The Felder Report

Just for the News Junkies

2012-01-26T12:10:00.000-08:00

A couple of weeks ago I wrote about how I've decided to refocus the blog on exploring ideas and topics related to finance and investing. To do this, I've farmed out some of the alternative purposes to other platforms like Twitter, Posterous and Chart.ly.

I've had a couple of folks ask about bringing back the "I Read the News Today" features, though, and I understand the value of curation. In fact, that's pretty much been the foundation for the growth of my Twitter following but because this still doesn't fit my idea of what the blog should be used for I setup another platform to do this over at paper.li.

All the links I share/curate on Twitter will be aggregated here on a daily basis and it looks something like this:

What Your Financial "Adviser" Doesn't Want You to Know

2012-01-25T14:57:00.000-08:00

Yesterday I posted a rant I shared on twitter over the weekend. The focus of the rant was an annuity that was offered to a client of mine. Essentially, it paid the investor $5,500 per year (1.1% on $500,000) for ten years with a $50,000 early withdrawal penalty. It paid the selling "adviser" a $32,500 commission and nowhere in the contract did it disclose these terms (only by contacting the company can you learn them).

Clearly, this product is not in the best interests of the investor. There are better ways to earn 1% if that's what you're looking for. BUT that's one hell of a commission, isn't it? This is precisely why brokers have been fighting to avoid the burden of "fiduciary duty."

Holding brokers to this standard would legally obligate them to put their customer's best interests above their own, a standard only "investment advisers" (like yours truly) are currently held to. In short, it would make selling the aforementioned product illegal for stock brokers.

What's more confusing is many brokers call themselves "financial advisers" though they are not technically "investment advisers" and thus aren't held to the higher standard of professional ethics.

Personally, I think it's fine if brokers want to avoid "fiduciary duty." We don't expect this of salesmen in any other field. However, they shouldn't then be allowed to use the term "adviser" or any derivative of the word. If you're not going to do the right thing by your customer then let's at least "call a spade a bloody shovel."

Rant

2012-01-24T14:57:00.000-08:00

Looking at a fixed-indexed annuity presented to a client from another "adviser." Just blown away these things are legal. #caveatemptor
— Jesse Felder (@jessefelder) January 21, 2012

Pays 1.1% on $500k "investment" and money is locked up for 10 yrs with 10% early withdrawal penalty-Pays selling "advisor" $32,500 on day 1
— Jesse Felder (@jessefelder) January 21, 2012

Rates of return and "adviser" commission stated nowhere in the contract.
— Jesse Felder (@jessefelder) January 21, 2012

Just amazed these things are legal. Educate yourselves, folks: cnnmon.ie/zhblNb and don't buy this shit.
— Jesse Felder (@jessefelder) January 21, 2012

Noise

2012-01-20T12:53:00.000-08:00

One of the biggest challenges for investors is determining what's valuable to your investment process and what's noise. I would guess that at least 95% of what I read and a huge chunk of the research I do is worthless to mine. Making that determination, however, is not nearly as easy as it seems.

Getting caught in the quicksand of macroeconomic theses, debatable technical formations, and both touts and short-sellers with unspoken agendas can happen in a split second. The hardest part is some of this stuff can be very valuable, too, but it can also very quickly lead you astray - to focus on a few trees and miss the forest, as they say.

I think this is why Warren Buffett has said that there were times in his career where he wished he had just gone to the movies instead of to the office. It's so hard to tune some of this stuff out. You feel like you're going to miss something when the bigger risk may, in fact, be that it sucks you in. You become too risk averse at the wrong time or take too big a risk in the wrong opportunity.

When in doubt just turn the volume down or off completely and refocus. Sometimes it helps to just stare at forest for a while without even noticing the individual trees.

Perfection Is Overrated

2012-01-19T15:07:00.000-08:00

My biggest problem with modern music is that technology can now make anyone sound perfectly in tune regardless of their true skill or talent. I know I'm not alone in hearing a song on the radio and immediately feeling conned somehow. Human beings are not capable of perfection and when we're presented with the pretense of perfection we should feel deceived.

I could argue that what made the Beatles so great was how close they came to perfection without actually attaining it. While it's very difficult to quantify greatness, it's relatively easy to quantify flaws. Hence one of the things that made the Beatles so great was how relatively minor or insignificant their musical flaws were relative to the rest of the bands or musicians that ever recorded a single note.

In fact, I could take it a step further and argue that their flaws are precisely what endear us to bands, musicians, actors, comedians, friends and lovers. Flaws are what make people real. Perfection, in contrast, is inanimate, lifeless. And artificial perfection is even less appealing.

Beware financial advisers who don't readily disclose what they can't do for you or the conflicts of interest inherent in their compensation or even their personal shortcomings. Your ideal adviser is flawed but open and candid about those flaws. Remember that Bernie Madoff, like much of modern music, pretended to be perfect.

Gold

2012-01-16T12:03:00.000-08:00

A few months ago I was getting asked a lot about gold. I guess it's a good sign I was getting "asked" and not "told." I was "told" a lot about real estate back in 2005.

I can understand gold's use as an alternative to the fiat currencies of the world but, personally, I can't find any investment merits in the metal at all. I just don't know how to value it and I readily admit that may be a shortcoming of mine.

Ultimately, I think Warren Buffett does the best job of quantifying the argument:

You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

This is not to say gold is not a good vehicle for speculative activities. It just doesn't make any sense as an investment, a distinction that is imperative to acknowledge.

Focus

2012-01-12T15:59:00.000-08:00

I read this post today over at Seth Godin's blog and it made me realize just how little time people spend on strategy as opposed to just performing tasks. Actually, I've been spending some time thinking about this because at times I'm as guilty as the next guy.

We spend the vast majority of our time on our "to do" list, in meetings, reading and replying to email, making phone calls, etc. How effective are these at meeting our goals? Do we even have a big picture strategy in mind during the course of performing these functions?

My guess is for most people these actions are actually counterproductive to their goals. Emails, meetings, assigned tasks, etc. actually push and pull us in so many directions we forget which way is up.

What I believe sets the successful apart from the average is simply focus. Relentless focus on the goal even in the midst of performing the seemingly menial.

Getting Radical

2012-01-11T11:15:00.000-08:00

You may have noticed I've gone radical with the blog again (in the truest meaning of the word). I started writing here way back in 2005 using the platform to express and explore ideas and I'd like to get back to that.

There are so many great resources out there today that do a better job of sharing that I don't feel that I need to use the blog to do that anymore. I still use Twitter for the bulk of this stuff but will now do so with the help of a couple of aggregating services.

"My Back Pages" can now be found at Posterous where I share all things (videos, political cartoons, etc.) that intrigue and amuse me. StockTwits and Chart.ly will host my stream of annotated charts that help form the basis for my investment activities.

Both of these services feed into my twitter stream so you can keep up with that content there.

Think Different

2012-01-10T15:27:00.000-08:00

A few weeks ago Bank of America saw its stock price trade below $5 and everyone, I mean everyone, was loudly heralding the development as a death omen for the bank and perhaps even the American financial system.

Well it turns out that the bank's stock price made a bottom that day and has risen by nearly a third since then. Some death omen.

The moral of the story is when everyone is on the same page it's usually a wonderful time to tear it out of your playbook.

Standing Up For Small Business

2012-01-09T09:02:00.000-08:00

With as much as I've featured Richard Koo and his "Balance Sheet Recession" theory here it should be obvious which side I come down on in the great austerity debate. You just can't cut spending during a severe recession - unless, of course, you're trying to make matters worse. And you certainly can't increase taxes on those that can't afford them.

Sadly, it seems this is exactly what Oregon and Bend, specifically, are trying to do to small businesspersons right now. In the midst of the worst recession in at least a generation local and regional governments have implemented new fees and taxes and seemingly cracked down on already tough regulations.

An article that appeared in the Bulletin over the weekend about a gentleman who was fined for posting a Craigslist ad promoting his yard services got me thinking about this. Because he is not a licensed landscape contractor and used the word "sprinkler" in his ad the Contractor's Board is hitting him with a $500 fine.

Now does that seem like a reasonable response to a man simply trying to earn an honest living during the worst recession in decades?

Add this kind of oppressive regulation to the new minimum excise tax on all entities doing business in Oregon, the new City of Bend business license program and the City's business property tax assessment on all equipment put to use in normal business operations and it's hard to make the case that Bend is very friendly to the smallest of small businesses.

A business with over $500,000 a year in revenue may find these fees and taxes inconvenient but a guy who got laid of at that company and is now trying to make a living on his own may find all this antagonizing if not prohibitive to his efforts.

I understand that local and regional government have a pretty big hole to fill in their budgets right now. But just because the smallest of small businesses don't have the lobbying ability of their larger competitors doesn't mean we should look to them to fill it.

In fact, because many of these folks are only turning to self-employment out of desperation they should be the very last group to be picked on by politicians reluctant to look elsewhere for additional revenue or spending cuts.

My New Year's Resolutions

2011-12-30T11:44:00.000-08:00

Learn to say "no."
Think more/do less.
Take Polonius' advice.

Hubris

2011-12-28T14:02:00.000-08:00

2011, it turns out, was 'the year to fade the mavens.' Like a good running back, the financial markets juked the leading experts right out of their shoes:

Bill Gross, perhaps the most respected fixed income manager in the world, famously went short the long bond early in the year before watching it have its best year in fifteen.
Meredith Whitney, the analyst celebrated for calling the banking crisis, loudly derided municipal bonds, warning of massive defaults during the year. They never materialized and the bonds saw double-digit gains.
In the equity world, John Paulson, hedge fund guru of Goldman Sachs' Abacus fame, boldly flipped bullish on the banks and his funds were presently crushed during the euro crisis.

What's the moral of this story? In the words of Will Rogers, "never miss a chance to shut up."

Our human nature already makes it very difficult for us to admit when we're wrong. But when we own a widely esteemed reputation and publicly declare a contrary position, it seemingly becomes infinitely more difficult to do so.

The Greeks didn't have the best of years in 2011 but they got one thing right a long time ago: the hazards of hubris are commonly underrated.

Boycott Versus Occupy

2011-12-28T13:25:00.000-08:00

My friend, Collin, tweeted yesterday that he had paid down another credit card balance to zero. He was clearly elated by the experience, as he should be. Getting out of debt is an accomplishment to be proud of.

But he should feel good about it for another reason: eliminating the source of profit for the bank, even though it is only a drop in the bucket from their perspective, is a truly effective way to boycott the institutions that the public are currently so irate with (and rightly so).

In the end, wouldn't it be more effective if all the folks 'occupying wall street' were to simply boycott the antagonist institutions by doing exactly what Collin did and pay down their credit cards?

Are The Banks Getting Ready To Breakout?

2011-12-26T14:50:00.000-08:00

I recently wrote about an interesting pattern forming in the Russell 2000 Index and thought I'd draw your attention to another index forming a similar pattern.

The banks have now formed a choppy head and shoulders pattern below a neckline at the 40 level. The downtrend that began in early in the year is also coming into focus again a current levels.

A breakthrough above these key levels would be a very bullish development for the stock market.

Porsche Cayman: Mid-Engine Magic

2011-12-21T09:33:00.001-08:00

Just in case anyone needs a last-minute gift idea for me...

via youtube.com

The Most Important Chart You Will Ever See

2011-12-20T12:31:00.001-08:00

I'm pretty sure I've posted this chart before but it's worth posting again. In fact, I should just set it to automatically repost on a regular basis - it's that important.

Nearly every major mistake I've seen folks make (or made myself) can be attributed to either not understanding or not heeding this cycle. Burning this chart into your brain then may be the biggest step you can take towards becoming a successful investor.

via ritholtz.com

Smart Stock-Market Investing

2011-12-19T08:20:00.000-08:00

Invest everything in Morton Salt, then run around screaming, "The Slug-men are coming! The Slug-men are coming!"
Before choosing a brokerage firm, carefully study the TV commercials of several firms. Go with the one with the most impressive ads.
When your stock begins to drop, gesticulate wildly to coax it back in the right direction. (Note: Also works in bowling.)
Instead of investing in stocks, why not invest your time and energy in your community? You will reap dividends far more precious than wealth.
Stock-market losses are only losses on paper. Use Wite-Out to your advantage.
Keep a close eye on Dan Aykroyd and Eddie Murphy. They may try to outfox you and your cold-hearted brother.
Diversify your portfolio with some colored yarn or pictures clipped from magazines.
Many small, privately held companies are now issuing IPOs, often with incredible success. Among those rumored to be going public: The West End Valu-Shopper, The Marzipan Bunny Sweet Shoppe, and www.geocities.com/chadspage/favekornpics.html.
Wait until stocks are just about to soar in value, then buy lots of them. When they've gone as high as they're going to go, sell them all.
Take your screeching trophy wife's advice: Invest all your money in designer handbags.
If at all possible, start out with $80 million. This will reduce both the pressure on you and the risks involved.
Ask your company if it offers an employee stock plan. If it doesn't, consider working for a different gas station.
Go to a financial advisor and act as if you understand and are carefully weighing what they say, then blindly do whatever they tell you.
Invest in your friends' band. They rock.
When examining the balance sheet of a corporation, a good sign of health is an assets-to-liabilities ratio of two to one. Then again, if you understand that, you're probably a rich prick who doesn't need any more money.

via The Onion
hat tip, Eddy

Dilbert on Google

2011-12-19T08:09:00.001-08:00

via dilbert.com

Uber-Long-Term Look at Long-Term Yields

2011-12-16T08:55:00.001-08:00

The 10-year Treasury bond yield has been trending down now for nearly 30 years. It's got to bottom out sometime but betting against it means violating two classic, trading maxims: "don't fight the fed" and "the trend is your friend." So for now I'll just keep watching.

via chartoftheday.com

The Power of The Cloud

2011-12-16T08:34:00.001-08:00

via assets1.csc.com

The Science of Social Media Timing

2011-12-15T13:42:00.001-08:00

via blog.blueleaf.com

Why The Customers Have No Yachts

2011-12-15T06:54:00.001-08:00

This is a very important distinction that many people overlook: a commission-based salesperson's interests are not aligned with those of their customer. This is also why the 'Customers Have No Yachts.'

via thereformedbroker.com

Russell Reflections

2011-12-14T09:45:00.000-08:00

I've been watching and annotating the chart above for months. The first head and shoulders pattern that began with the new year and broke down midsummer (mirrored in the S&P 500) gave me pause and forced me to turn more conservative in terms of equity exposure.

Now, however, the chart is suggesting that a bottom may be forming in nearly identical fashion. A new head and shoulders pattern can be seen forming recently only this time it's inverted. This should give hope to equity bulls for if (big "IF") the pattern is validated (breaks above 780ish) a strong move to new highs should be coming.

And after a year of treacherous trading that would be a very beautiful thing.

The Only Reason The Euro's Down Today Is Because It's Down

2011-12-13T10:01:00.000-08:00

Every trader on the planet is watching this chart right now of the Euro and looking for a reason for it to be down. Truth is the only reason it's down is because it's down.

In other words, traders intentionally pushed the currency's price down below the late September/early October lows in order to precipitate more selling (trigger stops). This is a game institutional traders love to play.

It looks to me, however, like a decent setup for a whipsaw. I'm not trading it; just calling it as I see it.

Headline of the Year

2011-12-13T06:51:00.000-08:00

I saw this headline late last night and just couldn't resist sharing it here. I don't read the NY Post unless it comes up in my Google News feed. Fortunately, this story did.

First of all, you've gotta love the fact that the writer gives the MF Global execs the title, "MFers," because after losing all that client money they deserve to be cursed (among other things).

Secondly, the Pink Floyd reference is both very cool and, once again, fittingly insulting.

But my favorite part is it almost seems like they published the story solely for the sake of the headline. There's really not much that's newsworthy in the body of the article.

Writing a story just to bash these bastards in the headline is just plain bad ass.