• 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 regularly 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. 

If it is time for you to better know that your lifestyle and legacy are secure, please contact me soon.

MarketWatch  Fox Business  WisBusiness.com  Seeking Alpha

Buying the Unloved

April 2011

Buying the Unloved

Being a long term investor requires not only a great deal of patience, but the emotional control to buy investments that offer long term growth potential when prices are depressed.  Most investors are incapable of buying an investment when the price is low because that often means that their investment portfolio may not grow in line with what markets might be doing short term.  Emotionally, most investors can not reconcile the long term value of their investments with the short term prices.

Today is such a time for many investors.  Due to massive government intervention many stock markets have moved up the past year.  The United States S&P 500 is up 10.2% (through March 4, 2011) since the opening of 2010.  Many people’s accounts are not up inline with that performance.  Because of this, people become emotional and worry more about missing a few percentage points of gains, than the level of risk that they should be taking or what the long term outlook is for their holdings.  This is a dangerous time for many investors because they are prone to making bad decisions. 

The Past

In the spring of 2007 I mentioned to a room full of investors that the financial markets were on perilous ground.  Specifically I said, “Wall Street is not on your side.”  Looking back, I can see that the people who were there that night came to understand what I meant as events unfolded in 2008 and 2009.  Because I took a cautious approach then our losses in 2008 were far less than the broader market losses.

In early 2009 I began to move back into more invested positions in the stock markets and as a result caught the large early part of the current cyclical bull market.  However, by the end of 2009 I was largely in a market neutral position again, simply waiting to see how things would unfold.  I took multi-billionaire and Berkshire Hathaway partner Charlie Munger’s approach: 

We just throw some decisions into the ‘too hard’ file and go onto others.”

As a result, we missed some of the upside in 2010.  

Why did I take that approach.  Simply put, we are still in the midst of a long term downward trend in equity markets and appear to be near the end of the bull market in bonds.  Government intervention, in my mind, is clearly responsible for stabilizing economies and driving markets up short term.  At some point, governments have to spend less and print less money.  When that happens, equity markets will be in trouble again.  

The Present

As I have said recently at investor meetings and in letters, although I think the world is slowly improving economically, there are huge headwinds blowing, in particular massive demographic issues.  In the United States we have to pay for the baby boomer retirement.  In China, the labor force is aging causing wage inflation.  In Europe entitlements are overwhelming entire nations.  In Japan the population is aging disrupting the labor market. 

The great hope to offset the demographic issues in some of the very large economies is for emerging markets to grow.  By virtue of their still small relative sizes, that hope is slow to occur.  Make no mistake, emerging markets will largely drive the world economy for decades, as we have discussed ad nausea, however, they will not carry the world economy anytime soon.

Today, there are few opportunities that offer the upside potential with mitigated risk that middle class investors need.  Save for a few interesting spots.

Buying the Unloved

That brings us to our title.  What out there is priced in a way to offer strong returns over the next few years without taking on outsize risk?  

In general I would say Chinese equities among equity classes.  Over the past two years Chinese equities have largely lagged.  Prices on many Chinese companies are ripe with potential.  Growth in China will continue at a high rate for a very long time.  The risk we have to be aware of are accounting problems and outright fraud with some of these companies.  Investing in China requires precautions.  For example, we only invest in companies that use a Big 4 auditor and have a significant institutional investor already on board.  We also use a pair of managers with extensive on the ground knowledge of China.  Recently we have taken more Chinese positions and I foresee taking more over the next year or so.

Natural resource investing gets a lot of attention because of the run those companies have been on recently and the uptrend in the prices of food, gold and oil.  Many of the companies that benefit from rising commodity prices have already risen by double the past year.  Most are fairly valued or over valued.  We have taken a position in an exchange traded fund that invests directly in commodities, rather than in stocks, and is formulated in a way that compensates for difficulties with investing in futures markets.

We see some value and a margin of safety right now in some natural gas holdings, junior miners and drillers, and alternative energy.  We have a holding in two companies that are leveraged to growth in the solar markets.  I expect I will take a broader position in alternative energy using an exchange traded fund on any broad price pull back or on significant momentum upward.

There is also bio-tech.  Bio-tech offers some of the biggest potential opportunities today, not only because the break-throughs are exciting for the impact to our lives, but because many bio-tech break-throughs lead to a decrease in the cost of health care– something the government desperately wants to see.  Many bio-techs have trailed the markets for years despite scientific advances and products moving towards market. That trend can not continue indefinitely. Our largest stock holding is in a bio-tech company located in Madison and I expect to take more bio-tech positions over time.

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.

 

Monthly Investor Call

The first Friday of each month at 4pm Central. Open to the public.

My next call is on: October 3rd, 2014

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

Submit questions by email. Podcasts available.

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

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.

With the uptick in volatility, I have not responded by fearfully selling assets. We actually were doing some selling between May and September when volatility was lower and most investors were complacent. Instead of being a seller the past two weeks, I have indeed been a buyer.

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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 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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