Category: Blog

When we’re looking to keep people’s attention, we don’t typically talk about a salt mine. That’s not the case today. We learned today that Compass Minerals CMP, a salt mine and fertilizer company Morningstar recommends, had a partial ceiling collapse due to geological movements in its mine in Goderich, Ontario. The good news is no one was hurt. The bad news is it will put a dent in their earnings for the next six weeks while they fix their main conveyer system (pictured).

This stock was 15% undervalued prior to this news and after today’s drop is now 28% undervalued. We saw this as a great opportunity and bought more for clients in our Growth, as well as the Moderate Income portfolios, since the stock pays a hefty 4.7% dividend now.

Morningstar states that 60% of CMP’s salt sales are used for highway deicing (not in Portland, of course). Demand for deicing salt has been down the last few years because of warmer than average winters and less snow days. But the warming weather is only partly to blame.

The warming trend will only produce 4% less snow days in our country over the next decade, but it will likely bring more volatile winters. This has been proven recently with record snowfall like they saw back East in 2014 and some of the warmest winters most the country experienced the last two years.

In short, here are the reasons we like the stock and bought more today at the depressed price:

• When winter is cold again, the stock will likely be at fair value again
• Overreaction today to a ceiling collapse that’s a short-term issue
• 4.7% dividend while we wait for stock to rise to fair value

Let us know if you have any questions,

Bruce Porter & Tim Porter, CFP^®

143 million US consumers had their information compromised recently through the Equifax cybersecurity event. Below is information on what we’re doing to protect ourselves in light of this event (information provided from an article here).

1. Visit this website to see if you were involved. I found that I (Tim) was involved, but my wife was not.

2. Consider signing up for the free credit monitoring Equifax is offering through TrustID at this website. Equifax clarified by signing up for this, you are not required to waive your right to any class-action lawsuit related to this incident.

3. The last and most effective way to protect yourselves is to freeze your credit. Usually there are fees to do this in the $10-$15 range per credit bureau, however, Equifax is waiving their fees. Contact info is below to do this:

Equifax
PO Box 740241
Atlanta, GA 30374
www.equifax.com
888-766-0008

Experian
PO Box 9554
Allen, TX 75013
www.experian.com
888-397-3742

TransUnion
PO Box 2000
Chester, PA 19016
www.transunion.com
800-680-7289

SMB Security

This latest incident has made us grateful for our efforts to secure information we have here at SMB. Within the last two years we’ve upgraded our firewall, a SonicWALL TZ300 recommended by a local security firm, and our cloud storage provider to Box.com.

We chose Box.com because online security firms are using them for their superior security. They also work with the national regulators (FINRA) of investment firms like ours to ensure they have policies and procedures in place to protect our firm and our clients.

TD Ameritrade Security

We’ve also checked in with TD Ameritrade and reviewed their policies and procedures. As expected, they have a high level of security including firewalls to keep public servers separate from private servers, 128-bit encryption to keep eyes off sensitive information and anomaly detection to alert them of unusual behavior in accounts.

TD also has an Asset Protection Guarantee that says as long as clients are taking reasonable precautions to keep information safe…

“If you lose cash or securities from your account due to unauthorized activity, we’ll reimburse you for the cash or shares of securities you lost.”

We couldn’t be more pleased with this and gives us even more confidence in TD. I also have additional information on this topic I can send. Please let me know if you’d like more.

Thank you for reading,

Bruce Porter & Tim Porter, CFP^®

This month we attended a conference for our friends at the Oregon Trial Lawyers Association in Sunriver, OR. We manage investments for the association and provide 401ks to many of the firms. To keep things interesting at our booth, we made a cardboard cutout of Bernie Madoff and contrasted our values with his lack of values.

Here’s what we thought was most helpful to understand:

Secret Strategy – Bernie had a strategy that he wouldn’t allow anyone to know about. His famous phrase when asked was, “Trust me, I know what I’m doing.” Secret strategies don’t exist. Before you put your hard-earned money with someone to invest, you need to be able to understand how they’re investing it.

Knowable Strategy – Our strategy is no mystery. We either look for companies with growing dividends in our income portfolios, or search for undervalued up-and-comers in our growth account. It’s a strategy we follow from Morningstar and both have done well.

Creative Compensation – You could say Bernie had a real creative way of charging fees. He didn’t let those fee agreements keep him from helping himself to 100% of the accounts.

Clear Fees – We believe fees should be simple enough to be understood. Our fees are just above 1% per year of the account value on average.

Advisor First – I think it’s clear Bernie didn’t have his clients’ best interest in mind. He had his OWN interests in mind.

Client First – We are fiduciaries and are legally (and morally) obligated to act in our clients’ best interest instead of our own. This means we can’t sell a lower quality investment to a client because it pays us more.

Mythical Results – Bernie’s results were too good to be true, but no one could see that because he controlled the statements and there was no third party to verify his claims.

Realistic Results – We work with a third-party custodian, TD Ameritrade, so clients have the peace of mind of knowing their statement values are not made up and have been verified.

We recognize Bernie Madoff and his $65 Billion ponzi scheme is old news. However, we still see many advisors who use some of Bernie’s old tricks: hidden fees, overly complicated strategies, advisors focused on themselves, and the promise of returns that are unreasonable.

These people are a disappointment to our industry and we work hard to educate our clients and the public so they aren’t taken advantage of. If you think your friends or your family are in this situation and need a second opinion on an investment, please don’t hesitate to contact us. We’re happy to share our thoughts.

Thank you for reading,

Tim Porter, CFP^®

This last week I taught my son, Henry, a lesson on getting back to basics. We packed up everything we needed to survive for a few days and headed out to the Jefferson Wilderness. This was Henry’s first-ever backpacking trip. We hiked into Pamelia Lake, which is something Bruce and I did when I was a kid.

The best part of the trip was the scenery. Not the trees, lakes and peaks, but watching Henry’s face light up at every small stream, funny rock, or pesky chipmunk we came across. All in all, I think he liked the experience because I caught him bragging to his cousins, “…no other five year old could’ve hiked ten miles in one day like me.” Something I may, or may not, have mentioned to him.

My experience with Henry can also teach us about investing. Value can be found in areas that are sometimes forgotten. An example of this can be seen from the Growth portfolio this month. Matthew Coffina, CFA from Morningstar ditched the online payment processor Paypal PYPL for a nice gain. He instead bought the more traditional, not online, retailer O’Reilly Automotive ORLY. This is an interesting move away from the hot technology stocks and into the more basic industry of brick and mortar retail.

Coffina’s decision was not based on large macroeconomic trends but company specific information. He believed even though PYPL had risen sharply (about 80% from when we first bought it) the price of the stock was now too high and due for a pullback.

In contrast, he considers ORLY to be undervalued after a recent earnings report showed a slowdown in earnings and sent the stock down sharply, now down 30% from its highs. The fear is that online sales, largely from Amazon.com, took a bite out of the auto parts business last quarter. Coffina thinks this to be an exaggerated concern and cites mild winters, delayed tax refunds and newer cars on the road as the reason. Not Amazon.

As someone that works on his own cars, I still prefer to buy car parts in the store rather than online. There are so many things that can go wrong on a repair; I find it’s still nice to talk through the job with someone behind the counter. Another advantage these traditional stores offer, like O’Reilly and Napa – owned by Genuine Parts GPC in the Income portfolio – is the ability to rent specialty tools that customers may only need to use once.

Amazon may still be a threat to these retailers, but the auto parts stores do have a service component that’s difficult to replicate. For these reasons we agree with Coffina’s assessment, “…while investors will need to be vigilant about Amazon, I think there’s a good chance that O’Reilly’s financial results will bounce back later this year and into 2018.”

Jeremiah Forrister

In other news, I’m extremely excited to announce a new addition to the SMB Financial Services team. Jeremiah Forrister joined us July 1 as an Investment Advisor Representative. He’ll also be answering the phones here and helping us with other administrative tasks as he learns the business and starts to build his own book of clients to serve.

Jeremiah has a lovely wife, Alicia, and two nine-month twins, Elias and Ember. He finished college in 2013 and worked his way up to a supervisor role at Costco before transitioning into the financial services business. We’re happy to have Jeremiah’s help around the office and look forward to introducing him to you in the future.

Thank you for reading. Please don’t hesitate to contact us if you have any questions.

Tim Porter, CFP^®

Who doesn’t like new underwear… in their portfolio? Especially when it pays 8% in the first month! Just after statements went out last month we picked up a position in the income accounts that we’re very excited about.

Hanesbrands, Inc HBI is an apparel company that most of us are familiar with. They own the recognizable brands such as Hanes, Champion, Maidenform, Playtex, and L’eggs. Hanes is the number one selling apparel brand in the U.S. and is found in eight out of ten households, according to The Clever Contrarian.

The stock was down 25% in less than a year and is valued by the smart people of Morningstar 40% higher than it currently sells for, meaning it has a 40% upside. Based on that, we took the opportunity to invest for all income clients in hopes the price will head back towards fair value soon.

For the growth accounts we purchased a different stock. Mercadolibre MELI is South America’s version of Amazon here locally. Over one third of all people in South America have used the service and it appears to be on track for a similar growth track as Amazon – a stock we wished we bought in the growth account years ago. The start has not been as good for MELI, but we’re optimistic this will be a great performer in the long run.

Masters Degree

In other news, I’m extremely excited to announce an accomplishment I (Tim) have been working on for five years now. As of the end of last month I’ve officially finished my Masters of Science in Personal Financial Planning! I began working on the degree in 2012 and it resulted in obtaining the Certified Financial Planning (CFP^®) designation in 2014 and now a Masters.

The best part of the schooling was the topics covered – investing, insurance, retirement planning, estate planning and taxes – are 100% applicable to the everyday situations we deal with here in the office with our clients. I’ve already had the chance to use the education in these areas on multiple occasions and I look forward to continuing to use it in the future.

If you have any questions about your current situation or portfolio, please don’t hesitate to contact us.

-Tim Porter, CFP^®

A May 7^th French Presidential run-off is a result of this last weekend and the ripple effects are being felt in the stock market. Like the US presidential election where sixteen traditional Republicans lost to a non-traditional candidate, France had a crowded field of eleven vowing to lead the country as its next president. The result was similar, as the centrist Macron won the most votes at 23%, and the Trump-like runner-up Le Pen came away with 22%.

The Wall Street Journal summed up the election this way, “On Sunday the EU and its demands of free trade and open borders became the defining fault line of a new political order. Macron, a former investment banker who seeks deeper EU integration vs. Le Pen an opponent of the EU, its Euro common currency and runaway globalization.”

The contrast between the two candidates is important because the result has, and will, affect our portfolios. Lessons learned in the last 12 months have taught us anti-establishment change around the world is here and a force to be reckoned with. Here’s how we believe the outcomes could move the markets and our accounts:

Le Pen wins – This outcome represents the wildest change and the market should sell off dramatically. We believe this will result in FREXIT (France exiting the EU) and would spell the beginning of the end for the Eurozone. The EU is the largest economy in the world with 24% of the world’s GDP vs 22% for the US in 2014. If the EU breaks up, it would be a great blow to the global economy — a little like our states seceding from the Union to become their own countries. This would end in terrible inefficiencies as traveling and doing business across state lines would become much more difficult. The same is true for the EU.

Le Pen, however, is currently a 20-point underdog in the polls, so she’s unlikely to win…just like BREXIT was unlikely to pass and Trump was unlikely to get elected.

Macron wins – Macron is more or less like a Hillary without any elected political experience. The fact that he had the most votes on Sunday indicated to the market that things are likely to continue in France as they have. This was a sigh of relief for the market, which has been up two days in a row now.

Anti-establishment has won – Regardless of who receives the most votes on May 7^th, it’s clear that France, like the UK and US, is ready for change. There will be legislative elections in June and the growing dissatisfaction with the existing Socialist and Conservative parties should continue to play out. The result will likely be more volatility as uncertainty increases in the future.

In case you’re feeling anxious about this news, we want you to know this is not a unique event. There’s always news that’s concerning and eventually it will show itself in a down market and down accounts. We stand ready to take advantage of the next downturn regardless of the particular headline. The most important part of our job, and the part we enjoy the most, is helping our clients make good decisions during these tumultuous time periods.

Please call us if you have any questions or if you’d like to discuss this election, or anything else, in more detail.

-Tim Porter, CFP^®

It’s a wonderful time of year, I’ve seen the sun more than once this week. Flowers are beginning to bloom and taxes are due…. well, maybe that’s not that great for some. As tax day approaches we’ve been getting calls regarding how the investments we use are taxed. During those calls, we’ve heard some interesting stories of how other advisors are taxing their clients financially and emotionally.

Well intentioned, but inexperienced advisors can wreak havoc on their clients this time of year. In an effort to help clients, some advisors create massive messes that have to be cleaned up by accountants and paid for by clients. A little like a young child who tries to help a parent in the kitchen. Good in theory, but not without keeping a close eye on them.

Recently, a client told us of an advisor who had invested her funds in eleven mutual funds. The client wanted a distribution every month, so the advisor would sell multiple mutual funds to generate the cash, again every month. Every sale created excessive paperwork for her accountant that resulted in an unnecessary five-hour tax prep bill!!! She will not be awarded advisor of the month. But that’s not the worst story we’ve heard.

Another client came to us after an advisor recommended she sell all her US Bank stock to buy an annuity (that’s one strike, we hate annuities). Seemed like a good idea to the client, after all diversification is great, right? Unfortunately, the sale of the US Bank stock generated a $50,000 surprise tax bill!!! That’s strike two and three!

I shouldn’t just tell on others, we occasionally do things that create stress for our clients too. Many clients will recognize the K-1 as something accountants don’t care for, but we believe the generous distributions generated are in the best interest of our clients.

Speaking for all investment people, we advisors occasionally get tunnel vision and focus on making as much money as we can for our clients while not paying as much attention to the tax side. The two cannot be separated though. After all, what good is a 10% return if you have to give it all back in taxes? We must continue to communicate with our clients’ accountants and try to minimize tax bills or at least prepare our clients for larger tax, or accountant’s bill, if we think one’s coming. After fourteen years we’re getting better at this, but we’re not perfect yet.

Not tax related, but investment focused, we are purchasing a conservative Barclays Bank bond-like note paying 2.4% per year while we wait for the inevitable pullback in the stock market. As soon as that happens, we’d like to buy the stock National Grid NGG, a British utility company paying (and growing) a 5% dividend in the income portfolio. For the growth portfolio, we’re looking to buy QuintilesIMS Q, a pharmaceutical related company that outsources clinical trials and manages pharmaceutical sales data. Morningstar says fair value on this company is $88/ share and it’s currently 10% below that.

Thanks for taking the time to read. Please call us with tax or any other questions you’d like to discuss.

-Tim Porter, CFP^®

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^®