Vanguard changes course

Throughout the 1990s Vanguard was a staunch supporter of the do-it-yourself investor and bagged on the idea of paying for investment advice.

Times have changed. Vanguard, according to InvestmentNews, has increased the number of financial advisors on its payroll from 50 to about 220, or an increase of 300%.

In quietly assembling an adviser force, Vanguard is charting a dramatically different path than those of its fiercest competitors. In recent years, such companies as Fidelity Investments in Boston and Charles Schwab & Co. Inc. in San Francisco have cemented relationships with outside advisers through their custodial accounts and referral programs.

Isn't it funny what a few rocky years in the market will do.

Sheehan vs. Feinstein?

Peace activist Cindy Sheehan announced Friday that she would run against Diane Feinstein for U.S. Senate if Feinstein did not support a filibuster against Supreme Court nominee Samuel Alito.

Sheehan's statement was sent by e-mail while she was in Venezuela attending the World Social Forum. She said she had "decided to run" against Feinstein if the lawmaker did not join the filibuster.

I think there are enough criminals in Congress without adding an extortionist.

Retirement...get your lotto tickets!

It seems like there's a new survey out every week depicting how woefully unprepared Americans are for retirement. But a recent survey conducted jointly by the Consumer Federation of America and the Financial Planning Association indicates not only that Americans are unprepared financially for retirement, but that trying to save a significant sum is nearly hopeless.

...less than half (49%) of Americans polled even know how to define net personal wealth. After being told how to calculate net worth, more than half the respondents (54%) had no idea as to their own number. Behind the public's disinterest, according to the survey, lies a general sense that acquiring any substantial wealth is largely impossible. Indeed, only one quarter of those polled believe they could save $200,000 or more in their lifetime. Dig further, as the survey did, and reality grows bleaker. One fifth (21%) of Americans now believe winning the lottery is the best way to accumulate several hundred thousand dollars. For those making less than $25,000 per year, that number increases substantially to 38%.

There you have it. Winning the lottery is your best shot for a comfortable retirement.

Hedge funds slowing but still growing

Inflows into the red-hot hedge fund industry cooled a bit in 2005...they only brought in $40 billion in new investments. That's just a 4% increase for the year compared with 19% in 2004.

While growth has slowed, don't expect hedge funds to go away, they have a legitimate place in the market. Besides, they continue to outperform the broad market. The Hennessee Hedge Fund Index rose 8.03% in 2005 while the S&P 500 showed just a 4.9% gain.

Janus launches long-short

In what could be the beginning of a new trend, Janus has launched a long-short fund utilizing a strategy typically only found in hedge funds.

The Janus Advisor Long/Short Fund will sell short shares of stocks the managers believe will decline in value and use the proceeds to invest in stocks with more favorable prospects. Until now, this aggressive "long-short strategy" has been the exclusive domain of hedge funds which have the regulatory flexibility to use more sophisticated investment techniques.

Hedge funds are typically only available to "accredited investors" or those with a high net income or high net worth and have a high minimum investment. The Janus fund has a minimum investment of only $10,000 and is available only through financial advisors.

25 years ago today...do you remember where you were?

(Click on it for larger image. Thanks Phil!)

Forty-cent letters

Stuck with a bunch of 37 cent stamps, I was forced to go to the local post office today for some 2-centers. With e-mail, online banking and the like, I just don't use the U.S. Mail often, but today, it couldn't be avoided.

The three vending machines in the lobby of the post office were all sold out of 2-cent stamps and my alternative was to stand in a twenty minute line. But wait, the machines had all of the three-cent stamps you could use in a million years! Geez.

I bought a dozen 3-cent stamps and just walked out shaking my head.

A proliferation of letters

InvestmentNews.com reports that there are now nearly 100 financial planning designations and counting and this proliferation is growing out of control. The fastest growth is in designations that are easy to get and offer little substance. InvestmentNews cites a new weath management certificate offered by Kaplan.

For instance, New York-based Kaplan Financial's Kaplan University offers a wealth management certificate to high school graduates who pay a tuition fee of $595, take seven online lessons in areas such as "asset allocation process" and "investment strategies," and pass an open-book test online.

The entire process "should only take maybe one month or three at most," a Kaplan admissions adviser said. Kaplan Financial is a division of Kaplan Inc., a New York-based subsidiary of The Washington Post Co.

In contrast, the CFP designation requires at least 1,000 hours of study, the completion of six courses, a series of exams and a grueling comprehensive final. CFP certificants must have at least three years of work experience as planners, adhere to a strict code of ethics, submit disclosure forms and complete 30 hours of continuing education every two years.

Until the industry can step up and regulate the quantity and quality of these designations, consumers need to be cautious. The letters that follow a financial professional's name may be practically meaningless. For information or to find a CFP practitioner in your area, contact the Certified Financial Planner Board of Standards.

Invisible Hand Podcasts

Three of my favorite things are finance, blogging and my new iPod Nano. They all come together at this site where you can download podcasts about business and finance. Wow, does it get any better than this?

Thanks to Financial Rounds and Marginal Revolution.

Ticker change for Morgan Stanley

Morgan Stanley, plagued by internal bickering ever since its merger with Dean Witter in 1997, is changing its ticker symbol on Tuesday from MWD to MS. The move is seen as another effort to eradicate corporate strife and more closely align the ticker with the company's name.

When Dean Witter was spun off from Sears along with the Discover Card in 1993 (Sears really did have everything) it adopted the ticker DWD for Dean Witter Discover and Company. DWD, affectionately referred to as "Doo Waa Ditty" by employees, merged with Morgan Stanley in 1997 and became Morgan Stanley Dean Witter. The ticker was changed to MWD.

Since the firm dropped Dean Witter from its name completely late in 2001 and is known simply as Morgan Stanley, the new ticker seems appropriate but it's not going to help management solve any of their internal problems.

Google: A stock disaster waiting to happen?

Google (GOOG) was not a publicly traded company when the internet bubble burst in 2000 sending stock prices hurtling back to earth. But with its stock trading at a euphoric 465-plus, could it face the same fate as those internet companies that came unglued nearly six years ago?

Henry Blodget's post titled "Google: The Bear Case" depicts an interesting scenario.

No one else is writing this piece, so it will have to be me. I should say upfront that I'm not predicting that this will happen (yet), and I'm certainly not making a recommendation. I'm just laying out a scenario that could kneecap Google and take its stock back to, say, $100 a share.

"Google's major weakness is that it is almost entirely dependent on one, high-margin revenue stream," Blodget writes. Eventually the growth of this revenue stream will cease causing valuation multiples to drop. But disaster really comes if search-ad fraud or click fraud increases. Ad revenues would drop dramatically compounding declines felt by an already maturing business and multiples would really tumble.

Henry Blodget was the head internet analyst at Merrill Lynch during the bubble years from 1998 until 2002. It was 2002 when Eliot Spitzer published Merrill Lynch internal emails depicting the fraud behind some analysts' published stock recommendations. In 2003 Blodget was charged with securities fraud by the SEC. He settled but is banned for life from the securities industry. His blog is called Internet Outsider.

Predictions for the S&P 500

It's January and that means that all of the big investment firms are out with predictions for the new year. And, like every year, the opinions are all over the board. Here are the S&P 500 predictions for 2006 from most of the major firms.

Prudential +22.6%
Citigroup +12.2
Morgan Stanley +12.2
AG Edwards +12.2
Goldman Sachs +12.2
Schwab +11.0
Lehman Bros. + 8.1
Banc of America +6.9
UBS +5.7
Merrill Lynch -1.9
JP Morgan -9.9

Isn't it amazing how analysts can be as much as 32 points apart?

(Anyone know how to get Blogger to do columns?)

Great sucking sound

Click on graph for larger version

First, there was a nasty and very public battle to oust Morgan Stanley CEO Phil Purcell and then the new leadership fired 1,000 lower-producing financial advisors. The turmoil has resulted in an environment that has the firm's big producers looking for greener pastures.

From InvestmentNews:

When the former retail chief at New York-based Merrill Lynch & Co. Inc. takes over as president and chief operating officer of Morgan Stanley's individual-investor group, he will join a unit that sustained $8.1 billion in net outflows during its fiscal fourth quarter, ended Nov. 30.

What did they expect?

Art and Malcolm

Art Garfunkel and Malcolm Gladwell are really the same person! You've never seen them together, have you?

The NASD flunks its exam

Imagine that you always dreamed of being a stockbroker. So you interview with a few firms and one of them agrees to take you into their training program. You decide to take the big plunge, you quit your job and embark on an exciting new career.

Your first order of business, pass the NASD Series 7, the exam everyone who does securities business with the public must pass. Your new employer will pay you a modest salary while you're in training, but one stipulation is that you must pass the Series 7 exam on your first try or they send you packin'.

For ten weeks you study hard and learn the material. You feel well-prepared for the day-long exam and confidently arrive at the testing center for your big test.

At the end of the day you press the button that says you're finished with your exam. "Are you certain?" it asks. You press "Yes". Your score appears.

Uh oh. A 68. You failed. Now you must return to your office the next day, gather your personal belongings and say goodbye to your new friends and the business you love. The dream is over.

Now imagine that months have passed, you're bagging groceries at the Piggly Wiggly and you come home to find a letter from the NASD saying that you actually passed the exam but a computer glitch caused your score to be miscalculated.

That's exactly what happened to nearly 2,000 people who took the exam between October 1, 2004 and December 20, 2005.

Now what?

The news story here.

Smart and Simple...heavy on the simple

Jane Bryant Quinn claims that her new book, Smart and Simple Financial Strategies for Busy People is not a personal finance book for "dummies," but it's fairly elementary.

In her chapter titled "Better Investing", Jane defines a few investment terms for her readers:

The market refers to the activity of buying and selling. In a bull market, prices rise. In a bear market, they go down. How do you remember which is which? In bear markets you say "Grrrr."

Geez.

But Quinn does a respectable job explaining the more basic principles of saving, debt reduction, real estate, insurance and investing. Her "No Worry" system for automatic investing is a set-it-and-forget-it approach for folks who lack the self-discipline, aptitude or inclination to spend much time with personal financial matters.

An example of the simplicity of her system, Quinn's solution for successful investing is a four or five index fund portfolio from Vanguard, T. Rowe Price or Fidelity. She even tells us exactly which funds to buy and, with only minor caveats, she recommends the same allocation for everyone.

"One size can't fit all." Maybe not, but one size can fit 95 percent of us and I'm one of that 95 percent. I suspect that you are too.

The author has little to say in favor of financial professionals. She believes that financial advisors, insurance agents and real estate brokers should be consulted only as a last resort or when things get really dicey. These slick salespeople cannot be trusted and only add unnecessary expenses.

Quinn's notion that anyone with something to sell or who earns a commission is untrustworthy is a bit troubling. Couldn't it also be extended to authors?