Weekly Update

There are some things I’ll never understand. Here’s one:

Why would my lovely wife, Marea, purchase two new pairs of sneakers and throw my old ones out without asking me first?

“You need to replace sneakers regularly and alternate them between your daily power walks,” she informed me.

I do? Who knew?

I walk for 3.5 to 4 miles for almost an hour practically every day. Apparently, according to my wife, this qualifies me as a highly tuned athlete who needs cutting edge footwear to maintain peak performance for my upcoming heat in the Senior Slow-Walk Olympics.

I wonder if Bill Russell and Bob Cousy alternated specifically designed point guard and center sneakers between games.

“Oh, and they should be replaced every 300 miles,” she added.

So I have to throw my sneakers away after every 75 walks? How do I keep count? Maybe sneaker companies can embed a hidden odometer in the soles of sneakers. Or, the foot engineers could inject a color fading dye in heels indicating when a new pair is needed. I believe toothbrush manufactures have the color of bristles fade away when it is time to buy a new brush. Why not sneakers?

Reflecting upon last week’s Update, I may have been wrong when I stated that women and women alone drive the global economy. The power of advertising is truly incredible! Not only is it innovative enough to sell designer sneakers for different purposes, it supports an infinitely sustainable business model by making consumers believe that they need multiple pairs of footwear for the same activity.

We consumers love advertising terms such as introducing, new, improved, best, original, customized, exclusive, doctor recommended, proven, free and finally, as Pandora states in its tag line, unforgettable.

And there is no reason for the creative marketing minds to stop there. I was looking through the December issue of SHAPE magazine and learned that New Balance markets training footwear just for the winter; skechers makes GOwalk footwear available so women can “GO like never before;” and best of all, Amy Schlinger, a writer for SHAPE highlighted the need for “Socks That Rock.” That’s right, activity specific socks for hiking, running, crossfit (whatever that means), yoga, and skiing.

How about this one? Gap markets pants that have a “perfect performance fit!” I should get a pair of performance fit pantaloons to wear under my suit at business meetings and, of course, while making my investment decisions. That should exponentially increase the annual performance of Marea’s portfolio.

Switching gears as we enter the New Year, I reviewed investment guidelines first published last year and concluded that it made sense to once again share them with Update readers.

Investment Guidelines:
• Stay diversified and don’t place all of your assets in one stock, bond, or fund.
• Invest globally with a concentration in the USA. (The portfolios publish in the Update do have global exposure through an international fund and large U.S. firms that sell products and services throughout the world.)
• When buying individual securities, concentrate on industry leaders offering dividends, which ultimately provide a cushion during corrections and remember, dividends generate approximately 40% of market performance.
• When increasing equity exposure, execute trades on down market days.
• Hold a cash position between 5% and 20% of a portfolio’s value.
• Fixed-income concentration should be in short to intermediate bond funds.
• Populate portfolio with both equity and bond funds charging low expenses and a better than average three and/or five-year track records.
• Know a security’s investment philosophy, objective, and style prior to purchase.
• A position/portfolio must meet personal suitability standards based on objectives, volatility, and investment time horizon.
• In a taxable account, be aware of the potential tax exposure.
• When considering bond funds, a low expense ratio is extremely important to overall annual performance.
• Index product performance should basically track its long-term category average.
• Monitor investments weekly. (For example, Yahoo finance allows you to compare the performance of your funds to its peer group over multiple periods of time.)
• Analyze a product’s performance over time (year-to-date, one year, three years, five years).
• Monitor sector investments closely.
• Performance must be assessed on a risk/return basis. (For example, Investor “A” generates a 5% return; Investor “B” generates a 10% return; which portfolio was the better performer? It completely depends on the level of risk inherent in each portfolio.)
• Note that raw performance benchmarks including the Dow, S&P 500, NASDAQ, and the Russell 2000 do not incorporate trading costs, fund expenses, and advisory fees.
• Let’s assume equity markets are up 10% and fixed income and cash are both flat at 0%. You have 50% invested in equity, 50% in fixed income and cash, and total expenses of 0.5%; a reasonable return for your portfolio would be approximately 4.5%.
• Be aware that markets tend to overreact to news, good or bad.
• Realize that absolutely no one knows how markets will perform next week, next month, or next year.
• So, my guess is that the market will generate an 8% return in 2013. (By the way, 10% is about the average stock market annual rate of return.)
• Be aware of a portfolio’s potential worst 1, 3, 5, and 10 year case scenario based on historical data.
• Unless you are willing to do your homework weekly, consider hiring a financial advisor.
• Dialing your equity allocation up (increased volatility) or down (less volatility) will ultimately increase the probability of capturing more or less of both the upside and downside of market performance.
• Wear performance fit pants when analyzing your investments.

• Do not
o Purchase any investment product you do not understand.
o Sell a fund because of poor performance over a limited period of time. (If a fund under performs for a couple of months, place the fund on a watch list for at least 30 days prior to making a decision to hold or sell out of the position.)
o Buy bond funds with higher than average expense ratios.
o Select a stock simply because of a potential high-dividend payout. (Make sure the company has the cash flow necessary to pay the dividend.)
o Allocate more than 5% to 7% per individual sector.
o Try to time the market.
o Overreact to the news of the day.
o Chase performance. (Performance is relative based on asset allocation, risk inherent in the portfolio, and expenses including trading costs, a fund’s expense ratio and advisory fees.)

Have a productive Week.
The Update is written by Chris Leone and Ron Mastrogiovanni

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