Smarter Investing http://investing.covestor.com The latest investment news from Covestor Fri, 22 Aug 2014 04:16:34 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.1 Fri, 22 Aug 2014 04:16:34 +0000 Why it’s time for Cisco’s John Chambers to move on http://investing.covestor.com/2014/08/time-ciscos-john-chambers-move http://investing.covestor.com/2014/08/time-ciscos-john-chambers-move#comments Fri, 22 Aug 2014 04:16:34 +0000 CSCO INTC MSFT http://investing.covestor.com/?p=39910 ]]> By David Levine

Having owned Cisco (CSCO) for many years, I am just as frustrated as many shareholders. The former internet darling of the tech bubble has lagged the market as well as its large cap tech peers. Additionally, Cisco seems to be challenged for growth.

So why should any sane investor buy Cisco at this point? The answer is simple: looking around at other large cap stocks within the sector, there is a clear way that Cisco’s stock price will rise in the next 12-18 months in my opinion.

For the longest time it has never been about valuation. Cisco pays a dividend over 3%, and has a forward P/E under 12. The problem is that nobody knows where the growth is going to come from. Additionally, shareholders (myself included) have become increasingly frustrated with CEO John Chambers.

Although Chambers has accomplished amazing things at Cisco, many people feel that his departure is long overdue, and that he, like Steve Ballmer, should find a decent basketball team to buy and leave Cisco’s operations to someone else.

In this way, the problem becomes the solution. Have you noticed how Intel (INTC) stock reacted when they replaced their CEO? Or how Microsoft (MSFT) stock reacted when they replaced theirs?

In terms of fundamentals, these gigantic companies have not changed much but their stocks have risen dramatically. I personally do not expect much to change at Microsoft, which is why I sold after their recent rise.

Cisco is in a similar situation and in the long run I’m not very excited. However, even the mere mention of Chambers’ retirement could send the shares up 10%, toward my ultimate target of $32-34. My best guess, and it is only a guess, is that an activist investor (or Chambers himself) will cause this to happen within the next 12-18 months. That is why I am patiently waiting, collecting my 3% dividend in the meantime.

To learn more about investing with the portfolio managers on Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Investments in securities of small-cap and growth companies may be especially volatile.Past performance is no guarantee of future results.

 

David Levine

David Levine

I am a value-oriented investor and a former financial adviser for Prudential Securities. I left the industry in 2000 and

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6 things to know about the iPhone 6 launch (and Apple stock) http://investing.covestor.com/2014/08/six-things-know-apple-iphone-6-launch http://investing.covestor.com/2014/08/six-things-know-apple-iphone-6-launch#comments Thu, 21 Aug 2014 15:35:46 +0000 http://investing.covestor.com/?p=39881 ]]> By Barry Randall

Apple (AAPL) shares are hitting a new all-time high as gadget groupies and investors alike eagerly anticipate the the iPhone 6.

The company is expected to officially unveil its latest handset on September 9. It will be available for sale on September 19.

 

iphone 6 apple launch

 

Since the iPhone product line is responsible for 55% of Apple’s revenue and 70% of its profit, the importance of the iPhone 6 can’t be overestimated.

Here are six things you should know about Apple and the iPhone 6:

 

1 ) The iPhone 6 screen will be bigger… but will it be big enough?

The iPhone 6 will reportedly have a 4.7” (diagonal) screen. This is a jump up from the 4” screen of the iPhone 5. But it is still smaller than the 5.1” screen of the iPhone 5’s primary competitor, the Samsung Galaxy S5. Apple is also reportedly working on a 5.5” iPhone 6, but recent reports have suggested that its release may be delayed until 2015 because of production issues.

 

2) It will have a sapphire-based screen.

The iPhone 6 is expected to have a synthetic sapphire-based screen. The good news is, sapphire is excellent at crack and scratch resistance. It also enables screens that have thinner bezels, making the useful area of the screen larger for a given size. The bad news is, sapphire is denser than the Gorilla Glass currently used on iPhones, making the device heavier.

 

3) The iPhone 6 will likely run Apple’s newest operating system, iOS 8.

New operating systems always bring new features and functionality. In this case, Apple’s forthcoming iWatch product is also expected to run iOS 8 (or a pared-down version) and this is expected to enable tight integration of the iWatch’s expected biometric features with a companion iPhone 6 handset.

 

4) Apple stock has been volatile near iPhone releases.

Apple’s last four iPhone introductions have occurred on June 7, 2010 (iPhone 4), October 4, 2011 (iPhone 4s), September 12, 2012 (iPhone 5) and September 10, 2013 (5s and 5c).  Except for the original iPhone 5 release, Apple’s share price declined a modest amount after the official iPhone release, then began rising again.

For the iPhone 5, the release came shortly before the first of several quarters of sharply decelerating revenue growth for the company as a whole. Apple stock declined sharply from a (split-adjusted) high of $100 in September 2012 to around $55 in April 2013. Only within the last week has Apple reclaimed its all-time high.

 

5) Apple continues to lose market share, but the market is still growing.

Worldwide, Apple’s smartphone market share continues to fall and was only 11.7% in the second quarter of 2014, down from 13.0% in the year-earlier period.  Apple’s market share in the U.S. was about 42% in Q2, thanks to a) the U.S. residents having higher per-capita incomes, and b) U.S. mobile service providers offering generous subsidies that materially lower the cash cost of a handset at purchase.

That said, worldwide smartphone handset growth was about 25% in the second quarter, meaning that even though Apple is losing share, it is still capturing a slightly growing share of smartphone revenue. And this in turn supports the rest of their very profitable ecosystem, including iTunes and cloud services.

 

6) “Apple vs. Samsung” is the wrong way to look at Apple’s prospects.

Given the importance of the iPhone to Apple, many have interpreted rival Samsung’s own sharp market share declines as positive for the American technology giant. But that is short-sighted. Both companies are suddenly competing against inexpensive, shockingly capable Android-based smartphones from lesser players like Huawei, Lenovo, Xiaomi and Micromax. While these brand names may be unfamiliar to Americans, they are growing sales at rates much faster than either Samsung or Apple.

 

 

As I wrote nearly a year ago, handset manufacturers face the prospect that more and more functionality is moving off of the device and on to the network, whether it’s through social networks like Facebook (FB) and LinkedIn (LNKD), simple messaging apps like WhatsApp or payment apps like Intuit’s (INTU) GoPayment.

Apple certainly has an enviable ecosystem within which users enjoy a lot of utility.

But you have to ask yourself: Is Apple is a better bet now with 11% smartphone market share and the stock at $100, than it was in mid-2010, with 20% market share, and the stock at $35?









DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Barry Randall

Barry Randall

Crabtree Asset Management invests in growing technology companies. Barry Randall is the firm’s founder and Chief Investment Officer. He has

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Investing like an 11-year-old http://investing.covestor.com/2014/08/investing-like-11-year-old http://investing.covestor.com/2014/08/investing-like-11-year-old#comments Thu, 21 Aug 2014 05:01:52 +0000 CRUS MLO RUT SPX SYY TEF XLK http://investing.covestor.com/?p=39874 ]]> By Barry Randall

young-investing

I recently helped my 11-year-old daughter buy her first shares of stock. She knows that my job involves the stock market. So over the years she has become a casual student of the game.

She has heard me whoop and holler on a morning when I’ve awakened to find one of my holdings has been bought in an M&A transaction. And she knows a little more profanity than I wish she did – the result of an occasional earnings “blow-up.”

But it was sure pleasing to hear her ask one day if she could take some of her allowance money and move it from her savings account “to the stock market.” Her innocent view of the stock market made me ponder how much I’ve internalized how things work, where “money goes,” what shares “look like,” and so on.

So after I agreed help her, we sat down to select some stocks. Surprisingly, she already had a plan. It seemed she’d heard enough ‘stock talk’ on the TV to tell me with some certainty that she “wanted a growth stock and a value stock.” Cool! So we sat on the couch, fired up her iPad Mini and proceeded to Yahoo Finance.

“When they say ‘growth,’ what is it that’s growing?”

I explained that it usually meant sales or earnings growth. And off we went, deconstructing a whole lot of concepts and words with which I’d perhaps grown too familiar.  Sectors. Diversification. Cycles. Cash Flow. Trying to simplify their meanings, but not dumb those meanings down.

Over the course of a week, we talked most evenings about stocks and markets and commissions and she gamely hung with it. We looked up companies, looked at their growth rates and whether they paid dividends (and whether they generated enough cash to do so). And even though we didn’t have a check-list, we naturally seemed to arrive at framework of investing:

-       Do some research. To me, research isn’t necessarily about learning everything about a company – there isn’t enough time in the day to do that for the thousands of public companies. My advice to my daughter was to check a few key things about each stock you looked at. Is it generating cash flow? Is it burdened by too much debt? Is it in an industry worth being in?

-       Have some growth and income. The conventional wisdom for a young person is to ignore income and go for growth because your time frame is long enough to ride through the volatility. But I think (and told my daughter) that the virtue of having some income-producing stocks at all times gives you a steady supply of cash, so that if the market declines a little or a lot, you can buy more of what you own, or find something new and good that’s temporarily ‘on sale.’

-       Diversify across industries. This was actually easy for my daughter to understand as it is for most people who’ve ever heard about what not to do with eggs and baskets.

-       Diversify across geographies. For this, I tried to explain the concept of currencies and foreign exchange. I don’t think I did a very good job! It was the only time I had to say, “trust me.”

-       Be patient. I told my daughter that I wanted her to choose stocks that she would hold for a full year. Cramer is wrong, I explained: you don’t have to “buy buy buy” or “sell sell sell” something every day. So this would be her version of a “Lazy Portfolio.”

-       Watch your costs. I had to explain what commissions were and how they worked. And since she had only $180 to spend, I decided to “comp” her initial commissions. Even though I went into this thinking of it as a learning experience, that didn’t mean she had to take a 13% loss just to get started. But the upside was it made clear to her how simple transaction costs can eat up your returns before you even start.

To see the stock market again through my daughter’s eyes was illuminating and humbling. So what did she buy? Not much, given her investible cash. But she did manage to acquire two or three shares each of three companies:

  • Cirrus Logic (CRUS); for growth and because Apple is the biggest customer of this semiconductor maker;
  • Telefonica (TEF); for value and the dividend and for the international exposure;
  • Sysco (SYY); for growth – it’s in the middle of buying a major competitor – and for a modest 3% yield.

How’s it going? She’s up about 1% so far since making her purchases in June. Best of all, she seems content to only check the stock prices about once a week. If only I could exhibit that kind of discipline!

July continued this year’s pattern of choppy performance for the Crabtree Technology portfolio. The portfolio fell 3.7% in the month, relatively better than the 6.1% drop for our Russell 2000 (RUT) benchmark but worse than the 1.5% decline in the S&P 500 (SPX). Our internal benchmark, the Merrill Lynch Technology 100 (MLO), also fell 1.5% in July.

The most widely held technology ETF, the  Technology Select SPDR (XLK), rose 1.7% during the month.

To learn more about investing with the portfolio managers on Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with afree trial account.

DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Investments in securities of small-cap and growth companies may be especially volatile.Past performance is no guarantee of future results.

Barry Randall

Barry Randall

Crabtree Asset Management invests in growing technology companies. Barry Randall is the firm’s founder and Chief Investment Officer. He has

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The distractions that are messing with your investing http://investing.covestor.com/2014/08/distractions-messing-investing http://investing.covestor.com/2014/08/distractions-messing-investing#comments Wed, 20 Aug 2014 15:29:11 +0000 http://investing.covestor.com/?p=39863 ]]> By John Spence

long-term-investing

For long-term investors, one of the most notoriously difficult tasks is keeping your eyes on the prize.

That means sticking to the long-range plan and staying disciplined. It also means not getting sidetracked by negative headlines or the worry du jour that investors are fretting over this particular week, such as geopolitical tensions, interest rates and inflation. On the contrary, the market loves to climb a wall of worry, as they say.

To that end, we recently sat down with Alex MacAndrew, CFA, and Investment Director at Covestor, to talk about how investors can avoid the short-term distractions that can lead to bad, emotion-driven decisions. He also discusses his role at Covestor and some recent initiatives to help investors reach their financial goals.

Below is an edited transcript of the interview with MacAndrew:

Q: Let’s talk about the market. How should investors approach the recent geopolitical tensions in Ukraine and elsewhere around the world?

A: The first thing investors should remember when they’re seeing those scary headlines and images is to not make decisions based on their emotions. The nature of being a long-term investor is that you have to be prepared for events that will negatively impact the market.

That’s why when you’re assembling an overall portfolio, you really want to determine what’s called your risk tolerance. You want to figure out what kind of loss you’re willing to endure. Of course, it’s notoriously difficult to accurately determine your risk tolerance. It’s tough for people to predict how they’ll react to say a 20% loss without actually experiencing it, and the pain and anxiety that go along with it.

So if an investor goes into shell-shock or starts seriously panicking when markets fall, that suggests he or she shouldn’t have as much of their portfolios in stocks. They would need to lower the overall risk of their portfolios.

Another thing to remember about geopolitical shocks is that they can offer opportunities to long-term investors. Aggressive investors can use a market pullback as an attractive entry point.

Q: Let’s talk about interest rates. In the U.S., the Federal Reserve is “tapering” its bond purchases that are designed to keep rates lower. We’ve been hearing about rising interest rates for years, but it just hasn’t happened yet. That said, how should investors position for higher rates?

A: First, let’s go over the basics of bonds and some definitions.

Bonds have a duration. This the length of time until they mature. And bond investors receive periodic interest payments until maturity.

When you’re trying to figure out how sensitive a bond is to rising interest rates, you want to look at the duration. Generally speaking, the longer the duration, the more sensitive bonds are to rising rates.

So if an investor is worried about rising interest rates, they may want to shorten the duration of their overall bond portfolios.

Rising interest rates can impact stocks as well. For example, stocks with higher dividends such as utilities can be hurt by rising interest rates.

My own feeling is that while the Fed is slowly ending its bond purchases known as quantitative easing, it will be quite careful when it eventually begins raising interest rates. The Fed will probably start very slowly. I don’t think the Fed will crank up interest rates and potentially squash the still-fragile economic recovery. I think they will be very sensitive to that.

Q: Let’s move on to inflation. Like rising interest rates, you hear a lot about inflation. But we haven’t seen much of either. If you look at overall consumer prices in the U.S., there hasn’t been much inflation, although obviously we have higher prices for healthcare, college tuition and some food items. What can investors look at if they’re worried about higher inflation?

A: Yes, overall there hasn’t been much inflation and inflation concerns have been overblown.

But if investors are concerned about inflation, it makes sense to start thinking about where that inflation is going to come from.

If energy prices rise, it could make sense to get exposure to that equity sector. In general, you want to own industries that can pass along higher prices to the consumer.

Some investors buy gold for inflation protection. I think investors need to be careful with that assumption. If you look at the past 10 years, gold hasn’t always moved with inflation. Gold seems more correlated with fear than inflation. When investors are fearful, they can buy gold regardless of what inflation is doing.

If investors are worried about inflation in commodity prices, they could buy a diversified basket of commodities. There are exchange-traded products that do this such as iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP). In fact, we use it in the Covestor Core portfolios that we launched earlier this year.

Q: Can you tell me a little about how Covestor works, and your role as Investment Director?

A: Covestor is an investment marketplace. We have nearly 150 portfolios on the platform that investors can choose from. Almost all of them are actively managed by portfolio managers. It’s similar to investing in managed accounts. Investors select managers and portfolios that suit their goals, and the trades are replicated in their own brokerage accounts.

We also have more passively managed, “Core” portfolios of ETFs, and some of them have no management fees.

On the active side, there are long-only stock portfolios as well as more complex strategies such as long-short, and other hedge-fund-like strategies.

The portfolio managers are external; they are not employees of Covestor. We connect with the managers’ brokerage account, and when they trade we then replicate the trade in investors’ accounts. Covestor sits in the middle, and we have technology to replicate manager trades in client accounts.

We have a marketplace that helps investors filter down to find portfolios that meet their goals. Everything is curated by Covestor, and I’m on the Investment Management team that evaluates portfolio managers before they join the platform.

Q: You mentioned the Covestor Core portfolios of ETFs that don’t charge any management fees. What was the rationale for launching those?

A: The Core Portfolios are designed and maintained by the Investment Management team, and we launched them primarily because of demand from clients.  We believe passive portfolios have a place for investors. Some of our clients want passive ETF portfolios. We offer both passive and active. Passive portfolios can be produced for very low cost, and we do it without charging any management fees. But we also have active strategies, and many clients want a bit of both, much like how they approach investing in mutual funds.

Q: Is Covestor a “robo-adviser?”

A: No, Covestor is not what some people are calling automated advisers or robo-advisers.

The service we offer is much different. We have a wide variety of strategies and portfolios on the platform, including active and passive. Some online investment advisers only have one basic product.

Like some other online investment advisers, we have passively managed portfolios. But what sets us apart are the more than 100 actively managed portfolios on Covestor’s platform.

DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Covestor Core

Covestor Core

Covestor Core Portfolios are comprised of low-fee ETFs, and target various investor types and risk profiles. Investors typically use core

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Stop paying management fees: Keep more from your investments http://investing.covestor.com/2014/08/stop-paying-fees-keep-more-from-investments http://investing.covestor.com/2014/08/stop-paying-fees-keep-more-from-investments#comments Tue, 19 Aug 2014 14:20:49 +0000 http://investing.covestor.com/?p=39840 ]]> By Covestor

management-fees-invest

Cutting fees to the bare minimum is one of the most important things an investor can do. Though some may jump to such a conclusion, this doesn’t mean active management does not also deserve a place in your portfolio. (But don’t just take our word for it.)

One of the most insightful journalists covering the investment world, Brendan Conway, is leaving Barron’s to take a position in asset management. His candid and perceptive thoughts on the market, investing, and personal finance will certainly be missed.

In his farewell column (link may require subscription), he shares a great list of lessons for investors, based on his time covering the business.

In this blog post, we’ll focus on two of his nuggets of wisdom, and continue to expand his insight:

 

Lesson #1: The less you pay in fees, the more you get to keep

 

“Management fees are one of the few things you can control, so control them,” Conway writes.

For example, the chart below from the SEC’s Office of Investor Education and Advocacy shows how paying a 1% annual management fee can impact an initial $100,000 portfolio. Over 20 years and factoring in a 4% annual return, the investor loses out on $40,000 assuming he or she invested the money subtracted for fees.

investing-fees
Conway has often focused on costs as he has covered ETFs, which are known for their low fees and indexed approach.

So, he took notice when Covestor launched passively managed Core Portfolios of ETFs earlier this summer that don’t charge any management fees. They are designed to let investors track the market while paying as little as possible, as to benefit the investor as much as possible. Using technology already in place for Covestor’s active investing strategies, the company leveraged the lower overhead costs of streamlined trade replication (along with the know-how of the intelligent humans on the Investment Management Team) to produce such an investment product without the need to charge a management fee.

“Covestor’s program entails no management fee, just the underlying ETF expense ratios, which are measured in fractions of a percentage point, and trading commissions, which the firm estimates to be $20 a year,” Conway wrote in June. Investing disruption, achieved.

 

Lesson #2: Active and passive investing work together

 

Going back to Conway’s farewell column, he noted there’s no “holy writ” for passive investing when investors simply track the market.

“What will your passive ETF do in the next bubble? It’ll buy the bubble; that’s what passive ETFs do,” he said. “Index-based investing is great most of the time. But active managers, for all of their challenges, can choose what to buy and when.”

Indeed, the reality is that active and passive investment strategies can work most effectively together.

Passive, index-tracking investments such as ETFs can be used to achieve broadly diversified exposure to entire asset classes at very low cost. These are sometimes called “core” investments. Then, active investment strategies – “satellites” – that attempt to outperform the market with security selection and other techniques can be added to the mix.

Combining passive and active strategies is known as a Core-Satellite approach, which can lower overall portfolio volatility and give investors a better chance to potentially outperform the market. In the Core, investors mirror the market while keeping fees to a bare minimum. The Satellite component taps active strategies to generate potential outperformance. This way, investors are combining the best of both worlds.

The mix of core and satellite within one’s portfolio would be usually dependent on stage of life, investing approach, or any number of personal factors. Regardless, it gives investors a way to create a singular, aligned investing strategy which works harmoniously. Newer investing platforms offer investors a way to create this entire strategy within one account, such as what the new Core Portfolios created within the Covestor platform.

 

 

Brendan’s insights at Barron’s will indeed be missed, but we wish him the best in his new endeavor.

 









Covestor Core

Covestor Core

Covestor Core Portfolios are comprised of low-fee ETFs, and target various investor types and risk profiles. Investors typically use core

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Noble and Atwood Oceanics are worth a serious look http://investing.covestor.com/2014/08/noble-atwood-oceanics-worth-serious-look http://investing.covestor.com/2014/08/noble-atwood-oceanics-worth-serious-look#comments Mon, 18 Aug 2014 05:23:55 +0000 http://investing.covestor.com/?p=39832 ]]> By Aaron Pring

In my last commentary, I noted that the market seems to be nearing valuations that in my opinion are excessive. While it is hard to complain about rising stock prices, it also makes finding value buys considerably more difficult.

One area where there seems to be some reasonable prices in the market is within the oil and gas drilling industry. While the overall energy sector doesn’t appear attractive based on current valuations, the oil and drilling stocks have lagged the broader market since 2011 and continue to do so this year.

Within this industry, the two stocks that fit my purchasing profile best are Noble Corp (NE) and Atwood Oceanics (ATW). True, both happen to be trading near 52 week lows as of mid-August, which alone isn’t an indication of a good buy. However, the fundamentals suggest these low prices may provide a strong buying opportunity in my opinion.

Both companies have solid balance sheets and are trading well below their historical average valuations. There is certainly the potential that earnings will be put under pressure in the future (which seems to be the general consensus of the market), but these low prices seem to already reflect the worst case scenario.

If the earnings and book values of Noble and Atwood Oceanics are maintained or continue to grow as they have in the past, this will prove to be a great buying opportunity in my view. Relative to historical averages, both of these stocks appear to be 30-40% undervalued in my opinion.

To learn more about investing with the portfolio managers on Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with afree trial account.

DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Aaron Pring

Aaron Pring

I am Vice President of a 25+ year old family-owned commercial construction company. I began investing in high school, then

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Rick’s Cabaret CEO won’t bare all on REIT plans http://investing.covestor.com/2014/08/ricks-cabaret-ceo-wont-bare-reit-plans http://investing.covestor.com/2014/08/ricks-cabaret-ceo-wont-bare-reit-plans#comments Fri, 15 Aug 2014 10:09:53 +0000 RICK http://investing.covestor.com/?p=39826 ]]> By David Levine

RCI Holdings, formerly Rick’s Cabaret, (RICK) is one of my top holdings in the Aspect Large Cap Value Fund. The company is the leading publicly traded “adult entertainment” stock and has more than 40 clubs nationally.

The chain’s recent quarterly report was interesting. In my opinion, management may be preparing the company for either a major restructuring or perhaps taking the company private. You’re either growing or you’re shrinking, as they say. And based on CEO Eric Langan’s comments, I can’t help but think that RICK is looking at all of its options.

For the past several years, if you overlooked the fact that RICK is in a controversial “sin” type of business, the stock has become dirt cheap. Even with the new guidance of 15% to 20% growth, RICK is trading at something like 10x earnings.

In order to unlock value in the shares, management has been exploring the creation of a REIT which will unlock the value of the real estate that RICK owns, potentially benefiting shareholders to the tune of $30 million to $40 million.

For a company with essentially 10 million shares outstanding, that could be significant, perhaps $3 to $4 per share. Eric Langan also recently stated that he would be a buyer of shares up to $15, a pretty bold statement considering that the shares are currently trading around $11.60.

Here’s the thing: The company has been talking about this for almost a year now, and there were many people who thought that we would be getting a lot more detail on the REIT by now. On the recent conference call, Langan seemed to push the REIT off at least another six months while also stating that there are no additional acquisitions in the pipeline right now.

He also stated that they would be buying back stock and paying down debt opportunistically. To me, this seems like someone who is not willing to take a lot of short term execution risk, but for those of you familiar with Eric Langan, it seems out of character.

While there are those who believe that RICK management is incompetent, I would remind them that Eric Langan started RICK with capital he raised by selling his baseball card collection. If anyone else has a baseball card collection that was worth enough to start a strip club, please stand up.

In addition, if anyone else can parlay a baseball card collection into a $100 million company, I would like to give them my money to invest as well. So it is my belief that Eric Langan is essentially stalling because there may be something else going on.

I have no way of knowing for sure, but I believe that management may be debating taking all or part of the company private, which could explain the delay in the REIT.  Perhaps the buyer wants the whole thing – or only part of it.

In the event of a buyout, I believe that the combined value of all of the parts is $18-22 per share, and I think that we will know a lot more by the end of the year. Eric Langan is sitting still for a reason. I don’t know exactly why, but I believe that shareholders will benefit.

To learn more about investing with the portfolio managers on Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

DISCLAIMER: The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Investments in securities of small-cap and growth companies may be especially volatile.Past performance is no guarantee of future results.

David Levine

David Levine

I am a value-oriented investor and a former financial adviser for Prudential Securities. I left the industry in 2000 and

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Nearly half of mutual fund managers have no skin in the game http://investing.covestor.com/2014/08/nearly-half-fund-managers-skin-game http://investing.covestor.com/2014/08/nearly-half-fund-managers-skin-game#comments Thu, 14 Aug 2014 15:33:53 +0000 http://investing.covestor.com/?p=39814 ]]> By Covestor

mutual-fund-investing

What are the chances that your mutual-fund manager is investing alongside you?

Well, flip a coin.

According to investment research firm Morningstar, 49% of mutual funds don’t have a dime from the managers running them.

“[W]e’re more interested in what fund managers do than what they say,” Morningstar said. “We recently analyzed which fund managers have invested their own money in their own funds. Which ones were confident enough in their investment decisions to put their own money on the line?”

When evaluating mutual funds, Morningstar looks at performance, costs, investment approach and other factors.

“But we also look at less-traditional, more-subjective measures such as how much a fund manager invests in his own fund,” Morningstar said. “After all, like a chef who won’t eat his own cooking, a fund manager who personally invests (or doesn’t) in the fund he manages tells us something important about confidence and commitment.”

At Covestor’s investment marketplace, portfolio managers do eat their own cooking. Managers on the Covestor platform have their own money in the portfolios they run, and their trades are replicated in client accounts.

We think this setup helps align the interests of managers and investors, because managers have their own skin in the game.

To learn more about how Covestor works, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

Photo credit: Nicu Buculei via Flickr Creative Commons

DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.

Jim Bowerman

Jim Bowerman

I am an industrial engineer by profession and work in the aerospace industry. I have been actively investing in the

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Focusing on income and managing risk http://investing.covestor.com/2014/08/focusing-income-managing-risk http://investing.covestor.com/2014/08/focusing-income-managing-risk#comments Wed, 13 Aug 2014 15:05:04 +0000 http://investing.covestor.com/?p=39806 ]]> By Dan Plettner

Bad stock market? Not really.

U.S. stocks have been a bit turbulent the past couple weeks on geopolitical concerns. Yet it is those who followed the “Sell in May and go away” adage who have been frustrated to watch from the sidelines all summer.

I don’t know which way the broad market will go. So, I am going to stick with my competency and focus on looking for risk-adjusted returns.

That’s why I decided to add a couple Nuveen Closed-End Muni Funds to the Long/Short Opportunistic portfolio.

While I do believe in being fearful when others are greedy, asset allocation is not the primary rationale here. This is a more ambitious trade than it appears. Four of these Nuveen funds (NZF, NVG, NMA, NQU) had already approved tender offers which have since been scheduled.

The tenders are defined at narrower discounts, or higher relative valuations, than the market. When pursuing such trades, I naturally focus my allocation on the specific fund(s) where I expect the greatest value to be created. Each different participation rate will prove relevant to any value created by the trade.

On the subject of tender offers, the Taxable Income portfolio’s allocation of Delaware Investments Dividend & Income Fund (DDF) is smaller after its recently completed 5% tender offer.

I continue to like DDF. In fact, I believe the fund’s governance is exemplary. Even so, the portfolio did participate in the tender at 98% of NAV. Unlike myself, the vast majority of shareholders did not tender.

Whether DDF or a newly entered Nuveen fund, I am always very cognizant of what percentage of the position I can reasonably estimate to exit at a relative valuation substantially better than my entry.

I also want to take a moment and discuss BDCA Venture (BDCV), which was previously known as Keating Capital (KIPO) when I discussed it as a Core Total Return holding. I continue to be highly bullish on BDCV. However, I had to remove BDCV from the Core Total Return Portfolio because of slight changes affecting Covestor replication and liquidity parameters. Covestor has liquidity requirements so that securities can be easily replicated in client accounts. I want to disclose that I have a substantial holding of BDCV outside of Covestor models.

To learn more about investing with the portfolio managers on Covestor, contact our Client Advisers at clientservices@covestor.com or 1.866.825.3005. Or you can try Covestor’s services with a free trial account.

DISCLAIMER: The investments discussed are held in client accounts as of July 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

Dan Plettner

Dan Plettner

For more than 14 years I've focused my investing and research efforts on Closed-End Mutual Funds, called CEFs. They represent

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What Wall Street can’t figure out about Millennials http://investing.covestor.com/2014/08/wall-street-cant-figure-millennials http://investing.covestor.com/2014/08/wall-street-cant-figure-millennials#comments Wed, 13 Aug 2014 14:18:42 +0000 http://investing.covestor.com/?p=39798 ]]> By John Spence

millennials-wall-street

The financial-services industry needs to throw out its traditional playbook if it wants to reach Millennials and play a role in helping them realize their investing goals.

The stakes are high for both sides.

Many Millennials are at risk of falling behind on their financial goals because they haven’t even started investing yet. For example, about half of Americans between the ages of 18 and 29 have zero retirement savings, according to a Federal Reserve survey. Millennials, also known as Generation Y, are generally defined as those in their 20s or early 30s, and they are justifiably wary of the financial industry and the market.

The chart below is from Statista:

millennials-retirement-savings

For Wall Street, many financial firms that focus on older, wealthier generations such as Baby Boomers are unprepared from the coming general shift. They will have to reshape their services and message to meet the needs of Millennials. To take just one example, traditional marketing and advertising doesn’t really work with many Millennials because they simply shut it out.

In about five years, more than one of three adult Americans will be Millennials, and by 2025 it is projected that this demographic will comprise as much as three-quarters of the workforce, according to the Brookings Institution.

brookings-millennials

Financial firms and advisers will have to rethink their approach to work with Millennials, who will soon be hitting their peak earning years.

Here are a few ways that Millennials are different from older cohorts:

  • They’re extremely conservative as investors: Millennials are the most fiscally conservative generation since the Great Depression, according to a UBS survey. This makes sense because they’ve seen their parents get hit with two major bear markets the past 15 years. They tend to avoid the stock market and hold a higher percentage of cash than older investors. They’ve also witnessed the effects of the housing boom and bust.
  • They’re very skeptical: The financial crisis has also made them understandably suspicious of Wall Street and potential conflicts of interest. Millennials require a high level of trust before they give their money to a bank or financial adviser. They verify — using information on the Internet, social media and from personal connections.
  • They defy stereotypes: They may be seen as coddled and spoiled, but it turns out they care a lot about their financial futures and don’t want to repeat their parents’ mistakes. They’re tech savvy and highly educated as a group. They want to have control over their finances, so they’re more likely to be self-directed investors. They want to be comfortable, but they don’t want their lives to be dominated by money, which is often secondary to pursuits such as traveling, family, staying healthy, friends and volunteer work.
  • They have financial challenges: In many ways, it’s not easy to be a Millennial. College tuitions have skyrocketed in recent years, and many graduates are saddled with high levels of student debt. The Class of 2014 is the most indebted ever. Rents and home prices are creeping higher while wages have mostly stagnated. Also, more Baby Boomers are staying in the workforce and delaying retirement after the financial crisis, making it harder for younger investors to find jobs. These are all reasons why Millennials are hitting major milestones later in life such as getting married, buying a house and having children.
  • They tune out marketing and advertising: Perhaps more than any other generation, Millennials understand how marketing and advertising work, and they’re adept at ignoring it or even finding ways to turn it off completely. They don’t click on banner ads or open mass emails.

So, firms that “get it” with Millennials understand their unique habits and concerns. They communicate in language and mediums that resonate with Millennials, and show how their services are different and/or better.

Here are the ways Wall Street needs to change if it wants to be relevant to Millennials:

  • What works with Baby Boomers doesn’t work with Millennials: You can’t market to Millennials in the same way as retirees, but this goes beyond just the message and investments. With social media, the financial-services industry is still doing what it always has — just faster and louder. As mentioned earlier, Millennials are keenly aware of when they’re being advertised or marketed to, and they resent it. Wall Street can’t talk down to Millennials. In some ways, Wall Street has to turn its traditional marketing strategy on its head to reach Millennials.
  • Social media engagement: Social media is where Millennials get a lot of their information and learn about brands. According to recent study, 77% of Millennials own a smartphone and they spend nearly 15 hours a week texting, talking and on social media. However, companies need to engage followers on social media, not just talk AT them with links to their own blog posts and products. It needs to be a two-way street, with shares to other Facebook accounts and retweets to other Twitter handles. It’s important to educate followers, and be a part of the daily discussion with analysis of relevant, timely topics. Be helpful. And it helps to focus on a specific theme or niche, rather than trying to be all things to everyone. The reality is that Wall Street’s approach to social media is probably backfiring for a lot of financial-services firms. Millennials just see these companies the same way they see Grandpa trying to “do Facebook.”
  • Personalize it: Millennials are leading the backlash against conglomerates — the huge companies with big marketing budgets and aggressive sales tactics. Some Millennials are gravitating to companies that take more of a personalized, Mom-and-Pop approach. Many are willing to pay a little extra to “feel good” about the companies they buy from and deal with.
  • Beyond marketing: Millennials as a group do more research than anyone else, BEFORE they even begin the decision process of buying a product or service. They’re very good at using the Internet and social media to find what they want. If a company has a bad product, customer experience or corporate culture — Millennials will see right through it. And then they’ll tell all their friends on social media. No amount of slick marketing can fix a broken corporate culture.

“With advances in technology, the Internet, and mobility, the Millennials have had instant access to better and more information like no other generation before them,” says real estate marketing executive Sean Blankenship. “This has driven an intuitive ability to detect when brands are fake, not truthful, or inauthentic.”

The upside for financial firms is that they can build long-lasting relationships with Millennials if they earn their trust. If a company hits it out of the park with Millennials, they’ll probably stay loyal because they’re so wary of Wall Street. They just see a lot of “junk” out there in the investment world, so it’s up to the financial-services industry to work hard to change that perception.

Covestor Core

Covestor Core

Covestor Core Portfolios are comprised of low-fee ETFs, and target various investor types and risk profiles. Investors typically use core

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