Tuesday, June 20, 2006

Netflix's Next Act (Netflix, Blockbuster, Movie Gallery, Amazon.com, Wal-Mart Stores)

Netflix's Next Act (Netflix, Blockbuster, Movie Gallery, Amazon.com, Wal-Mart Stores) SmartMoney.com

O.K., let me be clear - I am not recommending you buy the stock of Netflix, or that you short Blockbuster - I don't make stock picks. Also - I don't own any Netflix or Blockbuster stock (or any individual stocks for that matter)

I love Netflix. I've loved it from the beginning and think that they've done a great job. I've tried the blockbuster service and was not happy with it. If you don't currently use Netflix I encourage you to give it a try, it is incredibly cool and easy to use (even my Mom & Dad now use it). Evidently Netflix will start attempting to offer movies via direct download, yet another innovation.

This post has nothing to do with personal finances, but I just thought you should know how much I enjoy the Netflix service.

Scott Dauenhauer, CFP, MSFP

Monday, June 19, 2006

How to Profit From a Cooling Real Estate Market

I have a love hate relationship with Richard Kiyosaki. Sometimes he says things that make my blood boil. He says things that simply are not true and doles out advice that may be highly inappropriate for most people. However he does also have some good things to say and when he says them I like to make it available to you. A recent column on real estate is quite timely and well written. Kiyosaki rightly chastises speculators and tells investors to get ready, real estate may be entering into a time where real investors can dominate again (though I still think that time is a bit off and highly dependent on location). Keep this article in the back of your mind over the next few years.

Robert Schiller, the Yale economist famous for his book "Irrational Exuberance" and calling the end of the tech boom has completed a study that shows that the current U.S. Housing Boom is the Biggest Since 1890. It is an interesting article and Schiller has been instrumental in bringing to vehicles to the market to hedge against real estate drops in major markets - I suspect individual investors will soon be able to utilize some hedging techniques should the need arise.

Scott Dauenhauer, CFP, MSFP

Recent market volatility: How should you react?

Gus Sauter, a legendary index manager for The Vanguard Group echoes much of what I said recently in terms of keeping the recent volatility (fluctuation) in perspective. I encourage you to read what Gus has to say and look at his charts (Vanguard always writes in an easy to understand manner) and then compare it to my comments from last week.

The bottomline - diverify, keep costs low, and hang in there during the tough times.

Scott Dauenhauer, CFP, MSFP

Friday, June 09, 2006

Charlatan Central - Index Annuity Lies


I almost hesistate to link to this website because the information is so incredibly misleading. Nearly everything on this website is misleading or a flat out lie. There is little or no regulation of this blathering idiot and his lies will cost people money. He will rake in huge commissions by comparing stock market investments to fixed annuity products and telling you that stocks are risky, but you can mitigate that risk by investing in Equity Index Annuities. You get the upside without the downside - who wouldn't want that. The problem is that it simply isn't true. On the front page of this guy's website it states "Head you win big, tails you win small." This is a lie meant to make you believe that you can participate in the real gains of the stock market without any risk.

Next time you hear the word Equity Index Annuity coming from an "advisors" lips - turn the other way and run (and hold onto your wallet while doing so).

The more time I spend on this charlatans site the more angry I get that this information is allowed to put in front of the public - it is so incredibly misleading.

Consider yourself warned!!!

Scott Dauenhauer, CFP, MSFP

Thursday, June 08, 2006

May & June Fluctuation in Perspective

May was a tough month for stocks with the S & P 500 down nearly 3%, small stocks down nearly 6%, and Emerging Markets down a whopping 11.57%! June is not shaping up to be any better as we have seen consistent 100 point drops in the Dow.

I understand that all this downward fluctuation (notice how I didn’t say loss) can cause a lot of fear for those who hold stocks, however I’d like to put the recent fluctuation into a little context and perhaps give you a different perspective.

If we look back at stocks since January 2000 (the beginning of the so-called Bear Market) we see returns that are outstanding. In fact every single major asset class has a positive return except large cap growth stocks. While the S & P 500 has struggled since 2000, still down 2.26% (through April of 2006) the rest of the market has had a tremendous run-up. Through April 2006 Micro Cap stock were up 135%, Small stocks up 101%, Small Value stocks up 203%, Large Value stocks up 86%, Real Estate up 240%, International Value stocks up 103%, International small stocks up between 154 – 217%, and Emerging Market stocks up nearly 90% - all since January 2000 – some bear market.

Even through the bad month of May and the bad start in June stocks are up for the year, a portfolio that is 100% invested in stocks that is global in nature is up 4.83%. While that return could be erased easily, it should put the recent fluctuation in perspective.

Stocks can’t always go up; they must go down every so often. If stocks never went down there would be no risk to owning them and the returns would be dismal. The price for the higher returns of stocks is higher fluctuation, in other words, dealing with the drops of the market.

On average stocks drop by 25% every five years. Since World War II stocks have dropped by 20% or more at least 11 times. The one thing that is for certain when investing in stocks is that every so often you will suffer drops in value. Over the long run we expect the market to go higher, but in the short run it can appear to be a circus.

There are many reasons why stock prices are dropping now, but the reasons matter little (as there will always be a reason). What really matters is that you build a diversified portfolio and hold on to it through the good times (the past six years) and the bad times. I guarantee there will be bad times, but the bad times allow for us to have good times.

Stocks appear to be taking a breather from an incredible run up in value, that is ok, natural, and healthy. My advice, as always is not to panic, diversify, rebalance, and continue to hold through the ups and downs that will inevitably come. Nick Murray once said that “The enemy of investment success is not ignorance, its fear.” It’s ok to feel afraid, but don’t let that fear affect your success as an investor.

On a side note, the only asset class that did not drop during May was Real Estate. This surprised me and has yet again made me wrong on real estate (for how many months now?). While I believe real estate is good to hold long term, I do believe that most Real Estate Investment Trusts are overvalued and do not have favorable risk/return characteristics and I have not changed my mind on them. I don’t want to hold REITs right now (with the TIAA Direct Real Estate account as an exception).

Market fluctuation is a fact of life, its not easy, it’s not fun, but without it we wouldn’t have the opportunity to outperform low returning investments like bonds and CD’s. You may be wondering when this streak of bad performance is going to end -I don’t know, nobody knows, and finally it doesn’t really matter to the long term diversified investor.

Scott Dauenhauer, CFP®, MSFP