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When You Plan Ahead, Damage Can Be Minimized

September 12, 2018 By Richard Young

Hurricane Florence is bearing down on South Carolina, with some estimates suggesting four FEET of rain could swamp the coastal towns. Even for seasoned hurricane survivors, that’s a mega-monsoon.

Debbie and I have encountered many hurricanes in our decades of East Coast living. Most recently our Key West home was visited by Hurricane Irma, which left much of the Keys devastated. Our home was left relatively intact compared to some neighbors.

In 2004 I outlined some of the preparations built into our home. My point then was that when you plan ahead, damage can be minimized.

My Big Idea

I’ve been writing to you about my Big Idea. My program is based on the human tidal wave of over 70 million Baby Boomers who, in about four years, will begin to retire and will head south to warm weather and low taxes. I’ve written about Florida as a state that will garner increasing interest by Baby Boomers. Well, as might be expected, when one is especially enthusiastic on a subject, outside influences can, shall we say, put a damper on things. As it turns out, this year’s hurricane season was a beauty, and Florida got hit with four major storms in one season. There hasn’t been a hurricane season like this one for one state since Texas got hit back in 1886. Florida got whupped up by Charley, Frances, Ivan, and Jeanne. Naples, my favorite for relocation, did not get hit. My home base in the Florida Keys also avoided a hit from any of the four, as did Amelia Island north of JAX, another one of my favorites. And my strongly advised St. Joe came away unscathed. Even with a recordsetting four hurricanes, I don’t have much to complain about. And Florida real estate sales remain strong. The WSJ recently reported, “So far, the four hurricanes that pummeled Florida during the past two months have done little to scare investors away from commercial real estate in the Sunshine State.” And sales at St. Joe remain red-hot.

The whole East Coast, not just Florida, felt the wrath of this year’s hurricane season. Virginia was hit hard, and a lot of historic Richmond was under water. Jeanne dumped a foot of water in Delaware. The Carolinas, Maryland, Pennsylvania, and New Jersey all had loads of problems. It was a tough year in the East. After Hurricane Andrew in 1992, Miami-Dade County adopted much tougher building codes. In Miami-Dade, buildings must now be built to withstand 140-mile-per-hour winds.

I’ve been an East Coast island resident for almost 30 years and have weathered a number of nasty hurricanes. They are not much fun, but when you have a plan, dealing with storms is easier. In the Keys, our home is built to withstand 150-mph winds. We built our home like a fortress, with deep overhanging porches to protect windows, jumbo oversized roof beams, and vertical posts with lug bolts the size of your fist. We have zip on-and-off accordion metal shutters for exposed doors. In Naples, where our son, Matt, lives with his family, their fortress has brand-new hurricane-resistant metal doors, including the vulnerable garage. Windows are hurricane fighters. When you plan ahead, damage can be minimized.

The same principles can be applied to your investment portfolio. Building a diversified portfolio on a foundation of value and compound interest will leave you ready for any market storm.

Filed Under: Investing Strategies

The 6 Basic Investing Principles That Will Make You a Winner

September 7, 2018 By Richard Young

There are six basic investing principles that, if followed diligently, can make you a winner. I wrote about these principles in the fall of 1991, and if you are one of my long-time readers who has stuck to them, like me you have achieved investment success. If you are a newcomer to the investing philosophy of Dick Young, I can tell you that this is how I operate, and it has worked for me year after year.

Here are the six principles that made me a winner in the investment battle:

Six Guiding Investment Principles

It’s a regimented, slow and steady progression. Not much spinning, but through the years, a lot of weaving. I’ve been a winner in the investment battle, and you can be a winner too, thanks to six basic investment principles:

  1. SAFETY: I don’t lose my money. I’ve not taken a meaningful loss in my near 30 years of investing; my biggest was for $5,000;
  2. DIVIDENDS: I emphasize dividends and interest;
  3. COMPOUND INTEREST: I place strong value on the power of compound interest;
  4. FEES: I pay few commissions and sales charges. Rarely do I take a big tax hit because I let my positions alone to grow;
  5. BALANCE: I balance my program rather evenly between U.S. Treasury securities investments and commons stock investments. I don’t try to outguess the markets;
  6. SIMPLICITY: I keep it real simple.

Filed Under: Investing Strategies Tagged With: comp

How to Invest Like a Hall of Famer

September 5, 2018 By Richard Young

Those of you who have been with me for many decades may remember back in 1991 when I wrote about investing like Wade Boggs played baseball. Consistency was my focus for you then, and it remains so today. I emphasized Boggs’ ability to get on base. He led the league in on-base percentage six times during his career. Boggs’ career strike out record was a miniscule 6.9%. I wrote:

Ever hear of Wade Boggs? Boggs is a pretty dull guy on the baseball field (not off the field, however). He doesn’t light up the sky with home runs (although he gets his share), and he’s one of the slowest guys on the Boston Red Sox—a real danger on the base paths. Yet every time you look around, the darn guy is on base again. He rarely strikes out. He’s steady in the field and makes few errors. Wade Boggs will surely be in the Hall of Fame. He’s consistent, and he’s highly disciplined. You can count on Wade to give you a Hall of Fame effort each and every game year after year. Consistency is Wade’s key.

I set my investment program along the same lines. You get Hall of Fame results if you emphasize discipline and consistency. You need not go for the home run. Spray those singles around the field. Stretch a little for those doubles. Hit to all fields. Take what the pitcher—or market—gives you every time up and put the ball in play. Don’t strike out. Have a plan, and make it your goal to stick to your plan year after year. You just can’t beat the value of a disciplined, ordered approach.

And of course, Boggs was inducted into the Hall of Fame in 2005.

Filed Under: Investing Strategies

Don’t Miss it All

August 31, 2018 By Richard Young

Emotionalism in the market is too damaging to your portfolio. It’s too easy to miss all the rewards of the market by making bad decisions trying to time the market. In February of 1992 I used this example to explain to readers just how badly they could lose out by jumping in and out of the market.

It’s Too Easy to Miss It All

Here’s another stunning analysis on why trading in and out is not for you. Analysis of stock market returns from 1946 through 1990 by Ibbotson Associates shows the following: One dollar invested in stocks in 1946 grew to $130.52 in 1990. If you take out just the best 30 months for the stock market over the 1946-90 period, the same one dollar grew to only $8.88, versus $8.43 for Treasury bills. Can you really time the market well enough to target the right 30 months in 45 years? Most certainly not.

And yet another example of how trading can kill your total returns. These direct quotes are taken from Forbes 28 October 1991. Professor P.R. Chanoy of University of No. Texas and William Reichenstein of Baylor conducted the research for these conclusions. The professors studied returns for the S&P 500 from 1926 through 1987. “They found that if the best 50 months—only 6.7% of the total time period—were deleted, the S&P 500’s entire 62-year return disappeared.”

In conclusion: Do not be a trader or a timer. Stay fully invested and ride out the storms in high-yielding, big blue chips that will bounce back no matter how violent a given market correction.

Nothing has changed in 26 years about market timing. It was a bad idea then, and remains so today. As I wrote at the beginning of this month, marry compound interest, divorce market timing.

Filed Under: Investing Strategies

Why a Balanced Portfolio is a Winner

August 29, 2018 By Richard Young

Back in October of 1998 American markets were recovering from the Long Term Capital Management crisis. The Fed had organized a bailout, and things were getting back to normal. It felt like a good time then to remind investors of the benefits of a balanced portfolio. I wrote then:

Why a Balanced Portfolio is a Winner

As I have written often, my own target and my goal for you is a long-term total return of 10% to 11% (after fees and taxes). This target may sound conservative, but trust me, it is aggressive and not easily achieved. To have any shot at achieving this target, expenses and taxes must be kept to rock bottom. This requires diligence, patience, adherence to a strict game plan, proper diversification, and portfolio balance. The mix of 60% stocks and 40% bonds meets my return goals (note the 10.3% below). At the same time, it cuts volatility and risk. (The single worst year showed a 14.3% loss, versus 26.5% with a 100% stock portfolio.) It’s a mix most conservative investors will love and should deploy.

Diversification and portfolio balance are the foundation on which you build your portfolio.

I continued later to also caution readers against allowing emotionalism to govern their investment actions:

Emotionalism is an Investor’s Meanest Foe

Events of the moment should never be part of the investment mix. I price my portfolio once a year at tax season (because I must). Beyond this tax-related housekeeping chore, I pay little attention to prices. Most of what I own, I have owned for a long time. I know how things are going month to month and find it counterproductive to rustle through my holdings regularly. You’ll be amazed at how comfortable you can become with a hands-off approach. You sure as heck will pay a lot less in commissions and taxes. And you will defeat what is every investor’s meanest foe—emotionalism.

A decade of ultra-loose monetary policy has sent interest rates into the tank, and with them the prospective returns on bonds, stocks, and assets of all types. My new working target for a balanced portfolio is about half of the old target. I do continue to advise a balanced approach for most investors. Balance helps investors avoid making the emotionally charged investment decisions that often sabotage portfolio performance. At my family run investment counsel firm, our focus is on crafting balanced cash flow-centric portfolios.

If you’d like to learn more about how Richard C. Young & Co., Ltd. helps clients invest their money in a balanced portfolio, sign up for my son Matt’s monthly letter to clients (free even for non-clients). Matt is president and CEO of Richard C. Young & Co., Ltd. and has been named one of Barron’s Top 100 investment advisors for each of the last five years (2012-2016). Disclosure

Filed Under: Investing Strategies Tagged With: comp

My 3 Step Portfolio Check Up Plan

August 24, 2018 By Richard Young

Back in August of 1993 I laid out a three step portfolio check up plan for investors. If you answer these three questions, it should give you a decent idea of how your portfolio should be positioned at the moment. I wrote:

Few investors realize that you can keep your portfolio in shape simply by asking (1) Are short-term interest rates moving up or down on a trend basis? (2) Is inflation advancing or declining on a trend basis? (3) Is the economy expanding or contracting? You don’t need to go beyond these questions for help in balancing your investments portfolio in any cycle.

The answers to those questions today are:

  • Short term interest rates are finally moving up after being held low for years by the Federal Reserve.
  • On trend the rate of inflation has been accelerating since early 2015, as measured by the government’s somewhat flawed CPI index.
  • The economy is expanding, and faster than it has for some time.

I went on to write:

In the 1960s, the Dow gained an average 1.8% per year. In the 1970s, the average annual advance was only 0.5%. In the 1980s, however, the Dow averaged a whopping 12.2% per year. (These average annual figures are exclusive of dividends.) In the 20-year span beginning in 1960, the stock market made little headway. In the 1980s, it was gangbusters. Why the shocking divergence? Interest rates and inflation. A rise in both is bad for the stock market. Both the 1960s and 1970s opened with low interest rates and low inflation that moved higher during the decade. The 1980s, however, opened with high interest rates and inflation that would, over the decade, fall sharply, triggering a boom in stock prices.

With rates rising today, and inflation advancing, it would benefit investors to pay close attention when making portfolio allocation decisions.

At my family run investment counsel firm, Richard C. Young & Co., Ltd., clients are served with fully customized portfolios of individual stocks and bonds generating income that will pay their families a retirement wage in good times and bad.

If you’d like to learn more about the strategies employed at Richard C. Young & Co., Ltd., I encourage you to sign up for the monthly client letter (free even for non-clients). In it, my son Matt, president and CEO of the firm and one of Barron’s Top 100 investment advisors for each of the last five years (2012-2016) Disclosure, explains the strategies and decisions made in client portfolios from month to month. You won’t be disappointed.

Filed Under: Investing Strategies Tagged With: comp

Avoid the Horror: Stick to Your Plan

August 22, 2018 By Richard Young

The underlying value of a company isn’t always fairly reflected in its share price. Some stocks carry stratospheric price multiples when compared to their peers. And some trade at rock-bottom discounts.

There doesn’t always seem to be a ready answer for why companies with similar assets, similar business plans and similar potential carry such varying valuations. You can rest assured however, that there is one thing driving all of these discrepancies, supply and demand.

Twenty years ago, I wrote that there are short, medium and long-term influences on share prices that have little to do with company fundamentals. But these forces do affect supply and demand. Here’s how I explained it back in 1998:

More Buyers Than Sellers. This is the basic reason that stocks go up rather than down. It is useful to gauge supply and demand, short and intermediate term, as well as long term. Short term, I like the first quarter of the year for its especially favorable supply/demand fundamentals. Every pension plan owner wants to fully fund his program in the first quarter in order to take advantage of a full year of compounding. It only makes sense to get your money working as fast as possible. Intermediate term, I like the supply/demand kicker of pre- and presidential election year politics. The pols do not want to rock the boat in the year leading up to and the year of a presidential election, and they sure as heck don’t want to ignite a recession (a killer for stocks). The old phrase, “It’s the economy, stupid!” packs a mean wallop in presidential elections. Long term, I am impressed with the power of baby boomers’ savings. I have written before about the excellent number-crunching PaineWebber’s Ed Kerschner has done on this subject. It’s the best I’ve seen. Ed expects that individual investors will continue to be big buyers of stocks. “This could represent $25 trillion incremental market value over the next 15 years, truly big bucks when you consider that the value of the equity market is about $13 trillion today.” I like the long-term supply/demand picture for stocks.

Don’t allow the ups and downs of oscillating supply and demand for stocks affect your investment decisions. Stick to your plan of patient compound interest generation and you will undoubtedly avoid the horrors of trying to chase performance through short, medium, and long-term cycles.

Filed Under: Investing Strategies

What Waylon Jennings can Teach You About Investing

August 17, 2018 By Richard Young

Waylon Jennings can teach you a lot about being a successful investor. The most important part of Jennings’ success was his go-it-alone, do-it-yourself strategy. Jennings didn’t attempt to sound like anyone else. He charted a musical course that was unique to him. He avoided the herd by making his own decisions. That’s how I want you to invest. In 1995, I wrote of Waylon and his success:

“Well, I Nearly Got Caught at a Burger King.”

“And a couple of times on a plane./I thought I was safe from detection with all of the weight I had gained./But walking around in a jumpsuit—that didn’t work worth a dang./So I bought me some Levi’s and grew me a beard, and you’ll never guess who I am./Nobody knows I’m Elvis: Nobody knows this is me./After all of my tries, I’ve got the perfect disguise, and I’m who I want to be.”

Waylon Jennings, who penned the above song, “Nobody Knows,” is one of the only people on the face of the earth who can actually preface a story with “One night, me, Buddy, Elvis and Roy Orbison were sittin’ in a restaurant in Lubbock” and be telling you the truth.

As producer Don Was noted (in Jennings’ powerful new CD—“Waymore’s Blues, Part 2” RCA 66409-2), in an era when record companies kept their artists on a tight creative leash, Waylon was the only one allowed to produce his own records, and in so doing, created a formidable string of distinctive hits that few artists can ever rival.

Doing it himself and bringing his own powerful creativity to bear has made Waylon Jennings successful in music. And I promise, these traits can make you successful in investing far beyond your wildest dreams. You simply need to pledge to do your own thinking, your own homework—which I’m here to help you with—and make your own decision. Most investors, especially institutional investors, run with the herd, traveling en masse from one investment idea to another. The herd game is not for you. Bring on individuality.

When you develop an investment plan that is geared to your specific needs, you buck the herd mentality.

You must chart your own unique investment course. At my family-run investment counsel firm, Richard C. Young & Co., Ltd., no client is part of the “herd.” Each client has his own needs and circumstances addressed Read more about how we help clients by signing up for our monthly client letter, written by my son Matt, the firm’s President and CEO. The letter is free, even for non-clients, My hope is that it will help you chart your own course.

Filed Under: Investing Strategies

Are You One of the Many Investors Wasting Your Time?

August 10, 2018 By Richard Young

If there’s one thing investors do to waste a lot of their time, it is comparing the performance of their portfolios to the S&P 500 or the Dow Jones Industrial Average. These indexes have little in common with any well balanced and well diversified portfolio. They simply aren’t good proxies for conservative, retired or soon to be retired investors to use for their investments. In December 2004 I called the practice a big waste of time. I maintain that view today. I wrote then:

A Big Waste of Time

One of the most inane exercises carried out by professional and amateur investors alike is comparing performance against, for example, the S&P 500 or Dow 30. These things are moving targets. Investors are not comparing apples to apples. For example, the original Dow began in 1896 with 12 components. What are you comparing yourself against? American Cotton Oil or American Sugar Refining or perhaps Chicago Gas? No, all of these companies have long since disappeared from the Dow 30. In fact, only one of today’s Dow 30 companies started out in Charles Dow’s index back in 1896. The sole survivor is General Electric. The others have either gone bankrupt or merged and merged again. The Dow today is even 10% different from the Dow in 1999, as Eastman Kodak, AT&T, and International Paper have been replaced by AIG, Verizon, and Pfizer.

Both the Dow and the S&P 500 not only are moving targets, but are survivalist weighted. Losers and bankruptcies are dropped and replaced with up-and-comers. And neither index is encumbered with sales charges, expenses, or fees of any kind. And indices don’t pay taxes, which takes a giant bite out of most investors’ portfolios. No, you will do yourself no good comparing your own efforts or those of your manager’s against moving targets.

Instead, measure yourself against a set of reasonable goals based on long-term growth of the economy and normalized interest rates, both nominal and real. With a clear understanding of probable long-term growth and income characteristics, you are equipped to establish your own personal targets.

There are thousands of indexes available, including some with greater value as comparisons for investor portfolios. Those should be sought out and used in a way that takes into account all the factors I mentioned back in 2004. Don’t make the mistakes so many do by comparing your portfolio to an index that has nothing to do with your goals, risk tolerance, or desire for diversification.

Filed Under: Investing Strategies

Investing with the Hard-Hitting NFL-style of Paul Brown

July 27, 2018 By Richard Young

The NFL has a lot in common with investing. Both can be rough sports. You can get beaten if you’re not at the top of your game. That’s why a methodical approach is necessary to win both on the field and in the markets. Back in 2002 I wrote about the inspiration former Cleveland Brown’s football coach Paul Brown has given me during my years of investing. Read on about how Brown used a focused, methodical approach to build a football dynasty.

Former Cleveland Brown’s coach, the legendary Paul Brown, was a full professor. And Professor Brown taught his football players a systematical/methodical procedure of understanding tasks to attain successful results in the face of unforeseen variable difficulties. Paul planned for everything to the nth degree. As Cleveland Browns Hall of Famer Dante Lavelli has said, “Much of the way the game is played at the end of the century can be found in the innovative strategies and techniques that were developed and implemented by Paul Brown. Everyone for example has heard of the West Coast offense. That’s our basic (50s Browns) pass attack that Paul brought from the Browns to Cincinnati. Bill Walsh who was an assistant picked it up and took it to San Francisco.” Today, 50 years later, the West Coast Offense is bigger than ever.

Brown’s Unmatched Record

Paul Brown coached the All-American Football Conference Cleveland Browns to the championship in each of the leagues’ four seasons, including a 29-and-0 run from 19 October 1947 to 9 October 1949. Brown coached the NFL Cleveland Browns to an 88/30/2 record (win/lose/tie) in the 1950s, reaching the championship game in seven years. His methods produced winning results over and over again.

Through the years, I’ve followed Paul Brown’s career in Cleveland about as closely as anyone could, and I’ve based my investment approach and a lot of what I do in life on what I learned from Paul Brown and the Browns. The key is a systematical/methodical approach. Our new office at 500 Fifth Avenue in Naples, Florida, is dedicated to Paul Brown and the Cleveland Browns. As you enter the office, the innovations and techniques of Paul Brown are on full display.

Diversification—Patience—Value–Compound Interest

I write to you monthly of my basic investor tenet: diversification and patience built on a foundation of value and compound interest. If you apply a methodical approach, you can harness the power of my tenet to your own maximum value. Paul Brown was a fanatic on notebooks. Nothing was left to chance. Every player, even back in the 1940s, had to have one. Get yourself a yellow Sharpie marking pen (they write on the glossiest surfaces) and a shocking orange three-ring binder. I want you to circle the key points I make for you in these issues and keep each issue in your orange binder. Like Paul’s winning teams, you will quickly develop an indispensable investor playbook that will help you become a more successful, comfortable investor for the rest of your life. I can promise you success.

Investing without a plan is a recipe for disaster. Chasing the latest fad, or relying on unresearched “tips” from friends can land you in trouble. If you don’t have the time or patience to develop a real investment plan, work with an advisor who will do the heavy lifting for you.

Filed Under: Investing Strategies

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