June 2008

"It's just paper - all I own is a pickup truck and a little Wal-Mart stock."

~Sam Walton

The Professional Opinion

S&P 500 Index: 1400.38


The timing model remains very favorable as summer approaches.  Critical areas are examined this month.

Economic Growth

Real GDP is estimated to stay within a range of 1-2% for the rest of 2008.  Fed interest rate cuts, the economic stimulus package  will start having an effect in the second half of the year.  Dollar weakness continues to fuel US exports and provide a bright spot in an otherwise lackluster economy.

New jobs are expected to remain weak until the economy begins its slow turnaround later on this year.  Housing starts have declined 30% and change YOY, which is now close to the recession lows during the 70's.  Housing prices are down 8% YOY and are expected to remain soft until excess inventories are sold off.

Real GDP grown for 2009 is expected to be within a range of 2-3%.  The market is expected to continue trending upward until new highs are reached above the S&P Index October 2007 closing high of 1565.15.  The target range for  late 2008, 2009 is still expected to range of 1600.

The Fed

The Fed meets June 24-25 and rates are expected to remain unchanged at 2%.  This 2% rate is below the current YOY inflation rate of 3.9%, based on the CPI.  It is also below the PCE (Personal Consumption Index), which is 3.2%.

This translates into a negative fed funds rate when adjusted for inflation, which translated into an improved economic growth rate for the rest of 2008 and into 2009.

(I understand part of this but I don't quite get why a negative funds rate is a positive for the economy. )

The Fed is not expected to do much more due to the fact that this is an election season and it typically tries to remain neutral.  It should have accomplished all it needed to in regards to economic stimulation the first five months of the year and is expected to sit it out until the soap opera that is the democratic primaries, has concluded.


Core inflation has behaved quite well in the face of high energy prices.  The consumer price energy index has risen 15.9% YOY and gasoline has risen 20.7%.   Rising energy prices serve as a tax on the consumer which has the effect of restraining inflation.

There is an exception and that is in the  transportation sector, where  cost has risen 7.2% due to higher fuel costs.  As long as real GDP growth remains below its average rate of 3 - 3.5%, inflation is likely to remain at or below current levels, which is also helped out by the current low labor rate costs.

Bob remains vigilant regarding legitimate concerns, which would be when real GDP growth meets or exceeds the normal long term growth rate of 3 - 3.5%. The good news is that this isn't likely to happen anytime soon.  The reason this is important is because inflation has an impact on what investors are willing to pay for future corporate earnings.


No changes to portfolios.  


Bob expects the S&P Index to reach historic highs in the 1600 range by 2009.  He also expects to see more market volatility, driven in part by the sluggish economy and by current housing woes.   Buy on weakness in the low 1300's.   All portfolios remain fully invested.

How Cool is This?
There's First Class..... and then there is a ride on the Corporate Jet.

Only one problem -  It's going north instead of south.  Can't complain though,  I could instead be experiencing the latest No Frills Flight.

Pete was right.  There is more to the Yukon than tar sands and power plants. This time I got to learn about Muskeg.

Personal Portfolio
May 2008
Who would have thunk GE would be the leader of the loser pack. That is pretty bad.  I hope Jeff Imelt learned his lesson.


The major thorn in the portfolio continues to be WWNPX.   It irks me that I didn't think to check the funds holdings in financials when the sub-prime mess started.  

I did move out of FSTCX and into FSESX, an energy fund.  FSTCX was recovering a bit too slowly for me when compared to PRMTX.
I think the mix all in all is pretty good.  PSPFX has grown to  6.5 percent of the total portfolio.  I'm going to let this run till the end of the year and then balance it back to 5%.  The end of the year should provide better clues as to where to go in 2009.  

I am maxed out on GE too.  Next month with any luck I should have a DRIP account established for ITW, so future DRIP investments will go into MAS and ITW.

A nice award for Hodges Fund (HDPMX)

Hodges Fund

RNIN and SIMG continue to impress:


I ended up selling the rest of RNIN because I thought the share price would not be sustained at its current levels.
It is still climbing, of course.  

The proceeds went to increasing holdings in three other stocks:


SIMG has been behaving quite nicely.  Some of the conventional thinking on this is that it is still a cheap stock.  People armed with economic stimulus checks are going to be buying lots of  LCD tv's and other electronics that SIMG makes parts for.  That big bounce has me almost over the 4-5% limit for any one stock so with any luck, I may be able to take some nice profits this month.


I couldn't resist and picked up some more ABK shares in the low 3's.  Part of the reason was that it was really cheap and the other was that ABK is actually issuing a dividend.  A whopping penny a share and you can set it up to reinvest in more shares!  How is all this going to pan out?  Who knows.  ABK leadership seems quite optimistic about the future.  I don't know enough about the bond insuring industry to consider this anything more than a spin on the roulette wheel. 


The last RNIN proceeds went into BGS at @ 8.50 a share.  This stock has a killer dividend and it can also be reinvested in more shares.
If you have a Schwab account, you can right click on the stock and there is an option for reinvesting the dividends in more shares.  It is not so much that I am on a dividend kick lately but more of parking money in stocks where I think individual stock performance might do just a bit better than the mutual funds in this slow growth climate.  

Since these stocks are in retirement accounts,  I don't care about the tax consequences of distributions.  

ITW DRIP Registration - Part II

My form complete with DTC number arrived two weeks later.  I didn't get a share certificate in the usual sense.  It was a piece of paper which stated I owned three shares of  ITW in a ComputerShare account.  Now, how to establish a drip plan...............

Looking over the form there is nothing to indicate that this has anything to do do with establishing a DRIP Account.  I can either buy, sell or transfer my three shares.  Not what I want.  There is a new 1-888 number on the form and I try that.

As is per the norm, none of the options in voice mail hell have anything to do with what I want to do which is establish a DRIP account. So how does one get a real live person on the phone?   Do nothing.  Most of these automated systems will transfer a call to a live person after 3-5 attempts to get you to choose an option.  Must have something to do with persons with disabilities.  

Several minutes later I got a live person and explained what I wanted.  She asked for my account number, verified that I owned three shares of ITW and said to look for the paperwork in 7-10 business days - in other words, two more weeks.

To be Continued....

Question of the Month - Adam Bold and the Mutual Fund Store

The above actually ties in quite nicely with two questions I received concerning Adam Bold and his Mutual Fund Store.   Is it worth it?

Well, that depends.

The Show and the Service

Adam Bold has  a weekly radio show called the Mutual Fund Store which runs for an  hour on Saturdays.  The show features calls for the most part, about mutual funds and other financial instruments. He encourages the use of no-load mutual funds, despises annuities and discourages direct stock ownership, as well as index funds.

He also has a Mutual Fund Store franchise where a client can have his money managed for a fee, using Adam Bold's mutual fund picks.  The minimum about required is 50K.  The fee charged is a percentage of your account balance and it is based on a sliding scale. The less you have invested, the higher the fee.  50K  accounts run around 1% (I think).  The more you have invested, the lower the fee. I think  the lowest fees are around .5% per year.

Another term for the charge fee is a 'Wrap' fee.

Adam Bold's pitch is in essence, 'The more money we make for you, the more we make for ourselves.'

There is another service which can be purchased for those who don't have 50k of  assets called Smart 401k which runs about $250.00 for a year.  You supply the service with the funds you have access to in your retirement account and the vice will tell you which funds to invest in. 

What does Adam Bold think about timing the market?

He believes in general that it cannot be done and does not see a time when going to cash is ever in the cards. His fund selections would be different in differing economic cycles, but you would stay in mutual funds.

I of course disagree with that.  Bob Brinker's timing model got me out of the market at an optimum time and back into the market at another optimum time.  It can be done.

How about index funds....what does Adam Bold think of them?

He doesn't.  He prefers to find funds that consistently beat the market on a YOY basis.  Why settle for something that merely mimics the major indexes when you can you can achieve better performance which managed funds.

The other side of the argument is that 90% of the funds out there do not beat their indexes so why go through the hassle of attempting to find funds that do. Index funds are low cost and return whatever their respective indexes do.

I would be very interested in seeing how his portfolio selections actually perform in the aggregate.

Adam Bold's opinion on direct stock ownership.

Adam thinks that unless you are a multi-millionaire several times over, individual stocks are not for you because odds are you will not be adequately diversified and end up hurting yourself in the long run.

I agree and disagree.

While I think diversification is an issue which is very important and one which people tend to take too lightly, the jaded side of me also notes that every dollar in direct stock ownership is a dollar which Adam Bold's Mutual Fund Store cannot take a piece of.

What about Mutual Fund Expenses?

Adam Bold deals with no-load funds or funds with the load waived. I think he is a too little cavalier with fund operating expenses.  His opinion seems to be that operating expenses don't matter if the fund is delivering superior results to its peers.  In an ideal  investing environnment that is all well and good.

Suppose however, that one of your holdings is an international fund with an expense ratio of 3% and the market treads water for a year.

Suppose the fund did 5% total return for the year,  expenses were 3% and net gain was 2%.  If you factored inflation into the mix - you lost 1 - 1.5% on your investment for the year.  A fund with signifacantly lower expenses might shown a slight gain.

Snippets of what other people think of Adam Bold

Opinion 1

Opinion 2

Opinion 3

Some Adam Bold BB Commentary:

The Mutual Fund Store???      

Anyone on this board have any experience with The Mutual Fund Store?  I listen to Adam Bold's radio show every Saturday and have a great deal of respect for his opinion & advice. Don't plan to use his service because I enjoy investing on my own, but his fund suggestions have done very well for me.


I think the real test here for "the store" would be to ask them to manage a taxable portfolio. Changing funds would generate taxable consequences along with what the managers themselves would generate, a possible tax nightmare over time. Just a thought, I think the way they do business is honorable compared to a lot of financial planners.


I put Adam Bold in the same category as Suzy Whoreman. Dispensing advice with little information to the person they are advising. Bold recommended on his show liquidating a Fidelity fund a friend of mine happened to own (over $100K invested) due to it's poor 3 yr performance. Friend was nailed on cap gains come tax time. Shortly after selling he reads in Kiplingers that his fund is (was!) the number 1, yes #1, fund in its category (Large Blend) for the last 20 years! His spin on fee's is annoying also. Paying 1% forever may be good for some but not all investors. Personally I would rather pay a load if using an adviser and be done with it. Just my 2 cents. 


Although I am not a "Bold-head" I have listened to Adam for several years. His selection process for picking mutual funds is fair to pretty good, but embarrassingly sophomoric.  I have owned several of the funds that he recommends, and possibly own some that he currently recommends; but I use Adam as a tip-off as to when I should sell a fund. Check the track records of his recommended funds, most perform better before he (discovers) recommends them than after receiving his endorsement.

I do not have a detailed report of the annual return of his recommended portfolios, but each January I pay special attention to his performance record. My portfolio has outperformed his recommendations every year and since 2003, I have doubled his returns.

Bottom line -- he is above average, but I can't see paying him 1% of my total portfolio to give me returns that I can get with 30 minutes of research.


Adam Bold has a lot of things right but he bugs me when he says he likes to look at the results of a fund and as a result isn't concerned with the expense ratio. This is hogwash. Certainly a fund that has lower expense will always have an advantage with a fund that has higher expense. High expenses are a headwind that will guarantee you a lower return as a direct result of how much higher that expense ratio is compared to another fund with a lower expense ratio. Sure performance is important, however I never see him talking as he should about that there are top performing funds with good long term manager track records THAT ALSO HAVE LOW EXPENSES. He seems to minimize the importance of expenses despite sources and research that continually support that overall funds with lower expenses on average perform better. Statistically they must as a group.

The other thing I think he has shown a bias in is his being down on Ginnie Mae funds as a class. I believe he doesn't understand them adequately and they are better than he makes them out to be.

Finally he is out of whack recommending only about 15% in the international stock mutual fund arena. He has been low in his allocation for since I have been listening to him for the last few years. he never explains well why he is so conservative and so he has held back performance in the last two years for his clients because he was under weighted in international. I have 35% in international and I read many financial magazines with a good reputation and you will find there recommendations ranging from 15 - 50% in international funds.

Other than that I think he is good and does a reasonable job of picking funds with the caveat that he doesn't pay enough attention to fund expenses as a screen for choosing.


Correction! Adam Bold gets a High 1.5%, not 1%. HE spouts his honesty too much. His program is too much of a commercial. I've checked out some of his recommendations & found not as good as my own research for some, but liked others. His choices are too slim.

Also-His " Real Live Advisers" at his local store here is very inexperienced. I interviewed there once. Not with any of my money!!! I've read the same about all his stores, but who knows.


I went to a local "store" and talked with the representative. He quoted me 1% of portfolio value per year. He told me that on "small accounts' the fee is "up to 1.5%", but my account would be 1.00%.


I think on balance Adam Bold does a lot of good, particularly in steering callers away from predatory salesmen who are more interested in lining their own pockets than in helping you grow your assets.

If you don't feel comfortable managing your own assets, don't have the time or inclination and wish to have someone do that for you, I think the service is worth considering.  I would put his service at above average and on balance it would do more good than harm.

The caveat to this is I have not seen any actual performance numbers for his portfolios so that would be something look long and hard at. Performance should be net of all fees.

There have been several calls into the radio show asking this same question.  The answer is generally one which says that since each account is individually managed and each person has differing risk tolerance etc., it is hard to answer the question. Visit the store and you will be provided with some past performance numbers for portfolios which would be close to your individual situation.