17 And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.

18 Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man; and his number is Six hundred threescore and six.

This has now been adjusted for inflation and the new number of the beast, that can only be sold, is:

On Seeking Alpha (http://seekingalpha.com/article/89693-the-only-chart-true-investors-need-to-see?source=feed) the following chart was posted:

The post was titled “The Only Chart True Investors Need to See.” This paints a nice picture;

The S&P 500 rising over twenty fold! Holy Crap!

The market always goes up! Up a lot!

… but look at the timeframe … 1871 through 2008.

As John Maynard Keynes said, “”Now ‘in the long run’ this is probably true… But this ‘long run’ is a misleading guide to current affairs. In the long run we are all dead.”

If you look at the chart, you can see extended periods where the market is flat, or even down. This century would be one of those periods. If you were 60 years old in 2000, banking on “historical, long term returns” to prepare you for retirement at 65, a buy and hold, passive, asset allocation, classic modern portfolio theory investment strategy (buzz words and industry jargon are intentional) would not have served you well at all.

So what’s the DIY investor to do? If you are not Calpers or the Yale endowment how do you handle a shorter timeframe? In Keynes’ words, how do we deal with this before “we are all dead?”

In my experience, we need to learn to deal with what can be called an “event horizon.” You can look here (http://en.wikipedia.org/wiki/Event_horizon ) for a definition, but for our purposes, we will look at how to stay away from the black holes of investment.

More in our next POV.

• FOMC policy will lead to moderate growth and lower inflation. (HUH? How do you encourage and/or stimulate growth in a non-inflationary manner?)
• The slowdown (bubble bursting) in the housing market and the collapse of sub-prime lending are problems, but don’t pose wider contagion risks. The Federal Reserve continues to monitor these areas but is not worried. (Talk about between a rock and a hard place – if you say you are worried, hello panic! If you say you’re not worried, you sound like you have your head in the sand.)
• Inflation is the main worry. (This is always true, except when it’s not. See the first bullet.)
• Growth could go either way. (I really don’t know what to say)
• FOMC has moved away from forward rate guidance, due to risks on both sides. (I guess that rather than say things that have no meaning, or that could be interpreted, they won’t say anything.)

Of course, hours of time and millions of dollars and incalculable amounts of effort and energy will be spent pondering and analyzing whatever the Fed says or doesn’t say. Any comments about today’s market action will include Bernanke’s comments as a reason for the market’s decline. It will all be a waste because there is no actionable news from this.

The issues are multiple:

• China (and other emerging markets) – Chinese government sending mixed signals – echoes of Greenspan’s irrational exuberance? Inexperienced government meddling (similar to Bush treasury appointees?). Raising interest rates at the wrong time?
• Subprime lenders? Tip of the iceberg? End of the financial world as we know it? (Doug Kass of Seabreeze Partners writing on Street Insigt – you can find his comments on TheStreet.com for free. Jim Cramer is the polar opposite – saying this is no big deal)
• Unwinding of the Japanese yen carry trade? Myth or reality? Does it matter?
• Liquidity – there’s lots of money sloshing around, will it dry up? How much is “real” and how much is just paper?
• Buybacks, private equity deals, are they over? Does it make any difference?

This is just a quick stab at things from various commentators and media outlets that have been posed as explanations of the recent market action and platforms to make decisions for the future.

Talk about cognitive overload and dissonance! My point in asking these questions is simply to show that you can find enough to paralyze you or support for any decision you want to make – here’s our take and my synthesis of the noise:

Fundamentally, little has changed. Economies throughout the world are “chugging” along, not in all out growth, not in a slowdown, mostly, doing well but not so well as to be overheated. There are geopolitical risks aplenty, but they remain on the horizon and may or may not come to pass. Anyone who puts together an investment strategy based on what “has to happen” in the middle east or with the US Government (elections, etc.) is most likely to be proven WRONG!, because no one knows or can know what will happen.

Technically, the markets have changed somewhat – the major trendlines of most markets have been broken. If you look at the charts in the past couple of posts, you see that. What’s important here is the significance of those breaks.

Emotionally, the market has racheted up the anxiety level. At the beginning of the month we were in goldilocks mode, not too hot, not too cold, just right. Goldilocks has left the building. The problem is, we don’t know if things are too hot or too cold, we just know that they don’t feel just right.

What to do? If you are really nervous, sell some things, accumulate some cash. Getting paid 5% to sit and wait is not bad. If you think things are really headed south, sell more, maybe hedge some through some inverse funds.

If you don’t know, or if your timeframe is longer, look at the chart of the last year from the previous 2 posts – this could be a replay of last summer, about sic months of churning through confusion. There’s still time to make a decision – and we’ll be here to help.

Coming soon – Market BS! You’ll like it!

This shows the last days of the “correction,” last week’s “recovery” and yesterday’s debacle. Oversees markets had similar losses last night. Here’s a longer term look:

Notice the “double bounce” off the 150 day moving average – in both downdrafts, this line acted as support. In the short term, these support levels are important. If breached, on a close, the market could drop to the 200 day level, about another 2%. Most of the blame for this decline seems to be place on the state of the “subprime” mortgage lenders, potential defaults on home loans and the assumption that an accelerated “bubble-burst” is coming to the residential real estate mortgage. Here’s a link to one of the most bearish commentaries that I have seen, it’s from Doug Kass (he’s a hedgefund manager who is mostly a short). The title, “Subprime’s Siren Call” let’s you know how he feels (http://www.thestreet.com/_tscs/newsanalysis/investing/10343814.html ).

Others are not so concerned. Costs for credit swaps, outside the subprime area, have come back in, and spreads between treasuries, corporates and junk bonds have not widened appreciably.

This week’s market action could well continue to be volatile, it’s options expiration week, so goofy things happen.

The take – watch for support levels, see if they hold. If not, we’ll take a look at some hedging strategies that might be needed.

What’s your point of view? It probably depends on what your timeframe is.

Here’s a picture of the S&P 500 over the last month:That’s a nasty dip! The decline from 2/27 to 3/5 is almost 6%. Not pleasant in anyone’s book. Worse, there was no place to hide – if you want to look at charts of virtually any asset class or market in the world, they are almost the identical in shape and scope. Probably won’t make for happy reading as end of month (February) and the 1st quarter statements hit mailboxes.

Here’s the same chart for the last year.
Now, I’m not normally a big chart guy (technician, technical analyst, whatever you want to call it) but sometimes the charts give important perspective. If you look at last May, June and July on the 12 month chart, it sure looks like late Feb and early March shape up to be similar. The brown line is a 50 day moving average and the blue line is a 200 day moving average. Looks to me like we’ll spend some time between the 2 lines while Mr. Market decides which direction to head.

What to do? If you are concerned about the intermediate term results of your portfolio (that’s like the next 6 months in my book), I’d think about using some of the up days to take some profits and build a cash position. Getting paid 5% while you’re on the sidelines isn’t bad. If you are looking at the next year or two as a timeframe, I would watch that 200 day moving average. If the market pierces that level, that would be a pretty clear signal that the trend had changed. If you can handle some volatility and have a longer term view, here’s a link to a great chart put together by Ticker Sense (http://tickersense.typepad.com/ticker_sense/2007/03/sp_500_5_declin.html). That will give a look through the trees and help you see the forest.

A couple important thoughts here – the market, on an annual basis is up about 72% of the time. If you look at a chart showing a purchase of the S&P 500 on Oct. 15, 1987 – just before the crash, and held through the crash for 10 years, you would have tripled your money. So, no need to panic and do something just for the sake of doing something based on the last 2 weeks. Let’s watch and reevaluate – we’ll be back soon with another Point of View.

“Economists have a name for this problem: moral hazard. It refers to any situation where an agent (in this case, a GM) can take a risky action where he will not have to face the full consequences if the action turns out badly. A GM who hands a player a seven-year deal knows that if the deal works out, he’ll probably keep his job (and even earn a raise), but if the deal doesn’t work out, he might lose his job. But he’ll still earn the money he was guaranteed under his contract, and he won’t have to deal with the albatross contract, or the restrictions it places on payroll.” (Desperate GMs Can Cripple a Franchise, Keith Law, ESPN.com, January 13, 2007).

You’re probably wondering what this has to do with investing or, more importantly, what it has to do with your money. If you are a serious investor — someone who cares about being successful and is engaged with their financial future, you should understand how “investment professionals” deal with you. Investment professionals would include brokers, registered investment advisors, financial planners or any other self-named or self-proclaimed purveyor of investment advice or products. Every one of these people is, in one way or another, a salesperson. They are compensated when an investor initiates a course of action that results in the consumption of the products and/or services that the investment professional is promoting. I know this, because it is what I do. Like all professions, some of us are quite skilled, very professional and have our interests aligned with those of our clients. Some of us are quite self-serving and are way more concerned with our interests than those of our clients. Regardless of skill or motivation, it is critical for the consumer to determine if his or her interests are being served. In order to ascertain this, the consumer must understand the motivation and goals of the provider.

When I traded commodities for a living, I was typically buying from and selling to, other professional traders. The more that I understood their positions, their needs and their personalities, the more likely I was to profit from my trading. It made playing poker look like child’s play.

So, as an insider, I offer these insights gleaned from almost 30 years as an investment professional. These are not offered cynically (although they can be taken that way) – there are many dedicated professionals who do a world of good for their investment clients. I attended a professional meeting one time where I heard one committed advisor describe his concept of financial stewardship for his clients. He actually used a biblical example, talking about how a shepherd cares about each one of his sheep; how the shepherd knew each sheep individually and cared for their needs. That was contrasted to a sheepherder. The sheepherder has a flock, he gets them from point a to point b, protects them as best he can, but the shepherd employs an impersonal and process driven style of care. This investment professional saw himself as a steward, a shepherd, knowing and caring for each of his clients. The next presenter got up and said, “I am a salesperson. I have product to move. Every day I look for someone who needs or wants what I sell, I sell what I can to whom I can and then I look for the next buyer.” Neither of these attitudes is necessarily right or wrong, but the consumer should know who’s who. Some people want a salesperson, some want a shepherd.

Regardless of the advisor’s style, he or she ultimately has to deal with three crucial things; Hope, Hype and YTB. These three things are part and parcel of each investment professional’s ongoing “moral hazard.” How the advisor approaches these things dramatically impacts the consumer.

First; Hope – All investing requires a “leap of faith.” No outcome is completely assured; not even the return on government bonds. Some investments require more faith than others. Some even require a willing suspension of disbelief. As such, every investment advisor must offer hope to investors. Sometimes that hope is justified, sometimes it is not. So, your advisor should be able to explain to you, in language and terms that you understand and are comfortable with, where his or her hope comes from. You are entitled to understand what assumptions underlie the expected returns. NOTE: EVERY INVESTMENT SOLD BY PROSPECTUS INCLUDES LANGUAGE SOMEWHAT LIKE THIS: PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. No truer words were ever spoken. Investors and advisors both have a tendency to assume a straight-line progression of past results into the future. Mutual fund companies are included in this – their performance charts, graphs and numbers perpetuate this assumption. The sales materials they provide to brokers and investors promote and encourage this hope. Few advisors, and fewer investors, are sufficiently skeptical when considering track records. Track records should be a starting point for analysis, not the motivating factor for making an investment decision. Investment advisors are bombarded by “hope mongers.” Mutual funds, wrap account advisors, newsletters, web sites, and any other conceivable (or inconceivable) investment vehicle provides hope for brokers. These brokers are in the business of proselyting – they are looking to convert you, have you accept their “hope” and invest with them.

You need to get an explanation of why they have hope and if the salesperson can reasonably and rationally outline a logical reason for their hope. Then you can decide if you can embrace the same hope.

Second; Hype – This is what, in my opinion, has built the retail investing business. You can’t miss hype in any investment pitched to people. Even a local sports talk radio show that I listen to runs commercials for financial planners. The internet is awash in hyped investments – some are obviously all hype – Nigerian e-mails still abound, but some are more subtle. Whether softpedaled or delivered with the subtlety of a sledgehammer, Wall Street is a hype machine. Promotion is what attracts assets and money in motion is what fuels both bulls and bears worldwide. For financial advisors, the key business metric is “assets under management.” How much money an advisor attracts is more a function of promotion than of performance. Advisors package their hope and then hype it to the max; that is how they acquire assets under management. Most investment professionals want their prospective consumers to make an emotional decision (that doesn’t necessarily mean irrational! Although sometimes it is), i.e., one driven by the hope that the hype has instilled in the buyer. After all, it’s much easier to create hope, and sell hope, than it is to demonstrate how much you know or care.

You need to see through the hype and discover if the advisor really has paid attention to, and understands the nuts and bolts of what he is selling.

Third; YTB – you are likely wondering, “what in the world does YTB stand for?” This is a simple, and common acronym that ultimately drives most everything that goes on in the financial world – Yield to Broker; or, in black and white; who gets paid, how do they get paid and, most importantly, how much do they get paid. Ultimately, that’s what Wall Street is about, YTB. Doesn’t matter if it’s a no-load mutual fund, A, B or C shares, a hedge fund, a wrap account, a stock, a bond, a private REIT or a variable annuity – it’s about getting paid, and the investor is the one who pays. When you take someone’s advice, they are getting compensated – and you are paying. If it’s a phone call to a no-load fund family, they get paid when you entrust them with money. If it’s purchase of a load fund, the selling broker gets paid. If you are investing in a hedge fund, the manager gets paid. If you’re reading a blog for advice, the writer, most likely, is getting paid.

You need to know who gets paid, how they get paid and how much they get paid when you trust them with your money.

Here’s a true story that illustrates how Hope, Hype and YTB can be a nasty triple play. Back in the mid-90’s, Alliance Capital (huge mutual fund family) began promoting a mutual fund designed to deliver 300% of a money market fund’s return with “little” risk (this was an actual term used by their wholesalers) to principal. [Note: a wholesaler is a salesperson/promoter whose job it is to persuade investment advisors – also referred to as “retail brokers” in some circles – to place clients’ funds in the wholesaler’s investment products]. Without going into too much detail, the investment premise was that Alliance Short Term Multi-Market Trust would purchase short term money market instruments issued by governments of countries with poor credit ratings – the government equivalent of junk bonds. Rates in these countries often were 3 to 4 times what AAA rated government paper would pay. There is a tremendous amount of currency risk in these markets; typically, the high rates are paid to offset the fact that the currencies are constantly losing value vs. the dollar. Sometimes these currency risks can be hedged. In the case of the currencies used by the fund, hedges were either unavailable, or prohibitively expensive. Alliance’s financial wizards had determined that by using layers of cross-hedges, they could engineer out the currency risk. Without going into mind-numbing detail, let me just say that the viability of the hedges they wanted to use depended on the relationship between certain currencies staying quite stable over time. When the wholesaler presented this to a group of us, using phrases like – “they’re selling the hell out of this all over the country!” – I remembered some case studies from graduate school where companies had actually gone bankrupt trying to hedge using these exact same strategies. When I asked the wholesaler about principal risk, he assured me that the “experts” had removed the risk from the fund. When I pressed the point, he turned to the others in the room and with a “wink, wink, nudge, nudge” and commented that “they’re selling the hell out of this all over the country!” and that it was almost a money market fund with “Three times the yield! Only a moron couldn’t sell this!” Those aren’t exact quotes, but are representative of his presentation. I guess I was a moron, I never presented this idea to a single client. A year later, the fund had lost more than 40% of it’s value due to several currency crises and devaluations. Even after the huge yield, this “almost no-risk” quasi-money market fund (they even offered check writing privileges!) delivered a total return that was a precursor of the dotcom era. As the value of his clients’ investments in the fund plummeted, one of my former colleagues called the wholesaler, demanding an explanation. The wholesaler’s response: “I told everybody to get out of this dog weeks ago! Where were you?” Incidentally, you can’t look the fund’s name up now and get a price; or even research it’s history — it has disappeared, swallowed by another Alliance Fund.

So, let’s tie this all together. Industry wide, turnover among clients of investment professionals is about 30% per year. When your investment advisor looks at you, he or she understands that there’s a 30% likelihood that you will take your money elsewhere in the next year. A corollary to that is that he or she understands that, on average, their entire clientele will turn over every three years. Here’s the significance to that – the impact on how the advisor approaches you and your portfolio – the “moral hazard” that impacts your financial wellbeing. Like the general managers referred to above; the advisor knows that they are likely on a short leash. Most advisors are more interested in marketing, acquiring “assets under management” and keeping a fresh stream of new clients than they are in the performance of their clients’ investments. The advisor knows that clients will leave. This conviction leads to two types of behavior. The advisor either:

1. Presents investments that maximize his or her revenue at the time of purchase

OR

2. Adds risk (sometimes referred to as beta) to a portfolio, understanding that if the risk pays off, the client is more likely to stay and that if the risk does not pay off, clients leave anyway and new clients will be found.

Actually, these 2 things are not mutually exclusive. In my experience (and I have reviewed thousands of portfolios over the years), unfortunately, I have seen a number of portfolios where the advisor has done both – maximized the up front revenue and taken outsized risks.

Hope, Hype and YTB, as an investor, you investor should understand how these impact you before you write a check.

Everyone involved in the financial services arena has an agenda – sometimes, various parties have parallel purposes, sometimes they’re at cross purposes. The investor’s problem is that they may not know what everyone’s agenda is. Here’s a link to a Mark Cuban post on his blog that describes, very cynically, some of the agendas seen on Wall Street. I don’t agree with everything that he says, but there is some truth to it.

I’m writing this blog for this site because I think that I have something to offer, as does this site. If you manage your own investments, the people involved with this site have some valuable insight that you can use to meet your investment goals. If you use a broker (or brokers) or investment advisors or money managers or any intermediary to help you achieve your goals, I can offer an inside view and almost 30 years of experience.

Jimmy Buffet puts it nicely:

“I’ve read dozens of books about heroes and crooks, and I learned much from both of their styles.”

The philosopher, Soren Kierkegaard adds a thought about life that perfectly describes investing:

“Life can only be understood backwards, but it must be lived forwards.”

With that in mind, here’s one thing that you must remember – no one cares about your portfolio more than you do. If you are not involved in, understand and keep constant watch on what goes on with your money, someone else’s goals will be met, not yours. So here are some nuggets, hard earned wisdom, distilled over the last 30 years. These “rules” have no particular order, one is no more important than the other, whatever is most important and applies right now, is the most important.

• The most important things are always simple.
• Simple things are always hard.
• Do not mistake an event for a trend.
• It’s better to be approximately right than precisely wrong.
• Remember, your money might be managed by the lowest bidder.
• Priorities are man made.
• Don’t invest with someone who is braver than you are.
• Know when it is time to get out of Dodge.
• Know how to get out of Dodge.
• Whenever you try an untested strategy – particularly a “trend” or “fad” – the window to get out is much smaller than the door to get in.
• The market will continue to reward good ideas.
• Being diversified and informed will improve your odds.
• There is no secret to success, but the key to failure is standing pat.
• The more things that need to go right for your best case to happen, the less likely it is to occur.
• There are no certainties in investing, only probabilities.
• Risk cannot be eliminated, it can only be reduced and quantified through preparation, vigilance and action.
• No one is always right – “Everyone” is almost always wrong.
• ”NIH” kills. (“Not Invented Here”).
• It doesn’t matter how many pails of milk you lose as long as you don’t lose the cow.
• It is easier to stay out of trouble than it is to get out of trouble.
• The map is not the territory.
• Dice have no memory.
• A desk is a dangerous place from which to view the world.
• Different isn’t always better, but better is almost always different.
• Sometimes it’s risky not to take a risk.
• Make sure that your mind has already gone where your portfolio is about to go.
• If you are not careful, logic will overcome reality.
• Change is certain; progress is not.
• No plan survives contact with the enemy.

I hope you find this interesting and that they provoke some thought. We’ll talk in depth about each of these as we go forward.