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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.

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

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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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