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  • The $100,000 Buy-and-Hold Challenge

    This week, I'm going to hand the reins over to Roger Schreiner, one of the early pioneers of active money management, and allow him to fill you in on a challenge he made last year to John Bogle of Vanguard Funds fame. Roger has studied and observed active and passive management strategies for decades and feels, as I do, that active strategies can provide superior risk management. Roger's conviction is so strong that he challenged Mr. Bogle to a contest that would prove which strategy would come out on top over a given period of time, with $100,000 going to the winner's charity of choice. Mr. Bogle didn't accept, so Roger later widened the challenge to any passive money manager. Still, no takers.

    While most active managers put their 'money where their mouth is' by investing in their own programs, Roger has gone one step further by issuing a direct challenge to one of the most prominent adherents of buy-and-hold strategies, and risking $100,000 of his own money in the process. I think you'll enjoy reading Roger's challenge as well as his arguments in favor of active management. After his discussion, I'll debunk a few of the more common rebuttals that Roger has received since issuing his challenge. If you are struggling with deciding how to get back into the market, I think you'll find this week's E-Letter to be very interesting.

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  • Anatomy of a Stock Market "Meltup"

    As the principal of an investment advisory firm, I have to admit that the stock market sometimes causes us to scratch our heads, wondering what in the world it's up to. As the current market rally continues unabated, this is definitely one of those times. In 2009, the S&P 500 Index soared 65% since its lowest closing value in March and ended the year up over 23%. However, this huge rally seems to have driven stock prices beyond where they should be based on the economic fundamentals.

    Even more confusing is the fact that statistics compiled by the Investment Company Institute (ICI) show that domestic equity mutual funds have had net outflows of money (more withdrawals than new investments) over the past five months, meaning that retail mutual fund investors have been heading for the exits in favor of cash or other asset classes. So, how can it be that the market goes up even though investor sentiment for domestic equities is still decidedly bearish?

    The answer may lie in an obscure market phenomenon known as a 'meltup,' which is a momentum-based rally that usually bears little relation to the underlying market fundamentals. This week, we'll delve into the anatomy of a stock market meltup, discuss possible reasons why stock prices went higher even as retail investors were pulling money out of domestic stock mutual funds and speculate as to whether the meltup might continue in 2010.

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  • My Genes Made Me Do It!

    For many years, I have written about the Dalbar Organization's Qualitative Analysis of Investor Behavior (QAIB) study. Now in its 15th year, this study has consistently documented how investors' returns do not match those of the major market indexes because investors constantly jump from one hot investment to another. While Dalbar showed us how investors returns suffered, we were left wondering why investors acted as they did.

    The answer to the 'why' question may now be found in a recent study showing the part genetics play in a person's investment behavior. The 'Nature or Nurture' study found that up to 45% of a person's investment behavior may be attributable to genetics. Some genetic influences are good while others are not. The Nature or Nurture study also found that genetic investment behavior can persist even after considerable investment education. In other words, nature trumps nurture.

    I recognized long ago how some investors can be their own worst enemies, and now I know that their genetics are likely at fault. Fortunately, I developed a way to overcome some of the detrimental genetic behaviors long ago. If you've ever made a bad investment decision and kicked yourself later on for doing so, you need to read this week's E-Letter.

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  • The Stock Market Conundrum

    The market goes up, the market goes down. Will we have a sustained rally, or is this just a 'sucker rally' that will soon end with a significant downturn? As we look to the experts to help answer these questions, we find that their predictions are all over the map. Many quantitative models are saying the market is severely overbought, while those relying on fundamental analysis say the market is fairly priced. It seems that the more 'expert' opinions we get, the more confusing it becomes for investors to know what to do.

    The biggest question for investors who are currently on the sidelines is whether they have missed the majority of the bull market rally, or if it still has a way to go. This is especially true in the case of Baby Boomers, whose retirement nest eggs have been hit by two major bear markets within a decade. They need the growth that the market has the potential to produce, but can't stand another major down market, which may also be in the cards.

    This week, I'm going to discuss the various viewpoints both for and against a sustained market rally. As you will see, both sides are supported by facts, figures and historical precedent. They can't both be right, but both could be wrong should the market be headed into a broad trading range.

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  • The Case for High-Yield Bonds

    High-yield bonds, otherwise known as 'junk bonds,' have enjoyed spectacular gains so far in 2009. Both the Barclays and Merrill Lynch high-yield bond indexes are up over 40% year-to-date as of August 31st, and inflows to high-yield bond mutual funds is at or near record levels. What these investors may not know, however, is that high-yield bonds, besides having a higher risk of default, also have a higher correlation with equity markets than other types of bond investments. As a result, high-yield bond investments can be very volatile.

    Fortunately, there is a way to invest in high-yield bond mutual funds within an active management strategy that can go to cash when the high-yield bond market turns negative. This week, I'm going to feature a whitepaper on high-yield bond investing by Steven D. Landis, CFP, co-founder of Sojourn Financial Strategies, LLC. Steve's paper will not only provide some valuable background on high-yield bonds, but will also discuss why an actively managed high-yield bond program may still be a good investment in 2009. After that, I'll discuss Sojourn's Columbus High-Yield Bond Program that Steve manages. I think you'll find this program to be a viable way to introduce additional diversification into your investment portfolio.

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  • A Case of Mistaken Identity - The "Other" Gary Halbert

    The Internet is a wonderful thing, but it can also be very frustrating when there is a case of mistaken identity. I have written a number of times about another 'Gary Halbert' that appears when readers do a web search on just my first and last names. And even though Gary C. Halbert died two years ago, he still has a very prominent presence on the Internet. So prominent, in fact, that I don't appear on most searches until somewhere on the second page of links.

    If that's not bad enough, Gary C. Halbert has a number of very unflattering posts related to his activities when he was living. Whether these are accurate or not, they create a problem for me if my current or prospective readers or clients were to think these negative posts are about me. This week, I'm going to again discuss why it's always important to use my middle initial "D" when you do a web search on my name. I'll also provide some background information on myself and my company so that you can feel more comfortable with the person writing to you each week.

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  • Millionaires' Club - Record Plunge In 2008

    A new report released earlier this month found that the global slump in property and equity markets last year cut the number of millionaires worldwide by 15% to 8.6 million, wiping out two years of increases in wealth. The value of the world's millionaires' assets fell 20% in 2008 to $32.8 trillion, after a 9.4% increase in 2007, according to the latest report. The study also found that the super-millionaires ($30 million and up) got hit even harder than the mere millionaires, which is even more interesting. Even if you are not a millionaire, there is a lot to be learned from this annual report from reputable sources....