Archive for May, 2015

Russo: Long-Term Value

May 22, 2015

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MALKIEL & TUCHMAN: RETIREMENT AUTOPILOT TRANSCRIPT

May 22, 2015

CONSUELO MACK: This week on WEALTHTRACK, putting your retirement portfolio on auto pilot. Financial thought leader Burton Malkiel has joined forces with online investment advisory pioneer Mitch Tuchman to offer retirement portfolios of low cost index funds that automatically rebalance with a human touch. Why they believe the combination will lead to safe retirement landings is next on Consuelo Mack WEALTHTRACK.

Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. One recurring theme on WEALTHTRACK over the years has been how individual and institutional investors sabotage themselves over time. One way they do it is by chasing hot performance, and buy high, and abandoning investments during market declines and sell low.

The other major way investors hurt themselves over time is by not paying sufficient attention to investment costs. Expenses matter. As one of this week’s guests, famed financial thought leader Burton Malkiel tells us: “One thing I am absolutely sure about is the lower the fee… the more there’s going to be for me as the investor.”

Luckily there are products available to help us avoid both mistakes and more are being created every day. One of them, index funds are already a huge hit with investors and their popularity is growing by leaps and bounds.

According to Morningstar low cost, index based mutual funds and ETFs now have 31% of all fund assets up from just 14% a decade ago.

The other development, to counteract destructive investor behavior is in its early stages. Its automatic investing. It’s being used in target date funds. Some advisors use software that does it in portfolios. And we are now seeing the next generation, with so called robo-advisors. Barron’s recently did a cover story on it called “The New Face of Financial Advice” and highlighted four robo portfolio services: Betterment launched in 2010, Wealthfront launched in 2011, and two recent entries, Charles Schwab Intelligent Portfolios and a hybrid, Vanguard Personal Advisor Services, which requires the involvement of a human financial advisor to provide what Vanguard calls “behavioral coaching” to prevent clients from making those bad market timing decisions.

This week on WEALTHTRACK we are highlighting another service that also combines low cost investing, automatic rebalancing and the human touch.

It’s called Rebalance IRA and there are two personal reasons I am focusing on it. It has two legendary financial thought leaders on its investment committee, with impeccable credentials whom I have had the privilege of interviewing on WEALTHTRACK over the years. They both help develop, oversee and set policies for the portfolios offered to Rebalance IRA clients.

One of them, Charles Ellis has been a highly respected investment consultant to pensions, endowments and governments for decades. He is the author of numerous investment books including the classic “Winning the Losers Game” and “The Elements of Investing”, co-authored with his good friend and fellow financial legend, Burton Malkiel.

Professor Malkiel is also on the Investment Committee and is one of today’s guests. Malkiel is an emeritus Princeton University Economics Professor and author of the classic, “A Random Walk Down Wall Street,” now in its 11th edition.

Our other guest is no slouch himself. He is Mitch Tuchman, Managing Director and Co-Founder of Rebalance IRA which he launched in 2013. Rebalance IRA is a low cost, investment advisory service for accounts of $100,000 on up. As its name indicates it is specifically for retirement accounts and it automatically rebalances their portfolios. It currently has nearly $300 million under management. Before that Tuchman founded MarketRiders, the first online investment advisory service for do- it-yourselfers. It now oversees about $4 billion in accounts. For many years, Tuchman has also been a technology entrepreneur and consultant to numerous Silicon Valley companies.

I began the interview by asking him why he created Rebalance IRA.

MITCH TUCHMAN: I didn’t start off in this business. I moved to Silicon Valley to work at Atari many, many years ago, and after a successful career as a software entrepreneur, I sold a company and I had money to invest, but also a year earlier I had a very interesting experience in life. We had a child who was severely disabled, and I realized I needed to invest this money for 100 years, not just my own retirement, and the gravity of that task was weighing heavy on me as I went to look for options in the financial services industry, and I looked at all the fees and the structures, and I just never found anything that was satisfying to me. So it led to a seven-year career in the investment business, and what I discovered was a completely different method of investing, a whole different language, whole different approach to investing and it was startling to me. As I got more into it, I’m sure this has happened to you, Consuelo, and definitely I know it’s happened to you, Burt, people began to ask you, “What do I do?” because they know you’re someone in the business, and as I was asked I would start saying, “Well, let me see what you’ve got. Show me your portfolio,” and I was again shocked. I would see terribly overpriced mutual funds, horrible allocations, loads, lots of trading, and it began to get very upsetting to me. So I was also experiencing new financial instruments like exchange-traded funds which are innovations, low cost, almost zero trading commissions, and I started to see over time. You know what? The methods of the large endowments and foundations and successful retirement pools, the institutions that Burt has spent his life consulting with, those can now be brought down to everyday investors, and that’s why I got the entrepreneurial bug again and got back into the game of running a company that this time was a convergence of software and financial technology.

RUSSO: LONG-TERM VALUE TRANSCRIPT

May 22, 2015

CONSUELO MACK: This week on WEALTHTRACK, great global value investor Tom Russo looks for leading consumer brand companies with the capacity to reinvest and what he calls the capacity to suffer. Why both qualities matter are next on Consuelo Mack WEALTHTRACK Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack.

In preparation for this week’s interview with global value investor Tom Russo, I read some articles about Russo’s investment hero warren Buffett. One of them was by, Roger Lowenstein, author of a wonderful Buffett biography, “Buffett: The Making of an American Capitalist”. We’ll have more on the book later.

In his 2011 article, “A Harsh Look at the Real Warren Buffett”, Lowenstein was uncharacteristically critical of Buffett for a management decision he made about a key employee. We will have a link to the article on our website. What caught my eye was Lowenstein’s observation about Buffett’s quote “searing independence.”

Here’s what Lowenstein wrote: “In 1969, after a fabulous run as a hedge-fund manager, he decided that Wall Street was barren of opportunities and returned his investors’ money. This was unselfish as well as prescient. The market crashed. Then, in the mid 1970’s, when the market was mired in a virtual depression, Buffett leapt back into the game, now using Berkshire as his vehicle. America had abandoned stocks, but to Buffett, popular sentiment was irrelevant. Traders looked at trends, volume charts, and moving averages. Buffett peered beneath the stock certificate to the underlying business. By focusing on the long-term business prospects, he reclaimed the economic values that were obscured by Wall Street sophistry.”

Well, fifty years after taking control of Berkshire Hathaway, Buffett continues to focus on long- term business prospects. He owns a portfolio of roughly 80 companies, for “forever” as he puts it. He has never sold a share of Berkshire personally, and has only recently started giving shares to charity through to the Gates Foundation.

But what are American investors doing? They have largely abandoned buying individual stocks… they are switching from actively managed mutual funds that do, to passive index funds. And they are certainly not holding for the long term. Trading is in, investing is out. This week’s great investor guest, Tom Russo is from the old Buffett school of investing in businesses, not pieces of paper.

Russo is managing member of the investment advisory firm Gardner Russo & Gardner which he joined in 1989. He oversees more than $9 billion dollars of separately managed accounts and Semper Vic Partners, a Limited Partnership. The global value, long-term oriented portfolio has beaten both the Dow and the S&P handily over the last quarter of a century.

I began the interview by asking Russo about his view that so much of investing has to do with storytelling.

TOM RUSSO: I think it defines the parameters in which successful investors operate. It helps describe the questions that are best asked. I remember the firm I trained with, the Sequoia Fund. Bill Ruane used to have a question that he would ask of managements when we’d visit for example, and he’d say, “What are the chances that your business will lose money next year?” and all of the conversation of Wall Street was about whether the firm would earn $2.10 or $2.11, and Bill would say, “What are the odds that you’ll lose money?” And of course the management team is first perplexed. Finally they’re a bit disturbed. At the end of it they’ll say something like, “Well, look. For that to happen, the following three things would have to happen.” Well, those are the only three things you should care about, and so the device, the technique of investing. You have to learn how to ask the right questions, and I always remembered the one that Bill Ruane used so well.

PREMIUM: RUSSO

May 20, 2015

Long-Term Value

A rare interview with great value investor and Warren Buffett student Tom Russo, who invests in iconic brand name companies for the long term. Which global businesses is he most enthused about now?

ADD SOME TIPS, TREASURY INFLATION-PROTECTED SECURITIES TO YOUR PORTFOLIO

May 15, 2015

ADD SOME TIPS, TREASURY INFLATION-PROTECTED SECURITIES TO YOUR PORTFOLIO

INVESTING IN TIPS

Morningstar recommends:

  • Schwab US TIPS ETF (SCHP)
  • Vanguard Short-Term Inflation-Protected Securities Index (VTIP)
  • Vanguard Inflation-Protected Securities Fund (VIPSX)

Watch the related WEALTHTRACK episode.

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