in the market.

In addition, I continue to find nagging bearish divergences.

The chart above shows the relative performance of the PowerShares S&P 500 High Beta Portfolio vs. the Power Shares S&P 500 Low Volatility Portfolio (represented by the red line), with the S&P 500 appearing behind it (black line). Admittedly, the history is short given the PowerShare funds have not been in existence all that long, but you can see that when the S&P 500 rises, higher beta stocks tend to outperform lower beta stocks as represented by the rising red line. Over the last few weeks, we have indeed seen this red line surge with the S&P 500′s advance, however also note that this red line has yet to surpass its prior high achieved in February. Until the red line is able to surpass that prior high, it remains categorized as a negative divergence. You’ll see I flagged such negative divergences in the past with orange lines and they do often give a decent heads-up before overall market weakness takes hold.

Finally, I found the following chart to be very interesting, and possibly alarming.

The weekly chart in the middle shows the relative performance of the TSX Venture Index versus the TSX Composite (represented by the red line), with the S&P 500 overlaid in the background (black line). The TSX Venture Index is comprised of 500 small- and micro-cap Canadian stocks, compared to Canada’s TSX Composite which is primarily a large-cap index. The Canadian equity market in general is heavily natural resource-oriented as the country is dominated by energy and mining companies. As a result, Canada’s economic fate is very much dependent on and sensitive to the global economy.

Over time, the return of the TSX Venture/TSX Composite ratio has tended to move in tandem with the S&P 500. If anything, the red line has frequently led moves in the S&P 500 with it rising well ahead of the S&P 500 low in late 2002, peaking in 2006 before the S&P 500 peak a year later, and bottoming in late 2008 a few months before the S&P 500 low in March 2009. And yet since the start of 2012, there has developed a massive divergence between the red and black lines. Note also that in the past, when the TSI indicator and Stochastic Oscillator have registered oversold levels — as is the case now — the S&P 500 has typically been at a significant low. That does not appear to be the case this time around.

I don’t wish to overstate the relationship between the TSX Venture/TSX Composite and the S&P 500 as I’m certainly aware of what has occurred with smaller-cap mining stocks, no doubt severely depressing the relative performance of the TSX Venture Index. However, it is a relationship that has broken down completely over the last year or so and I felt it was worth mentioning, do with it what you will.

As I’ve strongly suggested of late, I remain wary and cautious about the market’s recent leg higher.

Copyright © Charts, Etc.

  Latest AdvisorAnalyst Stories

Because of Apple’s (AAPL) struggles this year, the S&P 500 Technology sector has been one of the weaker performing sectors so far in 2013.  This has allowed the Financial sector to make up significant ground in its race to take back its spot as the biggest sector in the market.

Below is a look at the current weightings of the ten S&P 500 sectors compared to where they stood at the end of 2011 and 2012.  As shown, at the end of 2011, the Technology sector made up 19.02% of the S&P 500, while the Financial sector was at 13.43%.  The Financial sector made nice gains on Tech in 2012 as it narrowed the gap by 2.27 percentage points (18.95% vs. 15.63%).  Over the first five and a half months of 2013, the spread has tightened even more, and the Financial sector is now just 1.3 percentage points below Tech.  Technology has seen its weighting fall 1.11 percentage points this year down to 17.83%, while the Financial sector has seen its weighting gain 0.90 percentage points up to 16.53%.  Another five months of similar action would put the Financial sector back on top.

Note that we don’t think it’s a good thing when the Financial sector is the biggest sector of the market.  The Financial Services sector is there to “service” the rest of the economy as it grows.  Back before the financial crisis hit in late 2007, the Financial sector was by far the biggest sector of the market, and we all saw how that ended.

Copyright © Bespoke Investment Group

  Latest AdvisorAnalyst Stories

While the S&P 500 had a big downside reversal lower today, it’s still more than 8% ABOVE the average year-end price target that Wall Street strategists placed on the index at the start of 2013.  Below is a table highlighting these price targets (collected by Bloomberg), including where they are now and where they were on January 1st.  Price targets shaded in green have been increased since the start of the year.

As shown, even with increases from 8 strategists, the average year-end S&P 500 price target is currently at 1,612, which is actually 2.49% below the index’s current level.  Only 5 of the 14 strategists are bullish on the index for the remainder of the year, while 9 are bearish.  Goldman Sachs has the most bullish year-end target at 1,750, followed by Oppenheimer (1,730), JP Morgan (1,715) and Stifel Nicolaus (1,700).  Wells Fargo is the most bearish on the index with a year-end target of just 1,390.  This is 15.91% below where the index is currently trading.  UBS is the second-most bearish with a target of 1,425, while Barclays is the third-most bearish at 1,525.

Copyright © Bespoke Investment Group

  Latest AdvisorAnalyst Stories

Earlier today we looked at US sector weightings, and below we take a look at the percentage of total world stock market cap that the largest countries make up.  As shown below, the US and Japan, which were the two largest stock markets at the start of the year, have added to their percentage of world market cap so far this year at the expense of pretty much everyone else.

The US has already gained more than two full percentage points in 2013, jumping from 32.14% of total world stock market cap up to 34.17%.  Japan is a distant second at a current level of 7.90%, but the country has seen its share jump 0.96 percentage points on the back of huge stock market gains.

The countries that have lost the biggest share of world market cap so far this year include Hong Kong, Canada, India, South Korea, Russia and the UK.

Copyright © Bespoke Investment Group

  Latest AdvisorAnalyst Stories

What errors do most money managers make today?

• Chasing performance
• Over-diversification
• Benchmarking / Hugging the index
• Over-trading
• Relying too heavily on earnings growth
• Analyzing the income statement only
• Refusing to analyze industries
• Buy newsy companies
• Relying on the sell-side
• Trusting management too much

Let me handle these one-by-one:

Chasing performance

In writing this, I am not against using momentum.  I am against regret.  Don’t buy something after you have missed most of the move, as if future stock price movement is magically up.  Unless you can identify why the stock is underappreciated after a strong move up, don’t touch it.

Over-diversification

Most managers hold too many stocks.  There is no way that a team of individuals can follow so many stocks.  Indeed, I am tested with 36 holdings in my portfolio, which is mirrored for clients.  Leaving aside tax reasons, it would be far better to manage fewer companies with more concentrated positions.  You will make sharper judgments, and earn better returns.

Benchmarking / Hugging the index

It is far better to ignore the indexes and invest in what you think will yield the best returns over the next 3-5 years.  Aim for a large active share, differing from the benchmark index.  Make some real nonconsensus investments.     Show real moxie; don’t be like the crowd.

Yes, it may bring in more assets if you are never in the fourth quartile, but is that doing your best for clients?  More volatility in search of better overall returns is what investors need.  If they can’t bear short-term volatility, they should not be invested in stocks.

Over-trading

We don’t make money when we trade.  We make money while we wait.  Ideas take time to work out, and there are frequently disappointments that will recover.  If you are turning over your portfolio at faster than a 50% rate, you are not giving your companies adequate time to grow, turn around, etc.  For me, I have rules in place to keep from over-trading.

Relying too heavily on earnings growth

Earnings growth is far less predictable than most imagine.  Companies with high profit margins tend to attract competitors, substitutes, etc.

When growth companies miss estimates, the reaction is severe.  For value companies, far less so.  Disappointments happen; your portfolio strategy should reflect that.

Analyzing the income statement only

Every earnings report comes four, not just one, major accounting statements, and a bevy of footnotes.  In many regulated industries, there are other financial statements and metrics filed with the government that further flesh out the business.  Often an earnings figure is less than the highest quality because accrual entries are overstated.

Also, a business may be more or less valuable than the earnings indicate because of the relative ability to convert the resources of the company to higher and better uses, or the relative amount to reinvest in capex to maintain the earnings stream.

Finally, companies that employ a lot of leverage to achieve their earnings will not do well when financing is not available on favorable terms during a recession.

Refusing to analyze industries

There are two ways to ignore industry effects.  One is to be totally top-down, and let your view of macroeconomics guide portfolio management decisions.  Macroeconomics rarely translates into useful portfolio decisions in the short run.  Even when you are right, it may take years for it to play out, as in the global financial crisis – the firm I was with at the time was five years early on when they thought the crisis would happen, which was almost as good as being wrong, though they were able to see it through to the end and profit.

Then there is being purely “bottoms up,” and not gaining the broader context of the industry.  As a young investor that was a fault of mine.  As a result, I fell into a wide variety of “value traps” where I didn’t see that the company was “cheap for a reason.”

Buying newsy companies

Often managers think they have to have an investable opinion on companies that are in the news frequently.  I think most of those companies are overanalyzed, and as such, don’t offer a lot of investment potential unless one thinks the news coverage is wrong.  I actually like owning companies that don’t attract a lot of attention.  Management teams do better when they are not distracted by the spotlight.

Relying on the sell-side for analysis

Analysts and portfolio managers need to build up their own industry knowledge to the point where they are able to independently articulate how an industry makes money.  What are the key drivers to watch?  What management teams seem to be building value the best?  This is too important to outsource.

Trusting management too much

I think there is a healthy balance to be had in talking with management.  Once you have a decent understanding of how an industry works, talking with management teams can help reveal who are at the top of the game, and who aren’t.  Who is honest, and who bluffs?  This very long set of articles of mine goes through the details.

You can do a document-driven approach, read the relevant SEC filings and industry periodicals, and not talk with management ever – you might lose some advantage doing that, but you won’t be tricked by a slick-talking management team.  Trusting management implicitly is the big problem to avoid.  They are paid to speak favorably regarding their own firm.

Summary

This isn’t an exhaustive list.  I’m sure my readers can think of more foibles.  I can think of more, but I have to end somewhere.  My view is that one does best in investing when you can think like a businessman, and exclude many of the distractions that large money managers fall into.

  Latest AdvisorAnalyst Stories