Monthly Archives: June 2016

June 2016

Accounting changes for the 21st century

By |June 14th, 2016|

I’ll admit to geeking out a bit this weekend while reading Barron’s, but I really did have an “aha moment”.  In the 20 years I’ve been investing on behalf of clients, I’ve done as much reading as I can on how to identify great investments. Most of my research has been on fundamental analysis, in the vein of Warren Buffett and Benjamin Graham – search for “value”. I’m an accountant by training, so I really enjoy looking at financial statements and finding bargains and great values.

The downside to fundamental, financial statement analysis is that I’ve often disregarded great up and coming companies over the past 20 years. Facebook, Amazon, Tesla, Google, Netflix, etc. I have always thought it crazy that investors are willing to pay 200 times the same dollar of earnings that I can get with Ford or Chevron for 10 times. A P/E ratio above the anticipated growth rate of earnings didn’t seem like a value to me.

But I watched the stocks of Amazon, Google, Tesla, et al climb into the stratosphere over the past few years. “They don’t even pay a dividend!” “Amazon doesn’t even make a profit!” I shouted to myself. What the stodgy old accountant in me was missing was the value in these companies that can’t be expressed on the financial statements. I knew they were great companies, with great products, but I said they weren’t great stocks.

Now I get to find out why I have been wrong all these years, thanks to a new book about “The End of Accounting, and the Path Forward for Investors and Managers”. I have in my mind a few of the reasons I’ve missed out on growth stocks.

  1. Branding is not carried on the balance sheet as an asset unless it is purchased in an acquisition. So companies that develop a strong brand from the ground up don’t look to be the same “accounting value” as a serial acquirer. I need to adjust for that.
  2. In the past, most of the assets of businesses were property, plant, equipment, and inventory. Think about today’s great 21st century companies. Many of them don’t have those old-school assets. They have technology. They have networks. They have brands. They have human capital. Those items are hard to value on a balance sheet, when payroll and R&D are expensed, rather than additions to company assets.

I’ve put the book on my wish list at Amazon, and I’m looking forward to calculating quantitatively the value of Research and Development spending, as well as brand value.

Think about Donald Trump. When he boasted of a net worth of $10 billion, many people scoffed. His real estate holdings aren’t worth but $x billion.

But wait. What’s in a name? Specifically, what’s the value of the Trump name, or brand. Think about  a water bottle. You’d pay more if it had a Nike swoosh on it. Same for Trump’s real estate. His brand is worth something.

These innovative authors – accounting nerds – think they’ve come up with a way to calculate the value.

This stodgy old accounting nerd is looking forward to reading it.

https://www.amazon.com/Accounting-Forward-Investors-Managers-Finance/dp/1119191092

“Out of the Box” Investment Strategies

By |June 3rd, 2016|

Not only are we the only independent, fee-only registered investment advisor in Columbia County (i.e. required to act in our clients’ best interest AT ALL TIMES), but we implement some unique investment strategies that our clients appreciate.

We don’t simply place your money into loaded mutual funds and tell you to ride out the market swings.

Aside from a typical, well-balanced portfolio utilizing ETFs, mutual funds, stocks and bonds, here are some of our more unique strategies that we currently offer:

  1. Closed-End Fund Arbitrage. We go long/short using high payout, heavily discounted closed-end fund shares and offset the holdings exposure via index ETFs.
  1. Private Real Estate Notes. We work with three separate builders/real estate developers that build spec homes, purchase for their rental portfolio, or fix and flip. They pay an average of 10-12% interest for first position with LTVs from 50% – 100%.
  1. The Naked Alpha Fund. This is a hedge fund, managed by Adam Sommers, that employs an option strategy that uses vertical put spreads, real estate, costless collars, and layers that over our Closed-End Fund arbitrage strategy and aims for 10-20% per year.
  1. Sustainable Income Portfolios. We have five SIPs that are built for ultraconservative to aggressive investors. One is a bond ladder using ETFs, One is long-only, IRA-eligible Closed-End Fund Arbitrage strategy, and the other three are ETF portfolios made up of three buckets of income-producing assets: Stocks/Bonds/Alternatives. SIPs are less active than the first three items, thus we only charge 3bps per month. We do re-balance them strategically and tactically quarterly. These portfolios provide good returns over the business cycle, but are subject to market movements. The focus of these portfolios is the regular income they produce. it allows for clients to use the consistent income, and let the portfolio ride market cycles.

We’d love to discuss any and every one of these options with you as you look to invest your hard-earned wealth responsibly, and with integrity.