I published a post recently about a new investment theme that I believe is emerging entitled “Buy America“. Very simply, as the economy continues to gain ground, investors will become more positive, and perhaps even enamored with American Companies. Why? This theme is about much more than simply owning a piece of America, it’s about our roots, rebuilding our pride and country, and becoming a part of something bigger than oneself. This is the type of investment theme that has the potential to gather a lot of enthusiasm and perhaps substantial money flows.

Not only does it appear that real estate is on the mend (at least Buffet thinks so), but it is becoming more evident that consumer confidence may have bottomed and that folks are accepting the idea of knuckling down and living within their means. In other words, we are learning how to survive in the new normal environment.

Perhaps a more important driver of this “Buy America” theme is witnessing companies like Ford and Home Depot making comebacks. For example, last month Ford blew away expectations with U.S. car sales jumping some 43%. Home Depot recently enjoyed it’s first quarterly gain in sales since 2006. It appears that American companies are indeed leading the way out of the global recession.

Toyota’s missteps certainly have not helped our perception of trust when it comes to foreign made goods.

A recent visit to the bookstore proved quite interesting when after months of nothing but gloom and doom book titles on the shelves of the business section, we’re finally seeing a couple of positive titles, including a very nice read about why capitalism trumps fear entitled
Bullish on America.

Finally, take note of the advertising that you see in financial publications and websites. In Saturday’s edition of Barron’s, there was a two page spread near the front of the publication taken out by State Street advertising one of their ETF’s, DIA, an investment in the Dow Jones Industrials Index. The title of the ad? “Invest in America, You’re Grandparents Did”.

Keep an eye on the big picture themes and trends, it can make you a smarter investor.

You Go Girl! (via Flickr)

It’s been a mystery, until now.  The Hedge Fund Journal in partnership with Price- WaterhouseCoopers has revealed the Top 50 Women in Hedge Funds.  I wrote an article several months ago entitled “Should You Hire a Woman To Manage Your Money ” when I first learned of the news that from the years 2000 through 2009, while all hedge funds were up 6% on average, those run by women were up 9%.   In 2008, all mutual funds dropped 19% while those run by women were down less than 10%.  I’ll say it again, those numbers are compelling!

The most amazing statistic according to the Hedge Fund Journal is that women manage an estimated 3% slice of the $1.5 trillion invested in hedge funds, according to Hedge Fund Journal.

You can read a short overview about the release on the FINS website, an extension of the Wall Street Journal for those in the financial services industry.

In addition you can download the pdf :  Top 50 Women in Hedge Funds.

My favorite on the list?  Karen Finerman.  You might recognize her name because she appears on CNBC’s Fast Money .  Finerman is Co-Founder and Chief Executive Officer of Metropolitan Capital Advisors in New York.  She’s smart, successful, articulate, and can hold her own on the fast-paced technical investment show.  This woman does it all.  She sits on the board of The Michael J. Fox Foundation for Parkinson’s Research, manages a successful hedge fund, appears as a tv personality almost daily, and did I mention that she has two sets of twins???  Wow.  She’s a testament to success for aspiring women in finance!

Image via Wikipedia

The United States has been through a difficult economic time.  In fact, one of the most difficult in history.  Our financial system nearly crumbled, thousands of jobs have been lost, the housing market collapsed with commercial real estate following suit, and the Government bailout has literally cost us trillions.  Many people, including Wall Street gurus and investment professionals, have given up on America.  They say we will never be the super power that we once were and we will no longer hold our place at the top.  In fact, the dollar is at an all-time low and some say it will never recover!

There was an article in Reuters last week about this concept that I call new media investing.  Financial advisors have had a rough go of it for about the last decade.  Not only has the market experienced two tremendous downturns with one of those involving their own industry, but the financial advisory model has literally been repriced.  Margins have come down significantly due to the advent of online trading for a few dollars per trade, and access to free research and information due to the internet has helped to educate and empower the individual investor.

Now, something even greater is evolving and it threatens to once again dramatically change the financial advisory landscape.  New media investment platforms are popping up everywhere on the web.  New media investing provides investors with an opportunity to access many of the same portfolio strategies that a financial advisor would offer, in many cases for a fraction of the cost.  After experiencing significant portfolio declines, investors have been seeking trustworthy, credible, and lower cost alternatives to either replace or supplement their existing financial advisor relationships.  Now investors have a a “do-it-yourself” with help alternative which ultimately could be a huge threat to traditional financial advisors who manage assets.

MarketRiders, as mentioned in the Reuters article, is one of these new online platforms that leverages new media tactics to provide investors with a low cost opportunity to access a well-diversified, common sense portfolio. For $9.95 per month an investor can get a semi-custom, core ETF portfolio with periodic re-balancing recommendations.  The portfolio is constructed based on modern portfolio theory with a focus on indexing.  For most investors with portfolios under $500,000 or so, this is a solid offering.  The additional costs?  Well, the investor has to manually implement the trades in their own brokerage account which takes time and discipline, and there is no human element unless you are willing to pay up for a coaching service.

For most investors it is tough to stay disciplined and remain invested at all times, which can ultimately be costly.  This is why indexing is great in theory but not as successful in practice.  For any of these new media investing platforms to be effective and really help investors succeed, they must have a compelling communication strategy in place to keep investors engaged.  They must be able to convince the average investor to “stay invested” through good and bad times.  After all, most investors under-perform the market significantly due to the way they are wired.

I believe platforms such as Covestor Investment Management and Kaching may end up being the more interesting offerings simply because of the human element.   With these two platforms the investor can actually follow a person, and that person has the ability to communicate with his or her audience through periodic updates.  Allow me to disclose here that I am currently serving as a model manager for Covestor.  I am fascinated by the fact that I can offer the same portfolio strategies that I employed with wealthy clients for 15 years and with one click, update all of my followers’ holdings (more on this in a future post).   In addition, I can put out a newsletter on the site once a month which outlines my current thinking about markets and the economy.

Although I cannot communicate with my followers directly on Covestor’s Investment Management platform, they can get to know me through my individual Covestor profile,  my monthly newsletter update, and they can certainly “google” me to get an overview of my background.  This gives me at least some opportunity to keep my followers on board through the inevitable ups and downs in the market.  Even though there is no real personal contact, my followers can potentially feel connected enough to me.  It is similar to the way we feel we know a public figure.  Even though we don’t know them personally, our exposure to them can make us feel that we do.

The downside of these two particular platforms?  I am still not sure it’s enough to keep investors invested through good and bad times.  I can’t call up any of these investors who are following me and say “hang in there, this too shall pass”.    Also, a management fee does exist as the client will pay an asset-based fee on any of the portfolios they subscribe to.  However, these costs can still end up being significantly lower than working with a full service financial advisor.

What should investors focus on when evaluating a new media investment platform?

• What is the communication strategy and is it both personal and frequent enough to keep me from making emotional investment decisions?

• Is there an actual human being managing the portfolio that I can gather background information about and potentially connect with?

• Is the investment strategy sound?  How much risk is taken to achieve the return?  Risk-adjusted performance is key.

• Is there any hidden agenda?  For example, a number of these new media sites are being developed by financial advisors who are trying to capture low cost, low revenue leads and convert them to full paying clients.  Make sure if that is the case that all conflicts of interest are disclosed on the site.

• What is the investment strategy?  If we really are in a “new normal”, will these new media offerings based on “modern portfolio theory” be sophisticated enough to help me take advantage of the rapidly changing global environment and all of the investment opportunities that may exist?

My advice to any investor interested in participating in new media investing is to start small.  Don’t put your entire portfolio with any of the online platforms.  In fact, I recommend that if you have more than $250,000 in assets that you work in conjunction with a financial planner or advisor.  You can set up small accounts with some of the new media firms and compare and contrast with what your advisor is doing.   The more complex your situation is, the more likely you need a trained financial advisor to help with overall planning issues such as tax planning, and I would also recommend that you work with a tax professional.

The individual investor is certainly in the driver’s seat and new media investment platforms are again empowering individuals to take control of their financial futures.  It is still too soon to tell if these new media platforms can ultimately save investors from themselves.  Most of us are wired to do the wrong thing at the wrong time and as a financial advisor for 15 years, it took a lot more than a monthly newsletter to keep my clients invested during tough times.

Bill Gross has recently made a call to buy utilities in his monthly newsletter.  Why?  For one, they are already regulated and will not have to go through the transformation that other domestic industries are facing.  Secondly, in a slow growth environment, a company’s stock should yield more than it’s risky debt, and many of the utilities provide that opportunity.

I believe in this idea, but prefer to own the telecoms specifically as they exhibit some of the same characteristics as utilities with regard to yield but may have better growth prospects.  The two ETFs that play on this opportunity are the IShares US Dow Jones Telecom (IYZ), currently yielding slightly over 4%, and the Vanguard Telecom Services Vipers (VOX) currently yielding around 2.5%.  Keep in mind that two stocks, AT&T (T) and Verizon (VZ) make up a substantial percentage of the portfolios in both of these ETFs.  In addition, many of the holdings in both ETFs are undervalued, and both are now trading above their 50 and 200 day moving averages.

In an environment where the markets have run so significantly, experts are on opposite ends with their views, and there continues to be uncertainty about an economic recovery, it seems that this value-oriented sector might just be a good place to sit.  Especially if you believe that we will be in a slow growth environment for an extended period of time.

Stephanie Sammons, CFP, and Principal of Sammons Ventures LLC holds a position in one of the ETFs mentioned above in her Covestor Investment Model Manager Portfolio.

The National Council for Research on Women has released a new report entitled Women in Fund Management: A Road Map for Achieving Critical Mass – and Why it Matters which highlights the under-representation of women in the historically male-dominated spaces of fund management and financial services.  Jacki Zehner, a Goldman Sachs partner and the youngest woman to achieve that status was recently profiled on the CBS Evening News story entitled “Does Wall Street Need More Women?” .   Her foundation is a sponsor of the newly released report.  Read about Jackie’s commentary on the CBS News Story on her personal blog, Purse Pundit.   She is truly paving the way for women in financial services and it is very exciting to see!

Some of the highlights?  From the years 2000 through 2009, while all hedge funds were up 6% on average, those run by women were up 9%.   In 2008, all mutual funds dropped 19% while those run by women were down less than 10%.  These numbers are compelling and cannot be ignored.

It appears that women are more measured in their risk taking, they tend to collaborate more, and some would even say they are not driven by their egos (nor are many men).  Rather, they keep the ego in check, and can balance out teams and boards if given the opportunities.  I’ve witnessed this first-hand.  Women are very well suited to make smart financial decisions and prudently manage the risks involved.  The women fund managers who have been successful deserve to be recognized and it is exciting to see these types of stories being brought to the public eye.

Baseball and Balanced Portfolios

Do home runs typically win the game or is it consistently hitting singles and doubles?  Home runs are certainly more exciting, and seem to be what we remember most about a great game.  I would argue though that most baseball games are won by the fundamentals…the small stuff done right.  The teams that can consistently hit singles and doubles and continue chalking up runs probably have the best chance of success.

The same holds true for investors.  Aiming for singles and doubles in your portfolio versus homeruns can help minimize volatility and help you stay in the game.  In a time of economic “uncertainty” where even seasoned market and economic professionals are at opposite ends of the spectrum, a globally diversified and globally balanced portfolio can smooth out the ride.

The most recent GDP report for the 3rd quarter showed that the economy is growing, yet much of that is driven by government stimulus.  It is difficult to determine if that growth will continue without the stimulus.  In addition, initial jobless claims, which are reported every Thursday, continue to drift downward.  Job creation drives growth, and typically the Fed doesn’t start raising rates until unemployment has declined for a period of twelve months.  We will most likely be in a low interest rate environment for some time and continue to experience slower growth in the U.S.

There is much talk about the importance of a strong dollar from a political perspective, but the reality is that our dollar has been weak and falling for nearly 30 years.  There was meaningful appreciation only twice during that time period, but overall we have lived with a weaker dollar for many years.  Finally, gold and other commodities have been driven higher while Treasury yields have remained low.  Typically these would move together and if they moved higher, that would indicate an expectation of inflation.  Clearly, one of these camps is right and one of them is wrong.

Ultimately, a globally diversified and balanced portfolio is the best way to combat uncertainty.  Adding components such as yield to your globally balanced mix can further cushion the downside.  Investors who can manage volatility successfully and aim for singles and doubles versus home runs will have a better chance for success going forward.  (Go Yankees AND Phillies!)

The consumer confidence numbers for September were just released, and they’ve turned downward again.  Not by much, but still not an upward trend.  Of course, these numbers were completely overshadowed by the uptick in housing prices that was also reported today.  See why this may be a “dead cat” bounce.  The September consumer confidence numbers showed a dip after slightly improving in August, indicating that consumers are still quite apprehensive about the economy and employment.  Although consumer confidence is considered to be a “lagging” economic indicator (rather than predictive), it is still important to watch the trend to gauge what consumers are doing.  Consumer confidence rose sharply from March to May and since then has been moving sideways.

Regardless of the fact that the consumer confidence index is considered a lagging indicator, it does have the potential to impact markets and the psychology of the market.   If consumers aren’t spending, what does that mean for retailers during the holiday season?  It is still very difficult to get financing on a primary or even a secondary property.  It is difficult for business owners to get credit.  I know of some private companies that are repackaging and selling consumer debt for a handsome profit.

Remember, consumers account for significant portion of the spending in our economy!  If consumers aren’t buying, businesses aren’t growing revenues, which in turn means that businesses are either not hiring or continuing to lay people off.  It can be a vicious cycle and it could perhaps mean that we are entering into a deflationary period.    If that is the case, stocks may suffer, and commodities may suffer even more so.

The lesson is this:  What’s working, and what’s popular, is not always what’s best.  Wholesalers of investment companies visit Financial Advisor offices to talk about their best performing and most popular product offerings.  Investment companies roll out new and popular product offerings.

The problem is, what’s popular typically carries the most risk for investors. Most Financial Advisors know this intuitively, and have lived and learned the lesson.  The general public, however, has not learned the lesson.  It was growth funds in the mid-90′s, it was focused large-cap and internet funds in the late 90′s and early 2000′s, it was real estate in the early 2000′s, it was oil and financials in the late 2000′s, and now….GOLD.
All of the hype around GOLD today is a stark reminder of the old lesson.

Consider this:

• Today the price of gold went over the $1000 an ounce.  WOW!

• The exchange-traded fund “GLD” has amassed a record amount of assets at $35 Billion.

• New investment products for gold are rolling out left and right.  (SGOL-Swiss Gold Shares)

• There is an unprecedented amount of radio and tv ads about investing in gold.  Literally every commercial break on CNBC includes a gold commercial.  I saw one recently that was featuring a former spokesperson from the U.S. Mint.  Seriously?

I wish I could be a fly on the wall in Financial Advisor offices now.  I can just hear the discussions about the precious metal.  As I said, MOST Financial Advisors are smart enough not to get sucked in, and not to let their clients get sucked in.

When I feel myself getting pulled in, I’ll sing to myself “Won’t Get Fooled Again” by one of my favorite bands, The Who.  That keeps me grounded.

There is plenty of press about GOLD, and how great it is, but Brett Arends of the WSJ does a very nice job of covering where gold may go from here.  In his most recent article entitled “Gold Prices-How Much Should Gold Cost“, he reminds us of a long-standing rule of thumb in that an ounce of gold should equal the cost of one high-quality man’s suit.  If you ask me, $1000 would buy a pretty nice suit these days!

Of course, I may be wrong and I am often early, and GOLD may go to the moon.  Yes GOLD can serve as an inflation hedge but we haven’t yet seen any signs of inflation.  All of this GOLD stuff sounds like the same old song and dance to me and if I were you, I’d be very careful about investing in it, or you might learn THE lesson the hard way.  Oh, and if you’re interested, there are plenty of ways to bet against it.