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A Better Way…

Kirk SpanoAccording to Warren Buffett, the top 2 investing rules are…

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.  

The most important aspect of financial planning is having an investment approach that protects you from large permanent losses and still gives you an opportunity to make money over the long-term.  I founded Bluemound Asset Management after seeing that most of the sales driven financial industry comes up lacking.

My name is Kirk Spano. I am visible and easy to follow in the media. Please take some time to read about the advice I have given. Then, if you are ready to find a better way to secure your lifestyle and create a legacy, contact me so that we can talk about what is important to you.

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Avoiding the Next Crash & Investing in the Next Boom

In January 2012 I told people on MarketWatch not to miss the upside coming in American stocks, especially energy stocks, most of which doubled and tripled within two-and-a-half years. By June of 2014, again on MarketWatch, I told people to sell their oil and gas stocks, most of which were cut in half by December 2014.

Click for your Special Report

Today, I am telling people that the next few years are lining up for some very negative events in parts of the world that will effect your portfolio. In my special report “The Two Most Important Trades You’ll Ever Make — Avoiding the Next Crash & Investing in the Next Boom” I discuss how to protect yourself and how to preserve your lifestyle. 

Request your free report today.

Small Company Stock Investing

Q2 2012

Small Company Stock Investing

This quarter’s letter will be a little shorter as I have been writing quite a bit for MarketWatch of the Wall Street Journal network and Motley Fool.  As clients know, for several (not all) of our investment strategies, I prefer to carry a higher percentage of our asset allocation in small company stocks than what many other advisors do. This is so for one simple reason, in general, smaller companies have historically provided more growth than larger companies. 

There is a perception that investing in smaller companies is more risky than investing in larger companies.  While in the case of start-ups that applies, once a company has reached a certain critical mass, the risk difference mostly disappears.  I point out regularly that companies such as General Electric, Microsoft, Pfizer, AT&T, among other large well known companies have been trading 50% to 70% below their historical share price highs for years now. 

Since 1982, small company stocks have outperformed large company stocks by about 1% per year.  This is a smaller margin of difference than the prior sixty years when small company stocks outperformed larger company stocks by about 2% per year.  Further, over virtually every rolling ten year time frame, smaller company stocks have outperformed larger company stocks.  

As I pointed out above, over the past thirty years the difference between small and large company stock performance has contracted.  Why has this happened?  In my opinion, due to two words, globalization and politics.  During the past three decades, multinational companies have gained primacy among the corporate universe.  This happened as larger companies have often been better equiped to deal with global trade than small companies.  It also occured though because politicians helped unlevel the playing field in favor of the larger companies.  Why would they do this?  One need do more than follow the campaign contribution money. 

It is interesting that at a time when we are inundated by politicians with the fact that small companies are responsible for most hiring, that larger companies have been given more advantages via politics than small companies.  Right now, we are at a cross-roads.  Small companies are already at a disadvantage in the market place versus large companies from the standpoint of regulation.  Will that continue?  It is a coin flip from what I can tell.  While unpopular, the health care reform favors small companies over large companies.  We will see what happens with that.  If small companies continue to get the short end of the regulatory stick, then it might indeed be time to rethink asset allocation strategy.  

From a current investment standpoint, there does appear to be an opportunity for certain small company stocks to outperform.  With less small company competition surviving, those that do survive can make very large returns on their share prices.  The trick of course is finding the survivors.

Small companies that make it past the non-profitable, in danger of failing stage, are those companies which we can look to for winning stocks.  Below is a chart I use to describe what I am looking for.

 

If we can identify a company after it has made it past its “start up” or “birth stage” identified on the left hand side of the “S” chart and invest as it has achieved a measure of stability buoyed by positive business developments, then we have the makings for a fine longer term investment.  Right now, many of those companies are involved with oil shale exploration and production.  I have written extensively about these companies at MarketWatch.com and encourage you to browse those articles which talk about some of our specific holdings.

Now, to be sure, from time to time, the market treats small companies, profitable or not, as potential “failure” candidates.  In those cases, it is up to us to make a decision as to whether or not we agree with the market.  More often than not, if a company is making money, or has been making money, and nothing material to its long-term survival has changed much, then short-term price swings are an opportunity to buy, not sell.

Emotionally, the volatility of small company investing can be disconcerting on a stock by stock basis.  But, with adequate diversification, an overweight in small company stocks offers the greatest growth potential for a long-term investor.

Your looking for long-term growth adviser, 

Kirk Spano

 

This letter contains forward looking statements that may not come true.  Past performance does not guarantee future results.  This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice.  Opinions expressed may change without prior notice.

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Investment Programs

All of our investment programs provide a level of service and expertise rarely found within the retail financial industry. Our programs also are at the low-end of the fee scale relative to the financial industry. All of our investment management and consulting services have access to our founder and nationally recognized advisor Kirk Spano.

 Punch Card Stocks

Based on Warren Buffett’s idea that if there was a limit to how many companies we invest in, that our investments would be less risky and perform better. Learn more…

Retirement Income Options

A flexible income strategy designed to handle any interest rate environment and provide enough growth for a long life.  Learn more…

Resource Opportunity

Scarcity for resources and looming inflation require that any portfolio have exposure to hard assets and companies that provide resources for our lives. Read more…

Investment Coaching

A flat-fee program for self-directed investors who would like a well regarded professional to consult with and learn from. Very limited space.  Learn more…

Tactical ETF Allocator

A unique diversified low cost exchange traded fund (ETF) strategy for dealing with an uncertain global economy. Learn more…

Mutual Fund Allocator

A low cost flat-fee program for traditional investors who want a better way to manage a mutual fund portfolio without new commissions.  Learn more…

401(k) Monitor

Fund selection, contribution strategy and ongoing asset allocation recommendations for your at-work retirement plan.  Retire Sooner…

Annuity Rescue

A chance to reduce annuity expenses, increase net returns and avoid the nasty surprise awaiting most annuity owners.  Learn to get more

Kirk’s Recent Quarterly Letters

Dealing With Today’s Volatility

“I don’t really care about volatility.” Warren Buffett

Asset Returns vs InvestorsI put off publishing this letter for about two weeks, as over the past month, stock market volatility has increased quite a bit. While we are not seeing the wild swings of 2011, we are seeing a significant reaction to the overdue realization that the enduring slow global growth I have talked about multiple times and the end of quantitative easing by the Federal Reserve are both real. 

Buffett’s quote above is meant to convey a message that emotions should not be a part of our investing process. He goes onto discuss how volatility gives us opportunities to buy great companies at good prices.

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Freedom to Unite and Invest in Tomorrow

UpWhen I was a kid I dreamed about being an astronaut, a baseball player, a rock star and the President. As I hit my teen years and I hadn’t done much musically, I dropped the Mick Jagger aspirations and focused on baseball. By senior year of high school I knew that baseball was fun, but that I wasn’t an elite player so I had to drop the Robin Yount dream too. 

When I got to college, I focused on having a good time and taking courses that might help me when I grew up. For awhile I thought I’d be a lawyer, but a great uncle gave me some guidance…

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The Great Retrenching Continues…

Total DebtIn September of 2008 I had coffee with a group of executives from local manufacturers, it was just after the financial crash had started. One company president in the group — a particularly political sort — asked me how long the economic slowdown would last? I said “until the middle of the next decade sometime.” He laughed at me.

Fast forward to today. What we know now is that the economy still has not recovered in real terms and that it will be a few more years until it does. The United States is just about in the middle of a demographic depression that can not be fixed with legislation or easy money. We must wait until household formation and spending by the very large millennial/ echo boom generation ramps up. Last year was the first year since 2008 that we saw an uptick in the birth rate, so that is a positive, however, it is only a baby step.

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2014 Another Crossroads 

S&P 5002013 proved to be a profitable year for investors. The S&P 500 rose 29% and set new record highs. Global balanced indexes, more representative of most people’s portfolios, also did very well by returning about 20% despite a tough year in China which lost 9%.

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Volatility, Opportunity and the Next Crisis

Secular Bulls and BearsOver the past several years, I have discussed the monumental demographic changes that not only America is dealing with, but also that Europe, China and Japan are dealing with. The cumulative impact of national and personal debts, de-leveraging from the bubbles of the 2000s and the four largest economies in the world having aging populations has created global demand destruction that is not likely to end soon.  

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