• 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

2007 Review: Turning Point

[this letter was emailed to clients January of 2008]

 

2007 Review: Turning Point

A Glance Back, A Look Forward & Philosophy

2007 was a very eventful and fitful year in the stock and bond markets around the world.  Credit markets finally started to shake the fleas that had taken residence over several years of record breaking money creation by government, lending institutions and a quasi-banking system composed of hedge funds and private equity firms.  The volatility we saw in 2007 is not likely to subside in the short run. In fact, I believe that the problems at Bear Stearns are the tip of the iceberg regarding problems that are likely to emerge in the financial sector. 

Rather than bore you with a rehash of what went on specifically (there are plenty of out there), I am going to talk instead about our investment philosophy and how I look at investing– which is how I think you should look at investing. 

When I was in college, my first landlord was an older gentleman named Bill who owned a lot of property in the University of Wisconsin-Milwaukee area.  One day I asked Bill about property ownership and he was kind enough to discuss the process of buying, fixing up and renting out apartments.  When I offered up some bad information regarding the process I had gotten from a friend, Bill offered me some advice that is the best advice I have ever gotten from a non-family member.  He said, “Kirk, if you want to learn how to do something, learn from people who have done it.  Don’t ask your friends or your neighbors, ask somebody who has done it, learn from their experience.

To that end, I believe that there is a pretty good shortcut out there to doing well with investing. 

My “shortcut” formula is as follows. 

  • I use general economic analysis culled from academics and respected sources to find the broad based systemic risks in the markets and economy, for example an inflated loose money supply fueling subprime credit risks to financial, building, real estate and consumer stocks (investments which we have largely avoided).
  • I then use the same analysis to see where the best broad opportunities lie, for example energy, materials and telecom the past few years (investments which we have been heavily weighted in). 
  • After finding generally attractive areas of investment, I apply over a dozen financial screens to thousands of potential investments to cull a small universe to choose from. 
  • Finally, I study a number of billionaires and managers of billions that I both understand and who have phenomenal track records.  If my analysis is similar to theirs, I know to a very high degree of confidence that you and I are on the right track. 

In many cases, we end up owning the same things that the billionaires own.  What is most amazing is that sometimes that isn’t even good enough in any particular year or two.  Over longer periods however, it appears to be a very good strategy.

One thing that I would point out here is what this process leads to: the conclusion that “all-in” investing is rarely a good idea.  By that I mean, being fully invested in the stock markets.  I have run into many investors, heard from a multitude of media as well as financial planners, who believe that being almost fully invested in the stock markets almost all of the time is the right way to make market returns.  Well, I guess it is “a” way to get market returns.  But we need to remember that being fully invested works not only when the broad market is going up, but also when it is going down.  That is, almost fully invested accounts share almost FULLY, or more if the portfolio is concentrated in a crashing sector (i.e. technology from 20002002), in market losses when corrections and crashes occur.  My question to those who advocate being all-in would be: where is the risk management in that approach?

As recently as five years ago we got to see a perfect example of why being “all-in” is exceptionally risky.  Take Buffett for example (sorry for name dropping again), he has historically carried very large cash stockpiles and invested only when there was an easy to understand and identify opportunity.  He doesn’t chase markets, he waits for opportunities. He trailed the S&P 500 for a few years in the 1990s incidentally.  Market and return chasing is in most great investor’s opinions the most common sin committed by the broader investment population.  Also know that Buffett and most highly successful investors do not own shares of 500 plus companies.  They own a much smaller number, often around 100 to 200 companies, and very many times even fewer, sometimes down to a just a handful of carefully selected investments.

Depending on the type of account you have with me, you rarely see me fully invested.  Also, my portfolios are more concentrated than many magazines and financial sales people say to be– though we are still diversified.  The last time I was almost fully invested in equities was 2003 and 2004.  I began rebalancing to less aggressive allocations and selling into strength in 2005.  This was the same time frame that Warren Buffett warned that America was “selling the farm” to live “high on the hog” and equated derivitives to weapons of mass destruction.  At that time he was expanding his cash and fixed holdings despite the stock market rebounding.  Some of our equity accounts (using various types of investment funds and a handful of stocks in appropriate accounts) have lagged by a few points per year due to a similar thought process for a couple years now. 

We haven’t trailed by a lot in the equity accounts, but a few points that it doesn’t feel good not to get.  My educated assessment is that we will make that money back as we work through a turbulent market as we have cash to invest into cheapening assets that many others do not.  I hope you understand how badly I want to get back ahead of the markets like we were from 2003 to 2005.  However, I don’t want to do it at the risk of overextending and trying to outguess a market that appears to have been acting irrationally positively the past couple years.  Also, very importantly, although we would like to see the stocks we buy go up within a year or two, we are usually betting on the come three to five years into the future.  All good things in time. 

In many accounts, you should notice that we have only been 6080% invested in equities for over two years now and still made almost the same returns as the S&P 500.  This is a very good risk to reward trade-off by all estimations.  I believe that those accounts should also do well in down markets as we have dry powder protecting us and waiting to be invested on corrections. 

Remember that one, two or even three years, unless horribly negative or exceptionally positive are almost worthless measures of performance.  Five (as a sort of half-time report) and ten years, if you are going to be in the stock markets, are the appropriate measuring sticks for performance.  Try to understand risk avoidance as your primary investment goal, not making a few extra percentage points in the short run.  We can swing for extra returns on some aggressive picks made out of gains on safer investments from time to time as we see opportunities. 

So in summary, our investment philosophy revolves around managing risk, having a moderately diversified and specifically weighted asset allocation, having a few home-run potential investment picks, only being fully invested after corrections and crashes, and having a longer term patient perspective.

Obviously, there are NO guarantees of doing well in any particular year, cycle or investment.  However, I am not being highly original in anything I am saying or doing, and believe the people I am largely plagiarizing are fairly astute with the billions they oversee.  I am striving to be forward looking and prudent in working with you on your investments using similar strategies as those people who have already done it.

Financial Planning

As a financial advisor I have the opportunity to talk with a lot of people about their finances.  The most pervasive real concern we all have, is: “what will my/our income be in retirement?”  In general, it will be about 5% of your invested assets plus any other income you have, such as Social Security, pensions and real estate income.  As many of my clients close-in on retirement age, or are already there, the 5% rule of thumb, which is based on the assumption that we don’t want to use our principle until very late in life, is a good one that you can use when you do your estimates.  Income planning for retirement is a very important part of my financial practice.  We will be talking about it at your reviews.

Another large concern is the cost of healthcare in retirement, both regular health insurance and potential long term care expenses.  For the most part, we must estimate 10% inflation in healthcare until it is proven otherwise lower.  We also need to very seriously consider long term care insurance as a hedge against a potential catastrophe.  In general, buying long term care insurance by age 59 is a great idea as you are likely to be healthier than at later ages (which allows for the company to underwrite and issue the insurance) and the coverage will come at a lower price. 

Happy New Year and all my best wishes on for 2008.  We’ll talk soon.

Cordially,

Kirk Spano

Share this page

Submit to DeliciousSubmit to DiggSubmit to FacebookSubmit to Google BookmarksSubmit to StumbleuponSubmit to TechnoratiSubmit to TwitterSubmit to LinkedIn

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.

Continue Reading

 

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.

Continue Reading 

 

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.”   

Continue Reading

 

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.  

Continue Reading