This posting is a question and answer session with Charles B. Carlson. Mr. Carlson is a prolific author and nationally recognized expert on dividend reinvestment plans. Carlson is a chartered Financial Analyst and holds a MBA in business from the University of Chicago. His commentary has appeared in publications such as Barrons, Forbes, Business Week and Kiplinger’s Personal Finance. Mr. Carlson has also appeared in numerous radio and television programs including CNBC and CNN.
We reached Chuck via email this afternoon.
1. Can you please tell us a bit about yourself? About Horizon Investment? How long have you been in business? Who are your clients?
I have worked at Horizon for 26 years. I’m a rarity in that it is the only place I have worked since graduating from Northwestern University in 1982 with a degree in Journalism. I also have an MBA from University of Chicago and am a Chartered Financial Analyst (CFA). I have written eight books. Our company does two things – we publish investment newsletters via Horizon Publishing; and we manage money via Horizon Investment Services. We currently manage about $170 million in separately managed accounts and consult on an additional $800 million in institutional assets. Our clients are typically affluent individuals, including retirees, professionals, and business owners. Horizon Publishing has been publishing investment newsletters since 1946. Horizon Investment Services has been in business since 1998.
2. What are the ways you find most of Horizons clients have been successful in building wealth?
Simply put, our clients have saved and invested. It’s really quite simple – save and invest. When you save, you not only save today’s dollars, but tomorrow’s dollars. Indeed, spending begets spending. When you buy stuff, you usually need to spend to support the stuff you buy. Thus, spending is a negative multiplier. Wealthy people save and then invest in the stock market.
3. Given current market conditions how would you recommend adjusting one’s portfolio? How are your clients reacting to changing economic circumstances?
We think this is a bull market (the primary trend just changed to a bull market), so we are recommending a pretty high exposure to stocks – perhaps 85%, with 15% in cash. I think people need to use the current turbulence to upgrade portfolios so they are positioned to benefit when the next up leg occurs.
4. Horizon’s website mentioned that your business model involves the Dow Theory forecasts. For those who don’t have much investing experience, can you share Horizon’s investing philosophy and the rationale behind it with our readers?
The Dow Theory, developed by Charles Dow in the 1890s (Dow was the first publisher of The Wall Street Journal), looks at the performance of the Dow Jones Industrial and Transportation Averages. In a nutshell, when these two averages are moving in sync to higher highs, the primary trend is bullish. When they are moving in tandem to lower lows, the primary trend is bearish. We incorporate the Dow Theory into our asset allocation model. For individual stock selection, we rely heavily on our Quadrix stock-rating system. Quadrix looks at more than 5,000 stocks. Each stock is ranked on more than 100 different metrics. Thus, Quadrix provides a disciplined, consistent approach to evaluating stocks.
5. From what I gather, Horizon works with affluent families to meet their financial goals. Do you find that married couples have a different dynamic when it comes to making and managing money compared to single people? How do you think that marriage changes how people deal with money?
We really don’t have that many single clients. I do believe married couples generally work as a team. However, this is not always the case, especially if this is the second or third marriage. In those instances, it is not unusual for married couples to look at their assets individually – what is mine is not necessarily his, and vice versa.
6. You are also known as an advocate for dividend reinvestment programs (DRIPS). Can you please explain what DRIPs are and their advantages for the beginning investor?
DRIPs are programs that allow investors to buy stock directly from companies. They buy stock by having dividends reinvested and by making additional investments. The appeal of DRIPs is that you don’t need a lot of money to start – oftentimes as little as $50 or $100. Also, DRIPs, for the most part, are very fee friendly. Also, many plans allow investors to buy their first share and every share directly from the company. Finally, more than 1000 companies offer them, including many quality blue chips. This is self-serving, but our newsletter, DRIP Investor, provides an excellent tool for learning about DRIPs. You can get a free copy of DRIP Investor by calling (800) 233-5922 or visiting our Web site at www.dripinvestor.com.
You can learn more about Chuck Carlson’s books here.
This posting is a review of Alan Corey‘s A Million Bucks by 30. The book is the story of how reality tv sensation Alan Corey went from being nearly broke to being a millionaire by the age of 28. The book is partly a guide on investing, partly an entertaining story.
There are a couple of things about Corey’s book that make it stand out from the usual crop of personal finance paperbacks.
1) It’s a fun easy read. The paperback has about 220 pages, but you’ll be able to breeze through it an couple of hours. Corey has an accessible writing style that draws you into his stories and keeps you hooked.
2) It’s full of great tips. For example, in every chapter, the book has a set of ideas for being a cheapskate. For example Corey says you should bring one of your old popcorn bags and get free refills at the theater. – But he used the same popcorn bag for three months. He also bought one pair of shoes, and only one pair of shoes – a year. If you are interested in being frugal, Corey’s book has plenty to keep you occupied.
All in all, Alan’s story is a lovely entertaining romp, however you might consider taking it a grain of salt. On occasion, the author seems a bit willing to bend the rules. For example, Corey admits he made up letterhead for a fake magazine in order to score an interview with an indy band he liked. That said, his description of the hard work and hustle it takes to succeed in real state seems to reflect the efforts of a guy who made money the hard way. so, the book rings authentic even if the author strains some ethical boundaries. Best,
Listening to the news this morning on my way back from Dubai to Kabul I couldn’t help but ponder the question these days of what to spend the tax “rebate” on.
First, I want to say that I think it is incredulous that the US Government has the gull to call it a “rebate” when it is merely an advance on future taxes you will have to pay back without noticing the pay back. In my mind, a rebate is something that you get and keep. If rebates from stores worked the same as our government we’d have to pay back the rebate over time. So in my mind, it is all a big scam on the American people to try to get them to spend even more than their rebate.
We won’t be getting ours for some time, since we have to wait until September to file as an expat, but I do wonder about to spend or not to spend.
Part of me is annoyed with the whole thing and wouldn’t spend it the principle that I don’t think consumerism is the answer to our economic strife. At the same time, it’s not like I want the economy to decline either.
I’d love to hear what our readers have to say on the subject. Do you plan on spending it? Or saving it?
For today’s posting, we are pleased to bring you the second part of an interview with Gregory D. Curtis. Called a “super wealth manager for high rollers”, Mr. Curtis is the Managing Director and Chairman of the Pittsburgh based Greycourt and Co., a private investment firm exclusively serving clients with $25 millon or more of net worth. He is the author of “Creative Capital: Managing Private Wealth in a Complex World” and serves on several boards including those of Carnegie Mellon University and the Pittsburgh Foundation.
We reached Mr. Curtis via email (note: this is the second part of our interview with Greg). 5. Greycourt’s website mentioned that your business model involves diversifying your client’s assets. For those who don’t have as much investing experience, can you explain why and how you’re doing this? Can you share Greycourt’s investing philosophy and the rationale behind it with our readers?
Sensible diversification is simply a way to preserve wealth across many generations. Properly done (it’s harder than it looks), a well-diversified portfolio invested with the best money managers in the world and seizing opportunistic ideas as they come along will grow faster than inflation, even after taxes and investment costs, leaving the family relatively wealthier in the future than it is today. At Greycourt we use a very sophisticated, proprietary after-tax asset allocation tool (called Cassandra) to design portfolios, and we devote massive resources to identifying and getting access to the best managers and opportunities. But investors who simply diversify naively (see above regarding spreading assets across eight or more asset classes) and invest mainly in index funds will also do better than 95% of the investors in the world.
6. From what I gather, Greycourt works with affluent families to meet their financial goals. Do you find that married couples have a different dynamic when it comes to making and managing money? Generally speaking, could you offer any insight into the role family plays in wealth?
The truth is that family dynamics are far more important than financial modeling. If spouses or generations are fighting over investment decision-making or who-gets-what, there is no way even a Greycourt can keep the wealth intact. We can sometimes isolate family dynamics from the decision-making process, but it’s complicated and doesn’t always work. In our experience men and women approach money and financial decision-making somewhat differently, but I suspect that this is a function of our era and that as time goes by these differences will lessen.
7. For those people who are just getting started investing, what steps would you recommend? Do you recommend using a full service broker or more of a do it yourself approach?
There are some great full service brokers out there, but frankly they are few and far between. This is not because the rest are idiots, but because the incentives in the industry work powerfully against investors and in favor of the brokerage houses. Agency issues are everything in this business.
For most beginning investors who plan to invest for 10 years or more, a simple 70% equities, 25% bonds, 5% cash portfolio, invested in index funds and rebalanced annually, will work perfectly well. These investors could also buy something like the Vanguard STAR Fund (a fund of Vanguard funds without a fee at the fund-of-funds level), but they would be under-exposed to non-US stocks.
8. Would there be any tools or types of account infrastructures you would recommend for people who are starting out or only have a little bit of investing experience?
I would recommend the Vanguard Web site, and/or using a discount broker like Schwab for asset allocation (not mutual fund selection). Once an investor has $1 million or more liquid, the use of a fee-only financial planner becomes cost competitive. And, of course, if you get to $25 million, call me!
With gas prices continuing to rise, those of you with cars out there might be wondering how to shave off your bill at the pump. Here are a couple of tips to help your personal finances bottom line:
Buy on your way to work.
Most stations hike their prices about 10am, according to Brad Proctor, founder of gaspricewatch.com. Use this info in your favor by filling up first thing.
Another handy resource is gasbuddy.com. Plug in your zip code and they’ll direct you to the cheapest stations around.
These tips are estimated at shaving up to twenty cents off the gallon, or around $2 a tank.
If you’d rather see more of a dent then that, you might want to consider a more fuel efficient car the next time you are in the market for some new wheels.
The 2008 Fuel Economy Guide reports that you can save $200 to $1,500 a year at the pump by choosing a more efficient ride. Plus, choosing a ride that gets 25 miles to the gallon versus 20 would prevent 17 tons of greenhouse gases over the life of the car.
The most miles for your gallons can be found with the Toyota Prius, at 48 miles per gallon in the city and 45 on the highway.
This video is a speech by the CEO of US Bankcorp. If you’ve got some spare time today, feel free to give it a watch.
Some of the CEOs comments are bit self serving. That said, its an excellent overview of the US banking industry and is one of the better money talks I’ve seen.
This posting is on the topic of shareholder activism and its role in the capitalist system.
Although often misunderstood, shareholder activism is derived from the fundamental purpose of corporations under capitalism. Activists sometimes get a bad reputation in the media. They are often accused of having an “agenda” or disdainfully described as attempting to “hijack” the normal orderly functioning of a company. This portrayal is unfortunately at odds with the proper purpose of corporations. The sole purpose of a corporation is to maximize profits to its owners. Everything else is superfluous.
To the extent that corporate executives are not owners of the company, their job is to maximize returns for shareholders. They are employees of the owners and therefore properly subordinate to owners. Nothing more, nothing less. Very often however, managers of corporations loose sight of this and fail to act in the interests of shareholders, who by law are owners of corporations.
When corporate managers begin to loose perspective, it is appropriate for shareholders to take action to force management changes. Unfortunately, it frequently happens that corporate managers loose perspective and allow earning to slip. In these cases, shareholders must step in to force changes. A classic example of this kind of “activist shareholder” is Karl Icahn, who famously attempted a takeover of the Motorolla corporation after its CEO Ed Zander failed to realize his corporations potential (here).
But, you don’t have to be billionaire like Karl Icahn to claim your rights as a shareholder. If a company you own is not reaching its potential, you should feel empowered to write letters to your CEO, attend meetings or contact other shareholders on message boards to voice your views. The main point here is don’t believe the media hype – if management is screwing up, under capitalism it is your right to take action.
I know this post may not relate to those who live within the comfort of their nearby banking institute, but a challenge that I’ve been facing overseas has to do with liquid cash.
Back in January I took a business trip to Southeast Asia and had to front money for my trip, since getting an advance in cash wouldn’t help to pay for things on my credit card. In the end I couldn’t get funds wired from Afghanistan, as my bank denied transactions from overseas. This meant that my expense report had to go to the states and ended up taking six weeks to process; rather than the stated two day reimbursement that our policy manual in Kabul claims.
I’ve just finally resolved that situation and am now faced with another. Now I’ll be getting reimbursed in the field for $1,000, and I don’t have a way to get that cash to my bank account to pay bills. Cash sitting in Kabul only has so much value. If I wanted to get the funds wired it would take another month to process, not resolving the situation either.
One solution would be to western union the funds. But either way I basically get screwed with fees.
I guess the moral of the story is to be thankful to have some of the banking resources that make life a bit easier living in the states.
For me I just have to learn to adjust to the inconveniences that arise with financial management from Kabul. All things considered, I think that it could be much harder. The internet does allow me to continue to manage my finances, challenges or otherwise.
Be thankful for your blessings and learn to go with the challenges you come across. They too shall pass.
Well. The news is in, a Federal judge has sentenced Wesley Snipes to three years in prison.
In case you haven’t been following the whole saga, Snipes became involved the tax denier movement back in 1999 after getting hit with a $2 million dollar income tax bill. The feds went after him in 2007 after figuring out that he hadn’t been paying up.
In January of this year, he survived a tough trial in US federal criminal court, and avoided most of the felonies the prosecutors tried to pin on him. But – he was found guilty on three misdemeanors counts of not filing his returns. Now, for these three misdemeanors, the judge gave snipes three years in prison.
The sentence is a bit on the harsh side. Snipes doesn’t have a record – other than these tax crimes. Typically the toughest penalties are given to offenders who commit serious violent crimes and have a long criminal record. So this sentence seems puzzling given Snipes background. His defense team plans an appeal. Based on Snipes lack of a record, I think they will get some time taken off the sentence.
For today’s posting, we are pleased to bring you an interview with Gregory D. Curtis. Called a “super wealth manager for high rollers”, Mr. Curtis is the Managing Director and Chairman of the Pittsburgh based Greycourt and Co., a private investment firm exclusively serving clients with $25 millon or more of net worth. He is the author of “Creative Capital: Managing Private Wealth in a Complex World” and serves on several boards including those of Carnegie Mellon University and the Pittsburgh Foundation.
We reached Mr. Curtis via email.
1. DINKS: Can you please tell us a little bit about yourself? About Greycourt? How long have you been in business? Who are your clients?
Greg: I started out as a lawyer (I’m recovering), then headed one of the Mellon family offices in Pittsburgh. I launched Greycourt after that.
Greycourt was the first of the true “open architecture” firms targeting very high net worth families as clients. The firm was organized in 1986, incorporated in 1988, and has been operating in its current configuration since about 1997.
Our clients range from “the deca-millionaire next door” to what we believe to be the wealthiest private family in the world. Our realistic minimum account size is roughly $25 million liquid.
2. DINKS: Most of the readers of Dual Income No Kids are mass affluent and are interested in improving their financial situation. What are the ways that you find most of your clients have been successful in building wealth?
Greg: There is an important distinction between building wealth and maintaining wealth. Building wealth requires risk-taking, and the more wealth you want to build the more risk you will have to take. You might incur this risk in the form of professional risk – entrepreneurship, for example – or in the form of owning a very concentrated equity position (Berkshire Hathaway, Microsoft, Google). Most people who take this kind of risk get wiped out, of course.
Maintaining wealth, including maintaining the wealth you have generated from working and saving, requires an investor to own a widely and sensibly diversified portfolio and to stick to it even in the face of considerable provocation – like, say, the current financial crisis.
3. DINKS: For the mass affluent, how would you recommend that people adjust their portfolios in light of the current economic turbulence? How are high net worth individuals reacting to changing circumstances?
Greg: The usual platitude – stay the course! – is defective because most investors aren’t on the course to begin with. Sticking with a portfolio that was (badly) designed to flourish during a period of massive liquidity and very low interest rates is, today, a good recipe for personal bankruptcy. Investors owning such portfolios would be well-advised to go to cash and rebuild from scratch.
Naturally, our predilection would be for them to hire a superior open architecture firm to design and implement that new portfolio! But the truth of the matter is that if those investors would simply identify eight asset classes and spread their assets evenly across them, then rebalance once a year, they would be (mainly) just fine. (The trouble is that when the next bull market rolls around these investors will be back on the bubble, albeit with many fewer assets to lose.)
The platitude – stay the course! – does apply to investors who went into the crisis with well-diversified portfolios. While these portfolios have experienced a couple of nasty quarters, those results are survivable and the portfolios are well-positioned to rebound nicely when markets return to normal conditions. (As happened with such portfolios after the bear market of 2000 – 2002, the bear market of 1987, the bear market of 1973-74, and – well, now we’re getting back before even my time!)
The main difference between what very wealthy investors are doing and what other investors are doing to respond to current market conditions is that the wealthy are taking advantage of disarray in the markets to invest in opportunistic ideas. They can do this because they can afford very expensive advisors (Greycourt’s minimum annual fee is $100,000) and because they are “qualified investors” and therefore can get access to the best managers in the world, many of whom are working out of hedge funds, private equity partnerships and similar vehicles that (thanks to paternalism on the past of the SEC) are not widely available to the mass affluent.
4. DINKS: You mentioned the flight to quality in your recent interview on CNBC and your recent strategy in shorting REITS. Can you please say more about this?
Greg: Sure. Immediately after the credit crunch struck last August, and continuing to this day, retail investors abandoned closed-end corporate bond funds in favor of US Treasuries – a fairly typical “flight to quality.” Discounts on the funds widened out to roughly 20% (discounts typically run to 2% to 3%), while yields reached 7% or so. Buying a diversified portfolio of these funds was like picking up hundred dollar bills on the sidewalk.
Regarding REITs, after seven years of extraordinary returns, and with housing prices headed south, the idea of shorting REITs seemed to have merit. In fact, the return differential between managers who shorted REITs in 2007 and the performance of REITs broadly was nearly 3,000 basis points (30%). At this point we would prefer to be with a manager who is both short and long REITs, as opportunities in the real estate sector are beginning to crop up again.
We will be bringing you the second half of our interview with Mr. Curtis in a later posting.
For more about Greg Curtis, click here. For his book Creative Capital, click here. You can find Greycourts series of investment papers at their website.
This posting is a question and answer session with Charles B. Carlson. Mr. Carlson is a prolific author and nationally recognized expert on dividend reinvestment plans. Carlson is a chartered Financial Analyst and holds a MBA in business from the University of Chicago. His commentary has appeared in publications such as Barrons, Forbes, Business Week and Kiplinger’s Personal Finance. Mr. Carlson has also appeared in numerous radio and television programs including CNBC and CNN.
