• Bluemound Asset Management
    Bluemound Asset Management A Kirk Spano company

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.  

What we can take from those rules is that the most important aspect of financial planning is having an investment approach that protects you from large losses and still gives you an opportunity to make money over the long-term. Very few people actually have that.

My name is Kirk Spano and I founded Bluemound Asset Management, LLC in 2010 as a response to what I saw the financial industry doing to people. I am widely published, including on MarketWatch.com of the Wall Street Journal network. I have also appeared on television and radio. Take some time to learn for yourself how I have helped people a lot like you. 

What I can tell you in short is this: if the way you have been invested has subjected you to large risks and not given you the returns you hoped for — there is a better way.

MarketWatch  Fox Business  WisBusiness.com  Seeking Alpha

2013: We’re Still Here

Happy New Year!  The new year will be a lot like an old year.  Not 2012, but quite likely a lot like 2011, marked by increasing volatility and possibly a correction, before we begin a new leg higher in the markets.  I reserve the right to be off by a year, but given a host of reasons covered in my year opening article for MarketWatch — Prepare for Zero Real Growth in the U.S. in 2013 (please read it) — it is time to err on the side of caution again as other investors decide to get back into the markets after several years.

When I discuss volatility, many people react with disgust or disjointed irritation about what they perceive as a high level of volatility in the markets.  Over the past fourteen years there has certainly been volatility, but in the past year, volatility has been very low.  Most people are not aware of this. 

In 2011, we saw the year begin with a low volatility uptrend, see volatility spike into a correction, then volatility diminish and support another rally.  As I discussed on MarketWatch the first week of January 2012, Your Major Risk in 2012 is Missing the Upside, I believed 2012 would be a pretty good year despite common perceptions that market volatility was a major risk.

Today, now that the Mayan calendar has recycled and we have survived, let’s take another look at volatility. 

Let’s start with something fresh from Warren Buffett’s 1993 letter to Berkshire Hathaway investors:

In fact, the true investor welcomes volatility.  Ben Graham explained why in Chapter 8 of The Intelligent Investor.  There he introduced “Mr. Market,” an obliging fellow who shows up every day to either buy from you or sell to you, whichever you wish.  The more manic-depressive this chap is, the greater the opportunities available to the investor.  That’s true because a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses.  It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly.”

So, the world’s greatest investor is telling us to use volatility to our advantage.  We can do this through buying good assets when the markets make those assets cheap and also selling when the market prices assets higher than their value implies from time to time. 

As has been the case historically, the market generally makes many stocks cheap at the same time.  This is called correlation. Often, entire sectors fall at the same time, only to later rebound as a group.  In these situations, we might invest in an entire sector using an exchange traded fund (ETF) or via buying several stocks in the group.  Last year on Motley Fool I discussed how to Build Your Own Bakken ETF when I identified that Williston Basin North Dakota oil stocks were good long-term holdings.

Recently, most of the stock market has risen in a highly correlated low volatility way.  As a result, very recently, small investors have started to add money to the stock market for a the first time in a long time.  This phenomona of small investors getting into the market after a large run-up, you have noticed the market roughly doubled off of it’s 2009 bottom haven’t you, is known as “ImMissingItitis.”  It’s a psychological disease.

BingoThe symptoms of this disease can be very devastating.  The first symptom is marked by night sweats and irritation after hearing how their friend or neighbor made money in the stock market recently.  After stewing for awhile and watching the market continue to go up, the patient calls their advisor or broker, or worse yet, logs onto their formerly dormant online brokerage account.  What happens next is ugly — the patient orders their financial person to get more aggressive or starts clicking away firing off buy orders in their portfolio so that they can feel good again.

Inevitably the stock market falls again, generally to below the point where the patient has bought back in.  The patient, who needs self-validation (the strongest human emotion), does not sell until they decide the market is rigged.  The patient then blames others for their poor results and swears to never invest again.  What they do not realize is that they never invested in the first place.

ImMissingItitis is a disease with no cure.  Like many diseases, it only has treatment.  Without treatment, the patient can lose most of their money and never recover.  Effective treatment includes ignoring the noise, controlling emotions, patience, continuing to set aside money for future investments, learning to value assets and having the courage of conviction.  The side effects of treatment are many; including self-doubt, lack of confidence, sweaty palms, weak knees and dry mouth.  The medicine, like a kiss from mom, does eventually work however.

For 2013, as the year progresses, especially in January, we can expect old investors to become new investors, big investors to sell to small investors and governments to continue their slow dance of nincompoopery.  We should also expect an eventual increase in volatility.  We should not be suprised if the stock market, either this year or next, falls 20% to 30%.  We should be prepared for that eventuality. 

Here I will note something that is very important.  We should not probably expect another financial armageddon.  We already had it.  Remember 2008?  That was it. 

The world is now very slowly, in fits and bursts marked with setbacks, getting better.  Technology has unlocked and created new energy.  Agriculture is poised to expand capacity.  Debts are slowly getting paid.  Getting better will come with some price on the calendar, however, in a several years, the world will be noticably better. 

As investors, we will use 2013, and possibly 2014, to continue with our plan to focus on scarcity based investments which we can derive income and growth from, i.e. energy, alternative energy, water and waste infrastructure, agriculture, other various resources, medicines and basic goods as the world transitions to a more sustainable economic model over the next generation.  As many of those types of investments are highly likely to be volatile on short-term cyclical economic news, i.e. a recession, we will employ volatility to our advantage.

Your forward looking advisor,

Kirk Spano

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Tactical Asset Allocation

The best offense is a great defense.

Tactical Asset Allocation

Are you utilizing the appropriate defensive strategies for your portfolio?

Today’s economic and financial climate are extremely dangerous and could lead to a large, fast drop in asset prices. Do you have a strategy to get out of the way quickly should that happen? 

“Set it and forget it” methods of investing like mutual funds, do not usually work. So-called “guaranteed” products, like annuities, are expensive, often lock people into low returns forever and aren’t always as safe as advertised. 

Tactical Asset Allocation using some of America’s top financial minds can offer protection that sales driven investment approaches don’t. Call today to find out how a tactical investment strategy can protect your retirement nest-egg and secure your lifestyle.

Punch Card Stocks

Buffett MungerWarren Buffett has famously said that investing in only twenty stocks, represented by a punch card, could improve your financial welfare. That is the impetus behind my “Punch Card” Stock Portfolio. These are the roughly twenty companies that I believe belong in the long-term growth portion of your portfolio and mine. 

Read my columns on MarketWatch, on my websites and elsewhere to see how a slow-handed and well thought out approach to stock investing can control risk and be profitable long-term. Learn more here.

 

Time for a Change

Do you want greater peace, security and freedom to pursue the lifestyle and legacy you really desire?

Do you want to avoid large losses in the next financial crash?

Do you want to take advantage of market opportunities when available?

Are you willing to take a few steps to secure your best future?

If so, call me today: 855445-4321

Monthly Investor Call

The second Saturday of each month at 9am.

Open to the public. My next call is on:

Saturday, August 9th, 2014 at 9:00AM (CDT

To join, follow this link or just call 262822-3677. No PIN needed.

Submit questions by email

Retirement Catch-up Plan

Behind on your retirement saving? Call us today to get back on track with a unique barbell approach to retirement saving.

Kirk’s Recent Quarterly Letters

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 and I decided against that career path. I graduated from college with a degree in economics and a second in political science with a law certificate tossed in. That’s not what I dreamed about as a kid, but it has proven to be a good direction for me. I got there by taking one step at a time and just not stopping.

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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%.

The high return of the stock market had an expected effect on people. Many investors started to chase returns and look to be more aggressive after years of being risk averse. The result was that 2013 saw the most money from retail investors flow into stocks since 2000. I discussed this in a November article on MarketWatch titled “How Bad Will New Investors Get Hit.”   

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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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