Author: Tim Porter

Almost two months into the new year now and we’re still waiting for the stock market to pullback off its highs. This is important because we sold a few stocks that had run up last month. Now, we’re hoping to invest those proceeds in some undervalued stocks during a market slide of 5-10%. Most accounts are still 90% invested because we never know WHEN this will happen, but we do know it WILL happen.

So why wouldn’t we have more in cash if we think there’s a pullback coming? It’s difficult to make predictions, especially about the future… as we’ll learn from Harvard.

We can give you all kinds of reasons to be negative about the stock market: an eight year up market, ten straight market highs the last ten days in the Dow, less than stellar earnings reports from companies, rising interest rates, a polarizing president… but the market doesn’t care about our list and occasionally does the opposite of what we think.

This is a good thing. If we become overconfident and make big moves in the accounts, we risk investing like Harvard does. We wouldn’t want that, would we?

Last month The Wall Street Journal reported Harvard used to be the envy of all money managers, getting returns for their endowment above everyone else. That all changed when they decided to save the fee they paid their outside investment managers and brought it in-house attempting better performance.

The result was so bad they’re laying off 230 investment personnel in 2017. Last year’s performance in their $35.7 billion endowment was a grand total of -2%. 

Now, I’m no Harvard grad, but I think the ivy on the buildings had better growth than that! Maybe this Portland Sate University grad should’ve offered to help with their investments?

Not to worry though, 2016 was a banner year for charitable gifts to Harvard totaling $1.19 billion, the most of any US university. That should help offset the loss last year and ensure the overgrown ivy continues to be trimmed around campus.

The lesson here is to be careful not to become overconfident after a good year and wander beyond the income and growth strategies that have worked for so long. Patience is key while we wait for the next drama to play out and turn the stock market negative. Until then, the accounts are off on the right foot with positive returns in the low single digits this year.

Thank you for taking the time to read,

-Bruce Porter & Tim Porter, CFP^®

Whether you’re worried about the new administration, losing the high values in your investment account, or anything else coming this year, we encourage you to focus instead on what you can control and let 2017 worry about itself. Rather than waste our time concentrating on what could go wrong and where to place the blame, we’d rather talk about something productive: our strategy and our service.

Strategy

While I was training to drive boats for the Coast Guard last year I was given some helpful advice, “Porter! Stop focusing all your attention on the compass and drive the boat!” Of course, I thought I WAS steering the boat, but what he wanted me to do was pick an object in the distance off my bow – like a navigation marker or house – and steer on that. If the coxswain focuses on the compass to steer they will constantly be over correcting because it’s almost impossible to stay on a compass heading perfectly.

This is simple but sound advice and can help us in our investment strategy as well. Don’t focus on the value of our accounts on one day, one month, or even one good year like 2016. Whichever portfolio you’re invested in, income or growth, take a long-term approach and trust the strategy of buying strong companies at reasonable values and holding them for a long time – like decades! 

We’ve been fortunate to have world-class minds at Morningstar helping us pick stocks the last 3.5 years. Stocks like the billboard company Lamar LAMR we bought just a few months ago that’s gained 25%, or Time Warner TWX in the growth accounts that’s up 50% on the proposed merger with AT&T.

Of course buying undervalued companies is only half the job, we also need to be selling overvalued companies when the opportunity presents itself. Like this week, as markets were high we sold one position in the income portfolio, an industrial company Fastenal FAST that was up some 30% since the election, and also sold one stock in the growth portfolio, the credit card company Discover DFS that was up a similar amount over the same time period. We still like these companies, but both are significantly overvalued. We will most likely buy them again if the stocks pull back significantly.

We consider this to be minor “tweaking” as opposed to major changes. Regardless of the situation that has come or is coming – political, economic, or otherwise – we want to GAZE at the long-term objective and GLANCE at the short-term.

Service

The other area we want to focus on is in our service to you, our client. To convey the mindset we seek to have here in the office, we sought to find a story of authentic and genuine public service. I looked and looked to find a story that would help me define what real service was: there are military heroes, founding fathers, maybe Jesus? But then, I found it! Real service is found with… the Porters! I mean, porters.

Researching the industry that shares my last name I found we have gigantic shoes to fill to measure up to the, “…trained, disciplined, and proud…” Redcap porters from the Pennsylvania Railroad.

I found this letter that a passenger wrote to the railroad in 1926 about the exceptional service she received one day on her way to Florida. She was late to her train, saddled a porter with her awkward bags and ran off without him to catch her train.

It was a miracle she made it on time, but the porter and her bags were not so fortunate. No doubt the porter was lagging far behind due to the weight of the luggage. She boarded the train without her bags and then panicked to another railroad service member who, “…infinitely, beautifully, calmly…” assured her everything would be ok.

They had already phoned the train. She would get off at the next stop and the porter would be on the subsequent train with her bags. Sure enough, they let her off at the next stop then delayed the train a few minutes so the following train could catch up and the porter came running to her, “…perspiring with bags and worry and conscientiousness…”

In a great display, this porter showed true service by taking the passenger’s challenge on as his own. The greatest part of the story is the calm response and the relentless service the porters showed in seeing that this gal would be taken care of. Below is how we want to apply this to our firm in 2017:

1. Your challenge becomes ours: Just like this passenger had a goal of getting to her destination with her luggage, we strive to know our clients by listening to their hopes and fears. Then, we want to hustle to help our clients carry the heavy bags of investing and financial planning. At times that means doing things that are not the norm, like offering to go with an older client to the car lot to buy a car, or meeting another client at the bank to make basic banking changes. Whatever you need, whether it’s a high-level task or low level, we are ready to hustle to help you with the heavy load. Please let us know if there’s anything we can help with.
2. Calm response: Like the porters in this story we stand at the ready to serve our clients. When the baggage appears to be lost, when worry is the emotion of the day, we will calmly steer our clients toward the solution. This is so important because of the temptation to panic and make bad decisions when things get tough. Helping our clients eliminate bad decisions is one of our great missions.
3. Relentless service: Rather than put the bags down and shrug his shoulders when things got difficult, the porter continued to persevere until the bags were delivered. We know the market will go down again. We know that some clients are already “late” for retirement and every downturn feels like an assault on their future. While we can’t keep that from happening, we promise to stand by you through the next downturn and help you persevere until we’ve made it through.

In other personal news, my family had a great time in the snow over the holidays and we hope yours did too. Bruce opted for a trip to South America where the weather was lovely and boring, and Brian wins the award for worst timing for an outdoor remodel, which he started on the first day of snow in December!

Thank you for allowing us to serve you in 2016. We look forward to another great year in 2017 and beyond.

-Tim Porter, CFP^®

Everyone seems to be excited about Dow 20,000, but we’re evaluating which overvalued stocks we should sell in anticipation of the HIGH wearing off. It never fails that human nature will run its course and around the next corner sits a financial controversy that will surely help the market SOBER UP. But before we get to that, let’s look at how we got here…

From the worst start for the stock market of any year in history – down 10% in just the first few weeks – to the best quarter in three years! What a ride! The news that precipitated the early drop was China’s slow down, but then we shifted our focus to the UK’s BREXIT vote, and now we have the unending election news and a new administration to concentrate on.

As entertaining as this year has been – especially lately – it hasn’t had much impact on the decisions we’ve made. We tried to follow the investing legend Warren Buffet’s advice again this year – Be greedy when others are fearful and fearful when others are greedy. Once again it was sound advice.

2016 was a good year for the portfolios we manage. Most fully invested accounts racked up greater than a 10%+ return (contact us for your specific return). We are pleased with this and hope you are as well.

However, as we look to 2017 we’d like to have a few bucks in cash that can be used to buy good companies that are down in price when the market gives us an opportunity. A few stocks we’ve discussed selling based on Morningstar’s fair value estimate: Paychex PAYX which is 35% overvalued, Fastenal FAST is 20% overvalued, and Discover DFS at 30%.

We’ll leave the bold predictions to people smarter than us, but here’s a few things we expect in 2017:

• Buckle up – 2017 will be anything but a smooth road for Donald Trump and his policies. We expect this to be reflected in the stock market and in our accounts.

• Trumponomics not magic – We don’t expect a surge in economic growth that the stock market is predicting. It could happen – as the Chicago Cubs proved this year – but our economy still has an aging population, high debt, and higher interest rates that will act as headwinds.

• Henry will love golf – This is just wishful thinking on my part, but I’m hoping my 5 year-old son will love the new set of golf clubs I bought him and give me an excuse to play more this next year. Fingers crossed!

Once again, thank you for reading and also trusting us with your investments in 2016. We appreciate the great relationships we have with our clients and will continue to work hard to produce another prosperous year for you in 2017.

 

Please contact us with any questions,

Tim Porter, CFP®

After a wild ride overnight in the stock market (down -5% at one point), I was ready at the market open to take advantage of the pull back, only to see the stock market bounce back to where it ended the day before. Now things have turned positive and the market ended today up 1+%.

Here’s how we’re feeling in our office today:

1. Not that bad – While the market was signaling chaos last night, we woke up to calm this morning. The contested election investors were nervous about seemed to evaporate this morning as we hear speeches of unity and a smooth transition of power.

Regardless of the emotional swings in the stock market, our country has a track record of changing power 45 times over the last 240 years, and we believe we’ll successfully navigate this change once again.

Trump’s policies may be a benefit to the economy through: a revision of the tax code, business investment, and infrastructure spending. However, we’re curious to know where the cuts in government spending will come to pay for this.

2. Not that great – The stock market ended today close to all time highs and we think that’s too optimistic given we don’t have many details of how this administration will lead.

The areas driving today’s rally were banks and health care stocks because of possible deregulation.

Whether you think the Trump agenda will be for the better or worse, any major changes coming our way will likely be tempered by a political process that’s meant to slow down any sweeping change.

Trump’s policies could disrupt the economy by: swinging to protectionism, removing Janet Yellen as Fed Chair, and implementing the aggressive immigration policies he’s talked about. Many are hopeful he will moderate his positions in these areas.

You should know our investment process still remains intact. We buy what Morningstar believes are solid companies not based on the ever-changing political landscape, but on the strength of the dividend and/or the balance sheet of the company.

As we learn about this new administration and the market reacts to the details, we will continue to look to purchase these companies at a discount to fair value in each of our accounts.

Thanks for reading and please contact us if you have any questions,

-Tim Porter, CFP^®

The hottest stocks of the first half of the year – utilities, telecom, and real estate – have gotten cold and wet along with the rest of us in Portland recently. This has sent our income accounts down approximately -3% since the halfway point in the year, but still retain an approximate 10% return since the beginning of the year. Growth accounts have held up better since July, returning approximately 0.3%, but have lagged the income portfolio year-to-date by about 2% (returns depend on specific portfolio).

This move down in the income accounts is not unforeseen and we don’t view this as a reason to be depressed. In fact, as we’ve written in past letters, we’re celebrating in our office and welcome the pullback as SIGNS of opportunity:

SIGN #1: It’s given us some great opportunities to purchase some stocks and look to become fully
invested once again. We purchased Pfizer PFE in all income focused accounts and Facebook FB for the growth portfolios last week. Both have been recommendations from the smart people at Morningstar.

 

SIGN #2: Whatever drama’s left to play out before the election has only a few weeks left. This may present uncertainty that could result in lower stock prices. We stand ready to fire off more buys if this theory proves true.

 

SIGN #3: The last sign of opportunity is the… opportunity to buy SIGNS. More specifically we’re looking to invest in the dominant sign company in the country, a billboard company (structured as real estate) called Lamar Advertising LAMR.

Josh Peters, CFA from Morningstar says that while older forms of media advertising (think newspaper, magazine, and radio) have lost a huge amount of market share to online marketing, billboard’s market share has actually increased modestly. Furthermore, webs of state and local regulation keep the supply of new billboards low, which constrains supply and restrains competition. This will help to protect Lamar’s profit going forward.

The company pays a 4.8% dividend currently and projects a 10% growth of that dividend each of the next two years. We find this very attractive especially at a price of $65/share when Peters thinks it’s worth $72/share. We expect to pick this up at the next pullback for the income accounts.

Next month Brian and I will be out of the office during the week of Thanksgiving as we lead an event called THX16 (outwardchurch.com/thx). This event will provide a meal, Christmas tree, and presents to 200 families (1,000 people) from four elementary schools in the Salem area that have asked for help. If we’re drowning in gravy this time next month we may not have a chance to get a blog posted, but we’ll post one as soon as possible the following week.

Thanks again for reading and please let us know if we can do anything for you.

-Tim Porter, CFP^®

Finally, some volatility! Although it appears to have been short-lived, the stock market had a few days of excitement since the -2.5% pullback on Friday September 9^th. We were sharpening our pencils in anticipation the pessimism (and buying opportunity) would continue, but the concern about interest rates didn’t materialize and the accounts are close to where they were at the beginning of the month.

“this company is finally boring enough to own.”

However, the long awaited volatility gave us a good reason to choose our next buy, a well-known pharmaceutical company called Continue reading “Measure Twice, Buy Once”

The Wall Street Journal reports the last 30-day period has been the least volatile for the stock market in the last two decades. Only 5 days in the last 30 saw the market move in either direction by greater than 0.5%, the lowest since the fall of 1995.

A couple of reasons for this calm is that a number of large firms abandoned their aggressive positions after the BREXIT vote and have yet to make any large bets this summer. Another is the summer is a slow time while investors are vacationing, so there’s less trading going on, and lastly, central banks (including ours) are helping stabilize the global economy by Continue reading “Paid to Wait”

 

My flight to Orcas Island started in beautiful, cloudless weather. The weather reports for Orcas were clear. While flying at 10,000 feet with the 7,900 foot mountain tops of the Olympic Mountains just to my west, and with Seattle to my east, a solid cloud-bank had developed below me visible in the facebook video.

As I began flying over clouds I was relying on my flight instruments to navigate. One after another my avionics began dimming, and then failing. The voltage indicator showed a zero charge now, I was losing my electronics! Continue reading “Keep Calm and Carry On”

The post-BREXIT surge has taken the accounts we manage to all-time highs. The last month in particular has added a few more percent to the already good returns we’ve seen this year (actual return depends on portfolio).

Rather than celebrate this fact we’re viewing this increase with skepticism. Stock prices are high, corporate profits are falling, and the world seems to be tearing apart at the seams. Meanwhile the S&P 500 powers higher in a relentless Continue reading “Time for TINA”

“Boeing can afford to make costly investment mistakes, but the average retiring investor cannot.”

Major investing mistakes cost Boeing big-time last November. Although Boeing admitted no fault, they settled a lawsuit alleging they used high-priced investment options and had poor management of those funds in their 401(k). That cost them the second largest settlement of all time in 401(k) disputes of $57 Million. Only IBM has settled a 401(k) dispute for a larger amount.

Here’s the thing, Boeing can afford to make costly investing mistakes, but the average retiring investor cannot.

In working with retiring Boeing employees we found that the mistakes Boeing made are not uncommon among investors. In fact, we have too many people come to see us who have either paid too much in fees or received terrible investment advice and it ends up negatively affecting their retirement. This article will briefly talk about how to avoid these mistakes and find a better strategy.

Boeing’s 1st mistake

The first thing any retiring Boeing employee should do before they roll their 401(k) anywhere is to ask about the price, fees, commissions, and anything else that will be paid. Make the advisor squirm a little by asking them to compare their product or strategy with a cheaper alternative and explain the pros and cons.

Some products (index or variable annuities and mutual funds) make it difficult to find the total fees (we even have trouble finding them all!). But, they can be high. Variable annuities may cost upwards of 3% per year and can have surrender charges that lock up your money for 7-10 years. They need these high fees and long lock up periods because the advisors can make 5-10% commission to sell these. That can be a $25,000 – $50,000 payday on a $500,000 account for a few hours of paperwork. Does that sound appropriate? We don’t think so either.

There are many reasons not to buy annuities. Please do yourself a favor and stay away from any investment that pays the advisor commissions. Contact us for more information on this.

It’s far better to select a Certified Financial Planner (CFP®) who will work with you on a fee basis. This means the planner will take a smaller amount of your investment (closer to 1% of assets under management instead of 3%) every year. A fee-based CFP® also has no way to generate commissions on your investments, and typically has no surrender charges in this situation. The beauty of this is if you become dissatisfied, you can move to a different advisor at any time. This is a much more reasonable approach, and it just happens to be how we do business… big shock, I know.

Boeing’s 2nd mistake

The other mistake Boeing made was not getting great advice on the quality of investments being offered within the 401(k). As an investor it’s imperative to know where the investment advice is originating from. Getting advice from a random advisor can be scary. It’s important to learn where he or she is getting their information from. If they say they “figured it out on their own” that’s not a good sign and you should move on.

After a dozen years now we’ve found a great resource in Morningstar, a Chicago based company specializing in investment analysis for planners like us. They have a great reputation and rock-solid advice backed up with a great track record that we implement for our own portfolios as well as our clients.

One of their portfolios is income focused and invests in individual stocks of well known companies (Johnson & Johnson, Kraft, Chevron, Clorox…) with growing dividends. This is what most of our retired clients are invested in and it has provided a great source of income of approximately 4-5% per year from dividends and growth as well.

There are also other resources we follow to help with investing and financial planning including Motley Fool, TD Ameritrade, Bob Doll, CFA society, CFP board… We never claim to be the smartest minds in this business, but over the years we believe we’ve found the best and the brightest and we pay for their advice to help us benefit our clients.

A better strategy

It’s imperative a retiring investor use a proven strategy. I won’t go into annuities again, but Boeing employees who have the guaranteed monthly pension most likely do not need more guarantees that come with annuities (depends on risk tolerance). Also, banks are not a great source of return either with rates on CD’s and money markets at historical lows.

Given the limited options for getting a decent return on investments outside the stock market, retirees have been forced to consider stocks. But how should they invest? Mutual funds or individual stocks? Growth or income? Day trade or buy and hold? Our answer is to keep it simple and use the illustration of the goose and the golden egg.

With many retirees now living three decades after retirement, spending down the total investment (a common strategy) robs the future by killing the goose.  Instead, retirees should live off monthly payments the investment produces called dividends (interest from bonds). We specialize in helping retirees implement this strategy. We do this with research from experts with decades of experience.

If you’d like to talk any of this over with us please feel free to Contact Us or you can visit Our Offer page to learn how you can test drive our services free of charge. We’re happy to spend time with prospective clients reviewing their situation and doing some planning to help them determine if we’re a good fit.

Thanks for taking the time to read,
-Tim Porter, CFP®
(503) 387-3222
[email protected]