Home prices falling faster in most metro areas

By The Associated Press

NEW YORK – Home prices are falling faster in the nation's largest cities, and a record number of foreclosures are expected to push prices down further through next year.

The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday fell 0.7 percent in September from August. Eighteen of the cities recorded monthly price declines.

Cleveland recorded the largest decline. Prices there dropped 3 percent from a month earlier. Prices in San Francisco, Los Angeles and San Diego, which had been showing strength this year, also dropped in September from August.

Washington and Las Vegas were the only metro areas to post gains in monthly prices.

The 20-city index has risen 5.9 percent from their April 2009 bottom. But it remains nearly 28.6 percent below its July 2006 peak.

And home prices have fallen in 15 of the 20 cities in the past year.

Prices rose in many cities from April through July, mostly boosted by government tax credits which have since expired. Job worries and record high foreclosures are dampening buyer demand and weighing on prices.

The national quarterly index, which measures home prices in the nine U.S. census regions, dropped 2 percent in the third quarter from the previous quarter.

This is a repost from: http://news.yahoo.com/s/ap/20101130/ap_on_bi_ge/us_home_prices

A New Breed of Financial Advisor

Deregulation, along with advances in Internet Technology, has spawned an entire new breed of professional advisor.  Fee-only advisors can now operate from any place with a plug-in phone line and an Internet connection, bringing low-cost, independent, objective, professional advice of high quality and sophistication right to the investor’s neighborhood.  The clear separation of the sales or brokerage puts the advisor on the same side of the table with the client.  Wall Street’s abuses have been so frequent, and the advantages of fee-only compensation so obvious, that the demand for the new advisors has fueled explosive growth.  While fee-only is a far better way to deliver service and advice, it doesn’t guarantee competence or even honesty.  Investors must still do their due diligence when selecting an advisor.  Investors should get familiar with the SEC’s website or FINRA.  Both sites offer tremendous information for researching legitimate financial advisors.

All that remains is for the individual investor to take advantage of the gifts he has been given.  Everywhere the investor looks, things are better and growing better still.  But the investor must look.  The brokerage industry, the fund companies, and the media all have no deep commitment to providing fundamental education for the investor.  Bad advice is far more profitable than good advice for nearly all players.  Wall Street’s profits are simply not linked in any way to investor profits.  As long as turnover is high, the Street wins either way.  With almost 20,000 mutual funds clamoring for shelf space and public attention, hype is the order of the day in fund advertising.  And, as long as Americans will buy dangerous drivel posing as serious financial commentary, the medial will happily provide it.

America is a land of shocking financial illiteracy.  Few investors have any kind of long-term plan at all; few recognize the dimensions of the problem facing them, yet most are supremely confident of their abilities.  Most indulge in self-destructive financial behavior and lack even basic discipline.  Predictably the results of this muddle are dismal.  Projecting these results forward generates visions of almost unimaginable financial hardship as the boomers march off to retirement without the financial assets to sustain them.

The Fee-Only Alternative to Business as Usual on Wall Street

Traditional Wall Street firms have failed to deliver credible, objective advice.  Their commission-based compensation system irreparably taints the advice process with conflicts of interest and hidden agendas.  But there is a viable alternative to the commission-crazed, churn-and-burn stockbroker.  The independent, fee-only registered investment advisor offers objective advice, superior service, and economical and effective execution

The vast majority of these firms are relatively small, without the marketing clout of the giant institutions.  So, they are not “top of mind” when investors seek out advice.  But they offer a key invaluable advantage: objective advice.  Because a fee-only advisor derives all of his income from fully disclosed fees paid directly by the client, conflicts of interest are virtually eliminated.  There remains no financial incentive that would prevent the advisor from providing the very best advice for each individual.  So, while the advisor may not always be “right” in his counsel, there are no hidden agendas, or conflicts of interest to cloud his vision or taint the relationship.  And, after all, what good is advice if it’s not objective?

The demand for impartial professional advice is enormous and growing.  For instance, since 1989, assets with Schwab’s Financial Advisor Service have grown to nearly a half trillion dollars managed by 5,600 independent registered investment advisors!  Fidelity and Waterhouse are also experiencing exponential growth in similar services, with others entering the fray close on their heels.  Clearly, Americans are looking for unbiased professional advice and an intelligent alternative to Wall Street’s commission-induced conflicts of interest and voodoo-based investment schemes.

The Problem with Hearing it Through the “Grapevine”

My recent post from yesterday talked about how it feels like an eternity when going through a period of negative performance in one’s portfolio.  And how relative pain is remembered more than relative joy during a downturn.  Continuing from that topic: The proverbial “grapevine” makes matters worse.

Marvin Gaye’s hit song, “I Heard It Through The Grapevine” is about gossip, but for our purposes, it is about two investors, one is producing positive returns in his portfolio, the other is producing negative results in his.  This is almost always the case, no matter how bad things may get for our investor, somewhere somebody is making money.  Those people will certainly tell all within earshot, to make matters worst.  Most investors have a very selective memory.  We all seek approval, and we all would like to be considered astute, sophisticated, and successful.

During social gatherings or casual conversations it’s not unusual to stress the positive and repress the negative.  So the investment winners in our portfolios tend to get talked about more than the losers.  Investors with disappointing recent performance will say nothing.  After all, who wants to broadcast failure?  So, the winners brag, and the losers keep silent.  Soon, it may seem to our poor investor like everybody with an IQ over room temperature is making money except him.

So the temptation to second-guess himself grows and grows.  If only his advisor had been more astute, he would be making money too.  Perhaps it’s time to try something else like all those other smart investors are doing.

Once this kind of cycle starts it can deteriorate into a tail-chasing fiasco.  At least dogs that chase their tails remain on level ground.  Investors can dig themselves into a hole as they ratchet themselves ever downward chasing yesterday’s hot stock, hero fund manager, or top performing mutual fund. 

It’s easier said than done, but we have to ignore the grapevine.  And the braggarts of today, will become tomorrow’s silent listener.

The Market Can Beat Up Rambo

America is a can-do country.  Our heroes are action-oriented and full of the right stuff.  Most successful people got that way by using their skills to make something happen.  Rambo claimed authority by showing up with the biggest gun!

Business responds well to can-do, positive, and active management.  If business turns down, there are lots of things a smart business person can do:  Make more phone calls, hire more sales-people, buy advertising, change the product, have a sale, fire the sales manager, buy the competition, increase commissions, or move to a better market.  Success in business depends on active management.

Investing on your own (particularly in stocks, bonds or mutual funds) is a different kind of animal.  It is a very passive activity.  Markets don’t respond to our can-do attitude.  We can’t just whip them into shape. It doesn’t care if you brought a knife to a gun fight.  They have their own flow.  So, we must attach ourselves to the market’s movements and allow it to carry us to our goals.

More often than not, if you have a good strategy in place, the best single thing an investor can do during a disappointing season is nothing.  Of course, this type of thinking can make a successful, can-do, action-oriented, gung-ho investor just a little crazy.  During times of stress, negative performance, or no performance, he wants to do something.  All kinds of self-defeating behaviors come to mind:  Fire the advisor, liquidate the account, move to another brokerage, sell the funds, anything other than sitting still!  The fund that looked so good during last year’s big recovery now looks like a turkey. An advisor who remains focused on the long term, staying put, and maintaining the course of the plan, obviously must be some kind of wimp right?  Any idiot can see things are falling apart and the Rambo in all of us demands action now!

Investor impatience is compounded by a relative pain, relative time problem.  Portfolio downturns hurt a lot more than good times feel good.  it is much more painful to see your portfolio lose one percent than pleasant to see it gain one percent.  And it feels longer.  Two years of back-to-back declines, underperformance, or even just no performance can feel like a lifetime.  And, as we have seen, even a superior portfolio will go through occasional extended periods of disappointment. 

Look Forward NOT Backward!

Smart investors use volatile markets to upgrade their portfolios.  A common mistake investors make during market downturns is that they look backward, not forward.  Investors fixate on lost profits, on what they should have done.  This takes their eyes off what they should be doing to make money going forward. 

You cannot undo the past.  Smart investors don’t miss the future by looking at the past.  They take their lumps, learn their lessons, and do what they can to position their portfolios for the market’s inevitable reversal.  That means smart investors use volatile markets to trim their exposure and adjust accordingly. 

That’s the beauty of the market: at every ups and downs, there’s the probability to profit. 

Bottom line:  Nobody can tell you with certainty the perfect time to invest.  Nobody knows with certainty when a market has bottomed.  What I do believe can be said with a high degree of certainty is that markets move through peaks and troughs.  I can’t guarantee prices will be higher five or ten years from now, but history shows that a consistent investment program produces success over the long term.

First-Hand Experience In Fundamental Economics

Yesterday as my family and I were going into Target (TGT) to browse the toy section for holiday gift ideas, we witnessed a middle-aged man with a cart full of baby products (diapers, wipes, baby lotion, baby shampoo, and a small baby toy) walk out of the store without paying.  There were many people around, some noticed as we did, some didn’t and it was a busy time of day, almost perfect to pull off such a heist.

The man had a determined look on his face, almost a desperate, “I don’t know what else to do” look.  He simply focused straight ahead to the exit and never looked back. 

This is a prime example of how inflation affects America today.  Forget the recent Quantitative Easing solution that is “supposed” to help the economy, in truth all that money that pumped into the system only went to the top-tier citizens of the United States anyway.  The same citizens that caused this demise in the first place!

But, I can relate with the shoplifter, after all I have two young kids of my own, and a baby on the way.  Diapers costs $45 per box of 216 pieces.  Babies go through 8 per day on average.  So, in a little under a month, you’re spending $45 dollars on diapers alone, wipes come to about $20 per box on top of all the other expenses required for a baby.  Crib and crib mattress, sheets for the crib, a changing pad, strollers, car seats, appropriate-sized clothing, formula (if not breastfed), bottles for the milk, bottle warmers, disinfecting bags for pacifiers, bibs, and the list goes on and on!

Desperate times calls for desperate measure, and with the economy the way it is, where jobs are gone, incomes are down or at a plateau, consumer prices are up, the dollar value at an all time low, and lending institutions tightening their standards.  It’s no wonder some can be driven to bunk the system and steal. 

Brace yourselves, my feeling is, more and more people will be driven to do extreme things.

Simplicity Leads to Calmness

A big part of succeeding during volatile markets is staying calm.

When you’re calm, you make much better decisions.  When you’re calm, you don’t overreact to circumstances.  When you’re calm, you think more clearly. 

Being calm prevents you from making mistakes, in trading and in life. 

Of course, knowing you should be calm during crazy markets is one thing; actually being calm is quite another.

One way to ensure that you maintain a measured, calculated approach to volatile markets is by having a clear handle on your financial position and a clear plan of attack.  You do this through simplifying your investment approach.  Instead of choosing four or five stocks out of 7,500 or four or 5 mutual funds out of 19,000 to put in your portfolio, reduce the burden by Indexing.  This way, your costs are low and the probability of success increases in your favor.

The best piece of advice I’ve read about when it comes to trading strategy is the “KISS” concept.  Keep It Simple, Stupid!

I can’t think of any time when simple doesn’t beat complex.  That’s especially the case during volatile markets.

Be A Partaker, Not An Outsmarter

There are two kinds of investors:  Outsmarters and Partakers. 

Outsmarters believe they’re so clever they can beat the system, through inside advice and superior brainpower.  Partakers understand that the best way to make money is to share in the profits of successful businesses, by buying stock in Apple, Cisco, Walmart or McDonalds, for example.

Many investors, especially baby boomers, who are convinced they were born more brilliant than everyone else, begin their investing careers as Outsmarters.  They invariably get outsmarted themselves.

According to Bill Clinton’s autobiography, that’s exactly what happened to them in 1978.  They went into a typical Outsmarter deal-borrowing money to buy land in the Ozarks through Whitewater Development, a company they set up with an insider named James McDougal, along with his wife Susan.  Real Estate is especially tempting to Outsmarters since it’s a game in which the other players often appear to be rubes.  In this case, however, the Clintons and McDougals bought land for $880 an acre from a group that had purchased the property just 19 days earlier for $440 an acre.

The intention of the Whitewater investors was to find people to buy the lots at more than $880 an acre and make a big profit.  But in the end, they found that such buyers did not exist ($440 an acre turned out to be the right number).  The Clintons lost $68,300, according to an accountant’s report they commissioned.

The Clintons are just an example of Outsmarters out there as there are a lot of them.  There are, for example day traders, who think they can profit from tiny ups and downs of stocks over minutes or hours.  I do not doubt that some people can make a profit this way-after all, some people are born with the ability to throw a baseball 100 miles per hour.  But, beyond a tiny fraction of super talented and super-dedicated, day traders eaten up by the transaction costs-the commissions, the spreads between bid and asked prices and the interest incurred in buying stocks on margin.

Other Outsmarters are bottom fishers.  They figure they can identify stocks that have plunged but will soon emerge from the depths.  Occasionally, a smart investor will win by betting on these kinds of stocks, but most of the time…no.  When a stock is exceptionally cheap, there is almost always a reason. 

Remember that a stock that’s fallen can keep falling.  Did Internet Capital Group look like a good buy after it had declined from $196 to $45 in the first four months of 2000?  I sure did, and got burned in the process.  Over the next year it dropped to 34 cents.

Partaking, on the other hand, is the ticket to success in the stock market.  Investing in an index fund with an option to go Inverse (to profit when prices fall) is a way to share in the long-term growth and trend of the U.S. economy. 

My own preference is partaking in the growth of great companies.  Occasionally, it strikes me how incredibly generous the stock market is.  At little cost, I can become a partner in a business like GE, Microsoft or Apple, tagging along on a very profitable ride. 

Avoid Buy And Hold, Sell Your Big Loser!

I’m not a big fan of losing 70% of my money by riding down a stock that I should have dumped.  That’s the problem with buy and hold, it prevents you from selling investments.  You always risk having the big loser.  And that big loser can wreak havoc on a portfolio.

I read a story of a successful investor who, when on straight-to-the-point novice asked what this man’s secret of investment success was, replied simply, “Don’t lose.”

Take a stock that plummets from $100 to $20 per share.  That’s a decline of 80 percent.  But, for that stock to return to $100 per share, that price would have to rise 400 percent!

Now, take a portfolio that declines 50% (and many portfolios have declined 50% or more over the last few years).  The math here is quite simple.  In order to recoup your loss, the portfolio must increase 100 percent.

If you think about that in terms of time, the number of years required to recoup the loss (based on the stock market’s historical annual return of approximately 11 percent) is nearly seven.  In other words, based on historical market returns, a 50% decline in your portfolio shaves roughly seven years off your investment program.

Now, while nobody wants to lose seven years off an investment program, you can afford to play catch-up if you have an investment time horizon of at least 20 to 30 years, especially if you are willing to invest more money when stocks are down.

However, if you are someone in his or her fifties or sixties, the cost of losing big is even steeper.  You just don’t have enough time to make up the lost years as a result of one big hit.

Bottom line:  To everything there is a reason, including selling.  Volatile markets put an even greater premium on selling, as violent market moves can reduce capital gains in a surprisingly short period of time.

Stop Swinging For The Fences!

You don’t have to have your homerun hitters at bat every time to create wealth in the stock market.  A reasonable annual return and time will do the trick.  Swinging for the fences, whether it be concentrating your portfolio in just one or two high-flying technology stocks or buying penny stocks, also increases your chances for that killer loss that will take years to recover.

Indeed, investors who swung for the fences in recent years now wish they had choked up on the bat and slapped some singles.

Remember: The secret of investment success is to continue to set aside money to invest over time, and to generate a reasonable rate of return each and every year while avoiding the big loss. 

That alone is more than enough to make you achieve your financial dreams.

Can Money Managers Add Value To Your Portfolio?

Based on a dismal record of money managers to outperform benchmarks, we have to take the argument that markets are efficient very seriously.  Recent statistics shows that 0.002% of Hedge Fund managers outperform the S&P 500 over a period of 5 years time!

When we go about building our investment strategy, benchmark, style, or passive and active investing, we must consider the overall average performance of each investment class over a period of at least five years.  Doing so, ensures your money has staying power.

In our own practice, we use only institutional-class index funds.  Today it is possible to index almost the entire world.  I think that approach gives us the highest probability of a successful outcome with the lowest risk.  To the extent possible, I want to see predictable results.  I hate underperforming the benchmark more than I would enjoy overperforming.  That makes me pretty much like my clients: risk averse. 

On a side note:

A special thanks to Dr. Karl W. Einolf, Ph.D. of Mount St. Mary’s University for allowing me the opportunity to lecture his Corporate Finance classes yesterday.  It’s truly an honor and I hope I was able to impart some practical knowledge for the students as they go on to graduation and beyond! 

How to Strengthen a Team

I was studying the importance of team work in the Financial Services industry the other day and I realized that too many people are trying to do all the work themselves alone.  At the end of the day, they wonder why they have yet to see any changes in their bottom line. 

Being in a team environment significantly improves your chances of success but once you join or form a team, you need to strengthen it.  There have been many books written about building teamwork, but there are basic elements I have seen that make the most difference.

Align Values

Sharing similar values will strengthen a team.  Examples of values include work ethic, shared vision and goals, compensation of support staff, communication, and investment philosophy. 

Promote Commitment

The best teams are those whose members are committed to the growth of the team, with each member being willing to commit a lot of energy to the team’s success.

Promote Good Communication

Good communication is essential to a team’s success.  As in any relationship, good communication overcomes most problems.  The team should encourage communication by all team members and provide opportunities for team members to share their opinions on how to make the team better.  One of the greatest benefits of a team is the ideas and creativity that can result when the team members are all motivated to improve the team.  All team members should have the opportunity to review and give input regarding all aspect of the team’s activities.

Build In Measurement and Accountability

Every team member should be held accountable for her responsibilities, and team meetings should be held to review accountability.  These meetings motivate all the members to excel, so that they can proudly share their results at team meetings. 

In the long run, working toward parity is best.  If the split is not even, there should be an incentive for all team members to get an equal share as the team’s business grows.

What is Quantitative Easing?

If you follow Financial news, you no doubt have heard of the Fed decision to inject another 600 Billion Dollars into the system by purchasing Treasury Bonds and to “maintain low interest rates” in a strategy dubbed “Quantitative Easing.”

Quantitative Easing (QE) is an extreme monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system.  In short, it is printing money.   

QE can trigger higher inflation or even hyperinflation if too much money is created.  It can fail if banks are still reluctant to lend money to small businesses and households in order to spur demands. 

To put it simply, people who have saved money will find it is devalued by inflation; however those who have debt will see the value of that debt decline.  Those who own homes will see the value of the increase as more devalued dollars are needed to purchase the home.  The value of the debt on that home will decrease as the number of dollars needed to settle the mortgage will remain constant and can be paid with future devalued dollars. 

Before the Fed decided to force this policy on us, maybe they should have taken a popular vote.  Oh wait, voting is a right in democracies not, dictatorships.

GOP Takes House, Democrats Keep Senate

The Republican Party took control of the House of Representatives in Tuesday’s election, dealing a withering blow to President Barack Obama, but Democrats narrowly clung to a majority in the Senate.

Republicans were projected to nab 60 seats in the House, Fox News said, easily exceeding the 39 needed to capture control of the chamber from the Democrats for the first time since 2006.

Rep. John Boehner, the Ohio Republican who is likely to become Speaker of the House, said that Tuesday’s results were a repudiation of big government and sent a message to Obama.

“That message is: Change course,” Boehner said.

Senate Majority Leader Harry Reid, meanwhile, won re-election after a fierce fight with Sharron Angle, one of Election 2010’s most visible tea-party candidates. Republicans were projected to gain at least six seats in the Senate.

“Today, Nevada chose hope over fear. Nevada chose to go forward, not backwards,” Reid told supporters in his victory speech. The embattled lawmaker vowed to press on for jobs, later adding: “The bell that rang wasn’t the end of the fight, but the start of the next round.”

The re-election of Reid sets up a faceoff against Boehner, as he still will oversee the Democratic-controlled Senate — but one with a few more Republicans than in the current session of Congress.

The size of the Republican wave was evident early on. Democrats lost bellwether House contests in Virginia and Indiana, with Reps. Tom Perriello and Baron Hill falling to their Republican opponents in closely watched races. Rep. John Spratt, who chairs the House Budget Committee, fell to Republican Mick Mulvaney in South Carolina after jousting over health-care reform and Obama’s stimulus bill.

Rep. Barney Frank, the chairman of the House Financial Services Committee, won re-election from Massachusetts. Meanwhile, 26-year Democratic House veteran Paul Kanjorski, who wrote major parts of the Wall Street reform bill, lost to Republican Lou Barletta in Pennsylvania.

Before the election, polls showed a majority of Americans were dissatisfied with the economy, with unemployment near 10% and the deficit at a near-record $1.3 trillion at the end of fiscal 2010.

But anger about the economy wasn’t widespread enough to return the Republicans to the majority in the upper chamber. An early win by Democrat Joe Manchin in West Virginia meant that the Senate was on track to stay in Democrats’ hands.

And the Republican tidal wave steered clear of California, as voters were returning Jerry Brown to the governor’s office and fellow Democrat Barbara Boxer was barely keeping her Senate seat, early returns showed.

The two Democrats took on two former tech titans from Silicon Valley and prevailed. Brown defeated one-time eBay Inc. CEO Meg Whitman in his race, overcoming Whitman’s massive $173 million campaign war chest, $141 million of that coming from her personal fortune. Meanwhile, Boxer edged out ex-Hewlett-Packard Co. Chief Executive Carly Fiorina for her seat.

Americans worried about the economy and jobs voted in all 50 states Tuesday for all 435 House seats and in 37 Senate races, as well as for 37 governorships.

Rand Paul, an eye doctor and son of Rep. Ron Paul of Texas, became the anti-spending tea-party movement’s first senator, and kept a Kentucky Senate seat in the Republican Party. Dan Coats’s victory in Indiana gave Republicans their first pickup of the night; he took the seat of retiring Democratic Sen. Evan Bayh.

This is a repost from: Marketwatch

Keep Investing, Even During Bear Markets

Too many people allow their investing habits to be influenced by whether the market is a “bear" market” or a “bull market.”  During “bear markets,” when stock prices are undergoing a general decline (the typical bear market since 1899 has lasted about fifteen months), many investors refuse to invest.  Admittedly, it’s difficult to invest when stock prices fall almost daily.  Nevertheless, the only way you make a long term investment strategy works is to maintain your investing plan during bear markets.  That’s how you build positions to take advantage of bull markets. 

Smart investors buy during bull and bear markets.  When millionaire investors were asked if their investment style differed from bull markets to bear markets, 70% said that they invested no differently.  In other words, to these investors, bull or bear markets are just labels for the same thing; a place to invest and grow your money over time.