Investment Articles

A recent article in a noted financial magazine discussed the folly of market timing versus buying and holding good stocks. The author pointed out how a ten year investment in a strong stock could produce substantial gains, while admitting that buying and selling the same stock a few times during the 10 years produced almost twice the results…but only if you timed the purchase-sale correctly. In essence, with many examples and reasons, he shot down the concept of market timing while making his case for buy & hold.

The true folly of anti-market timing arguments is that they always focus on tracking particular tickers symbols and questioning the ability to buy or sell at the right time. You could argue that all programs that give buy-sell recommendations are market timing programs, but that would be stretching the argument way out. The advantage with some software is that they can tell you when a ticker is going down and when another ticker is outperforming your current holding, even if your current holding is still going up. This power means that losses are limited by your sell rules and gains become cumulative so as to far surpass results from simply holding an individual ticker.

The folly with taking a buy/hold approach has been fully illustrated with our recent recession and again with the recent turmoil and drops in the markets. News headlines during the recession pointed out how retirees had lost 40-60% of the value of their portfolios. The latest market swings have been almost as dramatic.

While many portfolios recouped a lot of their value when the markets swung up from the recession lows few, if any, fully recovered and then surpassed their pre-recession level to the same degree as the markets climbed out of the recession if they were still holding the same positions.

I know the recession hit my portfolio – but not nearly as bad as most because the software I was using told me to sell and move to cash. The same software then told me to buy just as the markets were swinging up so my gains were based on about the same value as before the crash.

The recent decline in the markets also triggered the software I use to sell and I moved 80% of my portfolio value into cash, placing me in an excellent position to obtain future gains as the market rebounds.
In other words, buy and hold means your stocks and your portfolio are going to jump upon a roller coaster ride. While I like riding the Space Mountain roller coaster at Disney World, I would rather my portfolio traced a route more like going on a scenic drive along a valley floor that has a few ups and down but is basically moving on a constant upward path – kind of like following the Missouri up river to its high mountain peak origins.

The key is not simply market timing, but rather to picking positions that are moving ahead better than others, even better than what your current holding is doing. This is accomplished by implementing:

• Relative strength analysis using alpha or relative strength momentum
• Implementing sell signals based on stops, ranking level and market movement – just to mention a few.

By selling to strength, limiting losses and exiting the market when risk becomes too great, your portfolio has a better chance for substantial gains with minimum losses.

Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com

Reading the recent business headlines, confidence surveys and economic strategy reports regarding the market volatility in Greece and the US, it is apparent that we are all concerned about things continuing to head downhill. This market volatility, including the insolvency issues in Greece and high unemployment rates in the US, will continue as governments reluctantly accept this outcome and in the aftermath global economic growth (and consequently investment returns) will remain below average for years to come. However, there are still some positive areas to be encouraged by, amongst the long list of worrisome points.

1. Share valuations are reasonable.
The price-to-earnings ratios in New Zealand, Australia and the US indicate good value for investors. The NZ market is currently trading at an average PE ratio of 13.5 (slightly less than its long-term average of 13.7) and the AU market is at 11.7 (some way below its long-term average of 14.3). The US market PE is currently 12.2, not quite as cheap as the lows reached in the financial crisis, but also much lower than the highs of over 16 that were reached in 2007.

2. Dividend Yields Above Long-Term Average
Dividend yields are (in a lot of cases) higher than those available in term deposits and fixed interest may provide some share price support as income-seeking investors have limited choice.

NZ Shares & Property Trusts – generating an annual dividend yield of 7%
AU Shares – yielding around 5% are achievable
US Share – yield on 10yr treasury bonds being outpaced by share markets average dividend yield (rare occurrence).

3. Interest Rates Likely To Remain Low For some time
Official Cash Rate expectations have taken a turn from the expectation that they would be raised by 0.5%, with local interest rates on hold for now and any move in the AU rates likely to be down rather than up. The vast majority of us are sitting on floating mortgage rates – keeping costs low for borrowers, assisting consumer and business sentiment and also helping yield the gap between shares and other forms of investment.

4. Oil Prices Have Fallen From Their High
Oil is a key component for most sectors of industry, and oil prices have a large impact on consumer confidence. The West Texas oil is 25% lower than its May high and Brent crude is 12% off its highs.

5. Corporate balance sheets are much stronger than they were in 2008.
The corporate world is on a much more secure footing than it has been in the past. Average debt levels in Australia are now at 27% (compared with the long term average of 50%). Corporate debt levels in New Zealand and the US have fallen by a similar amount.

This is a modified article from Mark Lister. To read the complete article visit www.craigsip.com. Craigs Investment Partners Limited (formerly ABN Amro Craigs.) is an NZX Firm that was established in 1984. It is one of New Zealand’s largest and most established investment advisory firms.

Online share dealing accounts can offer a quick and easy way of starting out in stock market investment if you’re looking for a more hands on approach investing and are prepared to put up with a degree of risk.

How do I trade online?

Online share dealing for the individual involves setting up an account and buying and selling shares through it. When you set up an online share dealing account you will usually be required to pay a flat rate of between £6.00 and £20.00 per trade. Some accounts will also charge a quarterly membership fee too. You should make sure that you are aware of all the costs involved before committing to one particular account.

There are many online share dealing accounts available from a range of providers and you can often open an account simply by registering a debit card and providing a few personal banking details.

What do I do next?

1) Decide your limits. Before you begin you should decide on a maximum amount you would like to invest with. Trading can be exciting and fast paced, but you should be completely clear about your limits and the risk involved to your capital before you begin.

2) Do your research. It’s always best to invest in a company you already know something about, and research can help you to gauge risk involved in a particular company. Many share dealing account providers will offer a short trading history on individual companies, use this to your advantage

3) Diversify. Rather than buying many shares in a single company try to spread your investments across several companies. That way if one company goes down it will have less damage on your overall share portfolio.

Your shares will be held in an online portfolio which will also hold information about current share prices and any profit or loss you may have incurred. It’s best not to trade your shares too often as you will probably be charged per trade and these charges can add up and eat into any profit margins.

Is it right for me?

Share dealing online is most suitable for those will small sums to invest and feel comfortable with the processes and risks of investing in shares. It’s certainly not everyone’s cup of tea and you may want to speak to an investment advisor if you have a large sum of money to invest or if you are unsure about any aspect of investing in shares.

John T Hughes writes for Share Dealing Account, a leading online source of information on share dealing accounts in the UK.

The Thrift Savings Plan currently offers ten investment funds. Five are U.S. and international stock and bond index funds: they replicate the performance of broad market indexes. The other five TSP funds, the Lifecycle Funds, are professionally managed portfolios which consist of a specific target allocation of the 5 individual TSP index funds.

The TSP Funds contain a diversified portfolio of thousands of individual stocks and bonds. Investing passively in index funds such as these is generally considered to be a good retirement savings strategy. The alternative is for you or an investment manager to actively pick individual stocks and bonds to buy and sell. Apart from being impractical for individual investors, this latter strategy usually also leads to inferior investment results: research has shown that most professional active fund managers under-perform a passively managed portfolio of index funds such as the TSP funds.

Here’s a summary of the five primary TSP Funds:

The G Fund is invested in U.S. Treasury securities which are guaranteed by the U.S. government. The nice thing about this fund is that it’s practically risk free (your investment is guaranteed not to lose any money), and yet the interest rate is substantially higher than what you would earn in other safe investments like bank savings accounts, certificates of deposit, or money market funds. If you are very risk-averse, this is definitely the place to park your savings.
The F Fund is a bond index fund, invested in high-grade U.S. government and corporate bonds. Its performance is very similar to the private sector iShares Barclays Aggregate Bond ETF.
The C Fund is a U.S. stock index fund that mirrors the returns of the S&P 500 Index, which consists of large U.S. corporations. Its returns are essentially the same as the SPDR S&P 500 ETF.
The S Fund is invested in the stocks of small to medium-sized U.S. companies. It’s designed to complement the C Fund, so if you invest in both, you basically own shares in almost all U.S. stocks. There aren’t a lot of index funds that track these companies, but if you own both the TSP S Fund and C Fund, then your investment returns will correlate closely to a broad U.S. stock market index fund like the Vanguard Total Stock Market ETF.
The I Fund is allocated to international stocks. It allows you to diversify your portfolio by investing in the stocks of companies in more than 20 developed countries in Europe, Australia, and Asia. There are several private sector equivalents to the I Fund, including the iShares MSCI EAFE Index Fund.

The other five funds, the TSP Lifecycle Funds, consist of professionally managed investment portfolios designed to meet investment objectives for a specific target date (the date on which you plan to begin withdrawing your money). The L Fund assets are invested in the individual TSP funds (the G, F, C, I, and S Fund) according to a target portfolio allocation which is adjusted every 3 months. The target allocation starts out risky, with a large percentage of stock funds such as the C, S, and I Fund. As the target date approaches, each L Fund becomes gradually more conservative, by shifting a larger portion of your assets into bonds such as the F Fund and G Fund. This investment strategy assumes that, while you’re still a long time away from retirement, you’re willing to take on greater risks in order to increase your potential investment returns. Also, while you’re still at the start of your career, you have a longer period to recover from potential investment losses, considering that you’ll continue to make monthly contributions to your account for many years.

Depending on your personal circumstances and target retirement date, you choose one of the five L Funds: L Income, L 2020, L 2030, L 2040 or L 2050 Fund. The L Income Fund is the most conservative asset mix and assumes that you’ve already started withdrawing your savings. The L 2050 Fund is the most aggressive allocation, currently 90% stocks and 10% bonds.

Benefits and Disadvantages of Investing in the TSP Funds

Many investment advisors recommend that for long-term retirement savings, you buy and hold a low-cost, broadly diversified portfolio of domestic and international stock and bond index funds. With the available TSP investment funds, you can do an OK job at this. By investing in all five individual TSP funds, or in one of the Lifecycle Funds, you’ll have a decent portfolio, with an ownership share in thousands of U.S. and international stocks and U.S. bonds. And the TSP funds have extremely low annual expense ratios, several times lower than comparable private sector mutual funds and ETFs, keeping more of your money working for you.

So what’s wrong with the list of currently available TSP investment choices? Some investors want to own Emerging Markets stocks (in addition to the Developed Markets international stocks in the TSP I Fund). Or an allocation to real estate (REITs), or inflation-protected securities (such as TIPS). And some would even like access to more exotic investments like international bonds, high-yield bonds, and other hedges against inflation (commodities and precious metals like gold and silver). Professional advisors would differ on how suitable these investments are. Most would agree that TIPS are a good idea, and for more risk-tolerant investors, perhaps a small allocation to REITs and Emerging Markets stocks.

One great benefit of investing in an L Fund is simplicity: it’s a “set it and forget it” investment plan. You choose an L Fund, determine your monthly contributions, and the fund administrators take care of everything else: regular portfolio rebalancing, and gradually adjusting the asset allocation as you approach retirement. But there are also a few downsides. First, the L Funds with the longer time horizons are fairly risky allocations (for example, currently 90% stocks and 10% bonds for the L 2050 fund), and you should make sure that you can stomach the inevitable volatility as a result of owning a portfolio dominated by stocks. If you’ve owned stocks for the past decade then you already know this: it can be quite a bumpy ride. Also, some investors want more control over their exact portfolio components, when to rebalance, and how soon to start shifting the allocation to a more conservative asset mix as they approach their planned retirement date. Some investors also prefer a tactical asset allocation, shifting their mix based on asset class trends, economic circumstances or other criteria. Owning a portfolio of the individual TSP funds will work better for these investors.

Learn more about the TSP Funds and get daily price and performance updates at http://www.tspfolio.com/tspfunds

Investment decisions should be based on solid analysis. Two of the many methods available to base your decision upon are ‘return’ and relative strength momentum as analyzed with an ‘alpha’ formula.

‘Return’ sounds pretty straight forward and is popular. In fact many chart programs are in effect illustrating the return of a ticker symbol simply by showing the movement of the ticker’s price. Either it is going up or down or perhaps gyrating nowhere. But normally there is a percentage change almost every day and if you bought and sold on this basis it would be easy to calculate your return just as you can calculate the return from previous days or history.

‘Alpha’ on the other hand is best used to try and predict the future movement of a stock, mutual fund or ETF.

Let me explain.

If you analyze a particular symbol that is part of a group of symbols using ‘return’ over a particular time period you will quickly and quite simply see which symbol has outperformed the others. You can take this a step further and say that the symbol with the best return for the past 10 or 30 days out of your group is the one to now buy. Investing in this manner can be very successful as the analysis indicates which symbols have the greatest growth or loss rate.

The difference between ‘return’ and ‘alpha’ is that ‘alpha’ is calculating not just the progress of the ticker symbol over your selected time period but it is comparing that progress, the change, to a benchmark like the S&P 500 and to all the other symbols in the group, and, most importantly, it is factoring in the rate of change and comparing this rate of change between all of the symbols in the group. In other words, ‘alpha’ is saying symbol X is moving at a more rapid pace than any of the other symbols and its pace also differs from the benchmark more than that of the other symbols in the group.

This concept of relative strength momentum analysis, of which ‘alpha’ is one means of calculation, can be used to predict changes. Because the analysis, or predictions, are calculating the relative differences between the ETF or stock symbols in your group the potential for accuracy and stronger profits are greater.

Personally, I have used ‘alpha’ as my favorite means of analysis for many years. But recently I decided to test ‘return’ to see which one would produce the best results. I ran tests from 1999 and from 2005 to the present. You might say I did a test drive to see if another model car would outperform the car I own.

Quite frankly I was amazed at the great results, the superb performance provided by ‘return’, especially when I incorporated a Market Exit signal into the analysis to pull me out of the markets when the S&P 500 was tanking.

However, the ‘alpha’ test drive still outperformed the ‘return’ and you might say, let it eat my dust. So I am sticking with my ‘alpha’ method of relative strength momentum analysis.

Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com

Exchange Traded Funds like the broad-based SPDR Standard & Poor’s 500 ETF (NYSE: SPY) offer excellent stock diversification. But as the last decade shows, even optimal diversification is not sufficient to produce long-term capital growth with the usual buy & hold strategies.

The SPY ETF lost in the 2000-2010 decade around 15%. 10 years of holding ETFs without buffering them against medium term market price corrections and bear market downtrends resulted in a loss.

The two large market retracements of the current year 2011 illustrate already how intermediate downtrends affect annual ETF portfolio performance and that this volatile market environment isn’t over. It is evident, that any successful long-term ETF investment requires loss hedging. No hedging will be perfect, but any sophisticated hedging is better than none.

It is strange, that only very few investment advisors suggest ETF portfolio hedging against general market downtrends. Dollar averaging certainly isn’t sufficient and to no avail for investors which are not adding regularly new funds to their portfolio.

It is clear, that protection of Mutual Funds against market losses by trend trading or by trend directed allocation swaps between Mutual Funds and Bonds is too expensive transaction cost wise and that Mutual Funds miss options to protected them during market corrections. But for Exchange Traded Funds the situation is quite different: ETFs are liquid, exchange traded securities, the buying and selling of which in discount broker accounts is inexpensive. And there exist very liquid options for most popular ETFs. This allows any private investor to change asset allocation at least during bear markets or to learn more sophisticated option strategies to insure ETFs in self-directed internet discount broker or even in IRA accounts. The latter really boosts performance, a thing especially baby boomers really need.

Using ETF puts or writing ETF calls are efficient (though, of course, never perfect) strategies to protect ETFs both against medium term market corrections and against bear market losses. More sophisticated hedging strategies offer even the opportunity to make some ETF investment profits during bear markets. All this will improve the long-term wealth growth considerably.

www.best-smart-investing.com offers a tutorial of the full practical know-how of 4 easy to learn and to manage strategies to hedge Exchange Traded Funds against medium term market pullbacks and during bear markets. Two of the strategies even focus on the potential to generate double ETF returns or capital gains even in bear markets by very small additional investments. The strategies don’t require short-term trading and are not time-consuming. As most internet broker offer today test accounts, the test accounts can be used to test the strategies and to train its practical application.

The managing of ETF hedging strategies requires to be able to determine the begin and end of bull trends, bull trend corrections and bear down trends. The website www.winway-spy-signals.com publishes medium term trend signals for the Standard & Poor’s 500 index. These medium term signals allow any investor to time the hedging of broad-based ETFs, of course especially of SPDR S&P 500 ETF (NYSE: SPY), without trend guessing, without depending on market trend news (noise) or on time-consuming medium term technical market trend analysis.

In 2010 the SPDR S&P 500 ETF was hit by medium term pullbacks of 6%, 13,7% and 6,2%, causing a total of intermediate losses of 26%. In 2008 the intermediate losses where 16,1%, 13,2% and 38,2%. Imagine how hedging ETFs according to the strategies referred to above would have boosted the portfolio return during these two loss years and how alone compensating the intermediate losses of two years would have changed the total return of the decade, not to speak of the difference bear market hedging would have made in a bear market like the one which started in 2000.

René Schmid

I am a financial professional (but no investment advisor) and now a senior investor with over 3 decades of investment experience. In the course of my investing I learned, that avoiding general market risk is even more important than good asset allocation. I studied and tested over many years strategies to best hedge ETF investments efficiently against market pullbacks and crashes.

Staying prepared and ready to invest when the markets are down or rolling like a roller coaster is a challenge, but there are a few key actions that will help. There are obvious and the not so obvious steps to take.

When stocks or ETFs or mutual funds are sliding the question always is when will they land and when they do land will there be a deafening splat or will you and the markets pop upright ready to go?

The obvious get ready actions:

• Continue to monitor the markets at your normal pace whether it be weekly or daily.

• Pay attention to key news items like new housing starts, sales of existing homes, unemployment trends and the level of manufacturing. These indicators are important because when people buy a home they usually have to spend more money in the months ahead furnishing or fixing up their new home to match their desires and needs. The more employed mean there is more money going into spending pockets and when manufacturing is climbing employment becomes more stable and even increases which means more spending money in everyone’s hands.

• Review your investment software or other means you use to get by signals just as if the market were climbing.

The less obvious actions that will help you grow your portfolio are:

• Evaluate the strategies in your software or the settings in your charts. On a monthly basis for the last few months, or even weekly, which strategies (rules for buying and selling) had the least losses or even made money while the markets dived. Especially compare their results to the S&P 500 so you have a guidepost with which to compare all your groups and strategies. In this manner you will discover when groups and which strategies hold up when times get tough.

• Evaluate the groups or universes of stocks, mutual funds or ETFs you use for your investments. Has the climate changed so that different types will be more likely to climb in the future? If this is the case, have you put together a group of these potential ticker symbols? Unless you have kept a diverse selection of groups on your desk or in your software you are likely to miss the next group or groups of symbols that recover first from the current market slump.

Perhaps the biggest challenge is to keep yourself positive and ready to take action when the opportunity arrives. The easiest way to keep yourself ready is to remind yourself that investing is like going to the exercise club, jogging, hiking, swimming or playing tennis every day. If you skip a day or (gasp) a week you find yourself quickly out of shape and fighting to get back into your groove. It’s a lot easier to stay in shape and to stay prepared than to get back into shape or get back to a readiness level for increasing your portfolio.

Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com

“…Move out of stocks or gold because I think they’ve been too hot and will crash soon”, or “put some money in X because I think it’s going to be hot soon.” If I had a dollar every time I heard such things from clients, prospective clients, or people at a gathering after they find out that I’m a financial adviser, I could retire to the French Riviera right now, only to be seen by my family and friends during the holidays and hunting season.

In the past 20 or so years, the general public has gained access to various information, tools, and calculators that in the past were only available to financial professionals. Go to the website of a major discount broker and punch in some basic information and all the work will be done for you without having to understand all of the nuts and bolts. Most people get so much educational material thrown at them by their 401k/403b plan, one might begin to wonder how we’re able to replace all the trees that had to be cut down to print it all. Data dating back to the beginning of financial markets shows that guessing market movement consistently is just not doable Couple that with the often repeated fact that 80% of mutual fund managers fail to beat their indexes, and the table that shows how being out of the market on a small handful of days in a decade or two decade span will miss most of its gains, one wonders how an individual can overlook such facts, but they do so again and again to their own chagrin. Why? I don’t know but I’m going try and tackle it. Bear in mind though, I have no PhD in Psychology, just empirical observation.

WHAT IS MARKET TIMING?

One might think it includes pulling all of your money out of a particular asset class (stock/bonds/gold/real estate etc.) when one thinks or feels it’s going to go down and re-investing it back in when one thinks it’s going to rise, and while that is definitely market timing, it’s an extreme version that not many people engage in due both to better education, and various rules and penalties that were put in place to dissuade this type of behavior. The definition of market timing that I go by is to change the strategic allocations of one’s portfolio based on an “ungrounded” barometer such as market gyrations or a recommendation by an “expert” in some type of media, instead of by a more “grounded” barometer such as a change in life situation or a genuine change in risk tolerance. If, for example, your portfolio has a current stock allocation of 40%, but you decide that the market is due to rise due to some perception you have or some talking head on CNBC has, and you change the allocation to 45 or 50% based totally on that perception, you are a market timer, like it or not.

WHY DO WE TIME THE MARKET?

Better yet, why do we try timing the market when we logically know it has resulted in failure time and time again? Partly, because of the same reason we buy lottery tickets or visit the casino when we know the odds are stacked against us, optimism. We inherently believe that we’re special. Besides, mom told us so. We’re smarter, and have better resources than our neighbor, our “experts” are better than his “experts.” Why else would the actively managed mutual fund market still be raking in new money? Why else do huge sums of money move out of said funds AFTER the market tanks, and move back in AFTER the major move upwards? Because we know when the turnaround is coming, and no matter how wrong it turns out to be we continually do it.

Another reason is control. In today’s turbulent times, people’s yearning to be in control is greater than ever. With all of the stuff out there that is out of our control, wars, the national debt, natural disasters, disease and sickness, we all desire one or two portions of our life be controllable, our money is one of those portions. The only trouble with this belief is that the global financial juggernaut is so huge, that trying to fight it is futile at best. Even if you could get information as timely than the Big Boys (pension funds, insurance companies), your tiny little order falls down at the bottom of the pecking order getting filled.

HOW DO WE STOP?

Well if I knew the answer to this exactly I’d probably be on the payroll of every pension plan in the world, but unfortunately all I can to is offer some personal suggestions. First, don’t get a steady diet of cable business news or constantly spend time on financial websites. That’s just as bad as going in to your favorite store to look around when you’re tight on cash for the month. In either case you’re going to convince yourself you need something and the time to buy is NOW! Go into an online broker’s site or pay an independent adviser or financial planner a flat fee to help you set up an allocation (if that’s all you want the planner to do.) Once you implement the plan, re-balance the portfolio on a regular basis (quarterly, semi-annually, or annually) but other than re-balancing LEAVE IT BE! I don’t care if Ahmadinejad is threatening to blow up Israel, Congressmen and women are having an old west style shoot out in the Capitol Building, and Obama is shooting over par in his golf game that day! DON’T TOUCH THOSE ALLOCATIONS!

Another thing you can do is be honest about your risk tolerance. While stocks have the highest real rate of return over time, they do fluctuate, and while most people can stomach a little market turbulence with at least a small portion of their money, maybe you can’t. If stock market volatility in any measure is to much for you to bear, DON’T INVEST IN THE MARKET. Yes, it pains me to say that, and no,you may not have as much money in retirement because you weren’t able to keep pace with inflation. But if market gyrations cause you not to eat or lose a lot of sleep, you won’t make it to retirement age anyway, better to be poorer but still alive I would say.

In closing, pick a strategy, stick with it, and don’t confuse brains with a bull market. You, nor I, nor the gurus that try and sell you their stock picking course at 2 a.m. are that good that we can predict where that market is going to go on a regular basis.

Christian Halas is owner and wealth manager with Halas Consulting located in Pittsburgh, PA. Halas Consulting prides itself in providing unique and objective solutions to various insurance, investment, banking, tax, and estate issues faced by individuals and small businesses. Investment services provided in conjunction with Venn Wealth and Benefit Services, a PA Registered Investment Advisor. Christian can be reached via email at chalas@venn.us with any questions or comments on this article.

I am regularly asked by clients and investors of the importance of company management. When deciding to invest in a company, out of all the attributes and qualities that we review, we first focus on how important are the people in charge. Secondly how do we measure this?

Some of the attributes and qualities that we look at when reviewing a share investment include: are debt levels under control? And, what is the growth potential? However, these review factors quickly become meaningless if there is not a strong and trustworthy leadership in place.

People in managerial positions have a tremendous impact on the success, or failure, of a business. Their vision, leadership and abilities all combine to determine the future of the business.

One such person, who is often singled out as a strong leader in New Zealand, is Don Braid from Mainfreight. The company’s success is based around the unique culture among staff, which is demonstrated from the top, by management. Having a strong company vision and a focused strategy are both critical to business success.

So the answer is a resounding ‘yes’. Quality management is crucial and is top of the list when deciding which companies belong in our clients’ portfolios.

In answer to the second most popular question: how we measure this, is a lot harder to answer. Quantitative and financial review factors are easier to see and therefore measure – these can be put into spreadsheets with forecasts applied. Measuring intangible quality factors associated with management however, is much more difficult, yet arguably somewhat more important.

So what are some of the quality factors we look at in company leaders? These include:

- someone who is very focused on delivering shareholder returns
- someone who knows their businesses intimately
- someone who has a track record of success
- someone who can provide transparent and open communications with shareholders
- a disciplined, sensible approach to business growth

Many companies do not succeed because they take an overly aggressive approach to expanding, or by buying good assets but paying too much and getting the business into too much debt in the process. Large transformation decisions, such as strategic acquisitions are not bad, they just require some added scrutiny.

A lot of successful companies have management teams that have remained stable for a long period of time. While a new approach can often refresh a business, continuity is also critical. We look for managers who have been part of a company’s team in charge for a reasonable length of time. Having an equally competent team is another important factor and a good manager will surround themselves with such a team. This is also a factor we look for. The alarm bells start to ring when there have been a lot of different executives.

We also look for management that has a history of doing what they say they will do, supported by financial forecasts with. It is additionally a good sign when a CEO and managerial team have invested their own money into the business. This not only demonstrates that their interests are aligned with their shareholders, but ensures that management shares the successes and failures with shareholders.

Investing in a company equals investing in the team in charge of running it. It doesn’t matter how good the assets or prospects of a company are, it can fail to deliver if managed poorly.

This is a modified article from Mark Lister. To read the complete article visit www.craigsip.com. Craigs Investment Partners Limited (formerly ABN Amro Craigs.) is an NZX Firm that was established in 1984. It is one of New Zealand’s largest and most established investment advisory firms.

A big investment pitfall can be summed up in one word: greed. A major challenge when investing in stocks, ETFs or mutual funds is to remain with a working system, a methodology that produces results.

Too often new or even experienced investors get caught up in the “investing game”, the hype about what can be, the success story flowing from some sensational, but self-promoting newsletter or advertisement. There are dozens of ways to invest in the markets, not just stocks or ETFs or mutual funds, but using options or margin, buying and selling commodities, are amongst the many.

The key, as I have previously written, is to learn what suits you best and then to stick with it. Find a software program that works for you, based on your available time and the amount of risk you can afford.

Too often situations crop up that tempt you to sway from your path. These temptations can be:

• A friend telling you about new ways to invest money• Volatile markets in which you aren’t recording gains but advertisements make it seem like going a different direction will make you bundles of dough• Publicity and reports about new trends, like technology or foreign investments that tempt you to change course or even abandon your present methods

This doesn’t mean that there are not other methods to investment your money; it just means it is not a simple as the promoters or friends make it out to be. Switching tactics takes time to properly figure and evaluate the best tactics. Switching to totally new types of investments or investing styles can involve weeks and months of learning and studying.

So the question becomes: is it worth the time? Are the tradeoffs worth it?

If the methods you are using for investing are not working when everyone else is making money then, yes, you need to re-evaluate. But if your current methods do work, then perhaps they just need to be tweaked to make more money or perhaps the grass is not greener on the other side of the hill and you should stick with what you have.

If you are not satisfied with the results of a particular software program or you must work to make it work with your lifestyle then, yes, start looking for another investment software program. Don’t be afraid to contact your current software provider or any new one to see if you can do better with the program; in other words are there ways to boost performance that you may not know of but the authors are willing to share?’

Simply switching to new ways or places to invest can cost you money because of lost time and investment losses while you are learning so proceed cautiously and ask lots of questions.

Author Raymond Dominick is the designer of Dynamic Investor Pro investment software for stocks, ETFs and mutual funds. He has been investing in the markets since his teenage years. An experienced business manager and journalist, he has been a registered investment advisor representative, also a professional photographer who loves escaping to the wonders of Glacier National Park in Montana. View his software at: http://www.dynamicinvestorpro.com