Back on Track–Upcoming Book is in Production

Dear Friends,

So, The Women’s Guide to Successful Investing is in production.  Release date is August, 19th but you can pre-order now at Amazon: The Women’s Guide to Successful Investing.

I am pleased with the accessibility and practicality of The Women’s Guide.  The Foreword penned by Jacki Zehner–Goldman Sachs’ first female partner and a generous philanthropist emphasizes the importance of women improving our financial knowledge.  Whether you choose to manage your own assets or hire someone to do so, knowledge and improved understanding of the markets will make you wiser and more inclined to grow your wealth to meet future financial goals.

Tengler Cover

My weekly column in The Arizona Republic–“Your Financial IQ”–for women is relaunching on April 2nd in an expanded format and visibility. I will be re-posting those articles here in addition to other pieces I write.

So stay tuned and please invite your friends to follow.


Why Investors Must Pay Attention to Investment Management Fees

In April I contributed a piece to Yahoo that discussed the eroding impact of fees on the performance of an investor’s portfolio.  I wrote:

Consider the Department of Labor’s analysis of 401(k) investment fees: An individual with a 401kbalance of $25,000 has 35 years remaining until retirement. That individual pays an investment management fee of 0.5 percent (a conservative assumption) and earns 7.0 percent per year (a reasonable assumption). At the end of the 35-year period and assuming no additional contributions (unlikely and, therefore, conservative), the balance will grow to $277,00.00. However, increase the fee to 1.5 percent (somewhat aggressive), and the account balance grows to only $163,000–or $114,000 less than the portfolio paying the lower fee. According to the DOL, that one percent higher fee compounded over 35-years reduces the ultimate account balance by 28 percent. Fees, it seems, make a difference.


I cite that passage here because the importance of fees paid by investors for investment management related activities cannot be underestimated or overlooked.  As a former professional investment manager I collected similar fees on the assets I managed for my clients.  Obviously, I am not condemning the payment of fees.  If you hire the right manager and they provide performance well in excess of the market they have earned their fee and you, as a client are much better off.   However, if the manager does not exceed the performance of the market by at least the annual fee charged (and according to NerdWallet only 24% of active investment managers have consistently done so over the last ten years) then the DOL’s analysis should alarm you.

Consider fees carefully.  Saving 1.5% per year is as good as earning 1.5% per year.



Time to Raise Your Investing IQ

The 2012-2013 Prudential research study  “Financial Experience & Behaviors Among Women” is out.  This new study explores the responses of 1400 women aged 25-68. Despite a broader pool of respondents compared to past studies, the overall insight gleaned remain constant:  Women, for the most part, are not confident in making financial decisions.

The study claims that “the majority of women (53%)  are primary breadwinners.  Among these primary breadwinners, approximately 30% consistently self-identify as lacking knowledge of financial products, including:  stocks, bonds and mutual funds.  Among all the women interviewed 70% characterize themselves as savers rather investors.  Further, 59% are “only interested in guaranteed FDIC-insured products”  and less than one-quarter of all women interviewed claimed to enjoy the “sport” of investing.

But, the glaring inconsistency for the the study respondents is revealed in the opening summary under the headline:  “Women’s financial priorities differ.”  According to the study women are very concerned with passing on money to heirs and not becoming a financial burden to their families. The study concludes, “this tendency to take care of others first can compromise their families’ futures.”

But it is not the tendency of women “to take care of others first” that will compromise their families’ futures but rather their lack of knowledge of how to invest for their futures.  This can only be accomplished by educating ourselves on the options available.  With money market rates hovering at less than 1.0% (currently averaging around 0.75%) investors cannot expect to save their way into prosperity.   Additionally, Bill Gross, the manager of the world’s largest bond fund declared (again) last week that “the three-decade-long bond price rally likely ended April 29th” according to The Wall Street Journal.  If that is true, then bond prices will decline (as interest rates rise) and those invested in anything other than short-term bond funds or money market accounts will experience a decline in the value of their investment.  That leaves stocks.

This column has stressed repeatedly that stock investments are necessary to produce long-term returns in excess of inflation.  In this way women will ensure they are not a financial burden and generate excess wealth to pass along to their family.  The May 13th edition of Barron’s again published Wharton finance professor and market historian Jeremy Siegel’s research measuring equity returns from 1871-2012.  The median annual equity returns for rolling five, ten, twenty and thirty year periods was 9.4%, 8.6%, 8.1% and 9.2% respectively.  And since 1871 it is also important to note that “all 20-and 30- year spans have been positive.”  Investing is not “sport.”  Investing is a disciplined and prudent preparation for future financial needs.

Why the Fed and Monetary Policy Matter–Made Simple

It is difficult to understand monetary policy on a good day.  Most of us don’t.  But we get a glimpse of insight when we, say, refinance our home and discover that thirty-year mortgage rates are below 4.0%. Suddenly we realize our monthly payment is going to be much cheaper than it used to be.  We might even be able to afford a bigger house with a bigger mortgage.  For most of us with finite budgets, it is all about the cash flow.

Not so for the federal government or the Federal Reserve Bank (Fed). They create cash flow.

You may have read that the Fed is buying approximately $80B in Treasuries and mortgage-backed securities each month.  This is referred to as QE (quantitative easing) 1,2,3 etc.  QE has been aggressively implemented by the Fed since 2008 and these purchases have grown the Fed’s balance sheet from $1 trillion in 08 to close to $3 trillion today.  But here is the important part for investors and taxpayers.

The federal government (think Washington D.C.) is borrowing money from individuals, foreign governments and corporations when it issues Treasury bills, bonds and notes.  If you own a treasury bond or treasury bond fund you are lending your money to the federal government.  But lately the appetite for U.S. treasuries–particularly among foreign governments has declined.  Here is where the Fed comes in.

Since each of the twelve Reserve Banks (that comprise the Fed) is authorized by the Federal Reserve Act to issue currency, when the U.S. government issues an excess of treasuries (borrowing), the Fed is able to print money to buy up the excess treasuries the public doesn’t purchase.  To the tune of almost $1trillion per year since 2008.  Currently the Fed is buying about 57% of the treasuries issued because the demand for U.S. government debt has declined just as our government’s spending has ramped up.

In the real world the transaction might look something like this:  You want to buy a new car.  But you can’t afford the car and you don’t have the money.  So, you decide to lend yourself money with money you don’t have to make the purchase.  You write yourself a check from an account with insufficient funds (in other words you print your own money–kind of), deposit the check in another account, run down to the car dealership and  pay for the car out of the account with the kited funds.You go to jail.

But for the government it is completely legal.

So why do we care about this?  Two reasons.  The first is that while I am a long-term bull on the U.S. equity market, in the short-term, much of the appreciation in stocks which began in 2009  has been fueled by QE. By keeping interest rates so low the Fed is encouraging investors to turn to the stock market for higher returns.   The second reason is that flooding the economy with currency to fund unchecked government spending (recall that the Senate hadn’t passed a budget for the previous four years until a few weeks ago) can lead to inflation and very slow growth in the real economy.

So don’t get caught up in the short-term, day-trading hype propagated by the financial media.  Stay the course.  Buy great companies for the long-term. Over a reasonable period of time the stock market averages approximately 9% per year even when all the bear markets are included.  But, buy quality.  Oh, and use real money to fund your purchase.

Buy and Forget Says the Oracle

Warren Buffet appeared this morning on CNBC’s pre-market show, “Squawk Box” and presented a generally upbeat view of the U.S. stock market.   In response to a question from Becky Quick about individual investors and how they might get a “fair shake” on Wall Street he replied:

“Well, they pay a lot of expenses in many cases. They don’t need to. They should buy a low-cost index fund and they can participate in the growth of America over the next 20 or 30 or 40 years and they’ll do fine. But if they’re paying high fees to achieve that same result, they’re going to get hurt. They should look very carefully at costs. But they should hold a diversified group of really high-class companies, which you can do by buying an index fund. And then they should forget it. They should just pretend the stock market closes for five years and they shouldn’t look at prices every day…” 

Excellent advice.

After Buffet’s interview, Jim Cramer–co-anchor of “Squawk on the Street” and host of “Mad Money” gushed over how amazing it was that Buffet could be so positive about stocks in the face of the futures predicting a negative opening of the Dow by 58 points this morning. (The Dow by-the-way closed up 38 points today, a rally of almost 100 points from the pre-market futures.)

Buffet is right about long-term investing, of course.  And Jim Cramer revealed just how short-term and easily influenced he is by the daily (or intra-day for that matter) price fluctuations of the stock market.   The short run shouldn’t and doesn’t matter to long-term investors; and those of us investing for our own accounts have no business being anything other than  long-term investors.

I am always interested in buying great companies at discounted prices.  That is the essence of value investing.  Yet, at turning points Wall Street analysts and commentators are consumed by the bad news.  And they almost always caution against buying.  Wait, they advise, until things get better–earnings visibility it’s called.  But, if we wait for things to visibly get better then every investor can see what we see and it’s too late for a bargain. Value investors generate a significant portion of  total return by being willing to buy great companies when they stumble.  So, we buy a little in the face of uncertainty.  If the stock goes down, we make sure the problem isn’t terminal and we buy a little more.  If we are lucky and it goes up–we congratulate ourselves.  We don’t chase it.  Price matters as Mr. Buffet said.  We should view our purchase for what it is:  an investment.  And, investments are attractive only at certain prices–not at any price–and they usually require time to appreciate.

I like the Oracle of Omaha’s advice:  we should buy and then let our investments appreciate–“just pretend the stock market closes for five years” and stop focusing on the daily price movement.