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Jim Farrish
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Jim Farrish is the Founder of Money Strategies Inc, a registered investment advisory firm. He has professionally managed money for nearly 30 years. His extensive research on the markets is published daily on his proprietary site Jimsnotes.com. His primary goal is to educate people about... More
My company:
Money Strategies
My blog:
Jim's Notes
My book:
Money Rules: Rule Your Money vs. Your Money Ruling You
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  • What Is Portfolio Happiness?

    Having been a financial consultant/adviser for the last thirty plus years, there is one question that haunts me everyday. When working with clients this is the question I like to start with, what is portfolio happiness? Unfortunately most everyone defines it in terms of performance. To me, that is a recipe for disaster. It is so easy to get caught up in the performance game we forget what we really want from our money. I understand the argument that performance is the way we keep score and see how managers did during specific market environments, etc. etc. But, The best money managers I know are focused on managing risk, first and foremost. I can only speak for myself, and my money, relative to what is portfolio happiness. That is simply safety of principle first and performance will follow. I have a quote on my desk and trading screens to remind me, "I can always make up for lost opportunities, but I can never make up for lost principle."

    I speak and correspond with investors everyday, and it does not surprise me in the least the number one question I am asked as an adviser is, "what is your performance?" Not, how do you manage the risk of a portfolio. Not, if my objective is an income of 4% per year, how do you manage the assets to provide the income while protecting my principle? No, we cut right to the chase and focus on performance. I get that you have been educated and trained to focus on those variables. Mutual fund companies do it, hedge funds do it, hell, half the spam email I get daily is telling me what the senders performance was last week trading straddles, spreads and condors on options. It is a habit and habits aren't easy to break. However, when it come to managing your money it is vital to develop habits that get you to the goal, not living and dying by performance.

    An example of this is a model we built many years ago that focuses on the ten sectors that make up the S&P 500 index. The strategy is break down the sectors and determine which offers the best opportunity relative risk/reward looking forward. For example, Financial Services is currently 16.1% of the S&P 500 index by weighting. If we conclude from our analysis that the sector has a high degree of risk, we can reduce the weighting by 50% to reduce the risk of the portfolio, or I can assign a 0% weighting to avoid the sector all together. If on the other hand we determine the risk is low relative to our analysis we can increase the weighting by 25% for more exposure to the sector. The goal is to control the weighting of the ten sectors relative to the risk that exist currently and looking forward. This allows me as the investor to manage my risk in accordance with my goals and objectives.

    The next step of the process deals with performance or return on investment. We have assigned an objective of earning 1% per month to the above strategy, with the focus on not loosing principle. Note, that even though we are assigning an ROI objective to the strategy, our primary objective is preservation of principle. Therefore, we set out everyday to manage the money with the end objective in mind, but we are willing to forego the performance if the risk of obtaining it is too high. If the focus is to get the maximum performance relative to the objective, we loose sight of the risk taken to accomplish the performance. Some say that is semantics, but it isn't when you see how money is managed by both individuals and professionals in practice. I was taught at a very young age, your first loss is your best loss, and that is why risk management of a portfolio take precedence over performance. If you manage risk performance will take care of itself over time.

    So the next time you sit down and review your portfolio, ask yourself, does my portfolio provide me happiness and peace of mind? Or, do I stay awake at night worried about the losses or volatility of my money? Portfolio happiness is getting what you want and need from money without having to worry or take undue risk with your principle. Try this process and see if your happiness factor rises along with your peace of mind and visit JimsNotes.com and try the site for 5 days free.

    Apr 25 2:58 PM | Link | Comment!
  • Notes For The Trading Week 4/22/2013

    The outlook for the coming week is one of a defining moment for the broad markets. Following a week of ups and downs for the broad indexes investors are ready for definitive decisions on direction. The latest polls out over the weekend show that Americans are more pessimistic about the economy, big shock! This isn't really a surprise when you consider the data over the last six weeks hasn't been exactly encouraging relative to growth and jobs. Thus, we are cautious as we start the week as investor focus has shifted to specific opportunities versus broad generalities about the markets overall. Breaking the data down for the upcoming week there is plenty on tap relative to earnings, economic data and politics. The goal is to sort through all the news and gossip to find the best opportunities… short or long.

    Technology has been a laggard for the broad market indexes and it holds some mixed signals as you dig into the stocks making up the sector. This promises to be a week of definitive direction as the technology sector takes center stage for earnings. The reports from Yahoo, Intel, IBM and others last week were a mixed start to what looks to be the decisive votes coming from Qualcomm Amazon, Netflix, Apple, Texas Instruments… and others. The semiconductors have been struggling as computer sales lag, but the other areas of the chip sector are looking better. The SOX index tested support again and managed to bounce on Friday. Watch for SOXX to make a move back towards the top end of the current trading range. Tech will play a key role in how the week unfolds.

    Apple (AAPL), fro my view, will be one of the primary earnings reports of the week. What are the expectations? That question will be answered on Tuesday, but from my view it will be the fourth consecutive disappointment from Apple. In fact, $350 ish on the stocks looks realistic as the next test on the downside. iPhones sales have been positive, but due to the fact they have had no new products launched nor a serious upgrade to the existing line doesn't bode well for the outcome. Verizon's news Friday lifted the stock in early trading, but that failed to hold as the stock closed lower on Friday. Are there hints in the reports from both Cirrus and Verizon about the report coming from Apple this week? Lower iPhone 5 sales seem to be the challenge and could be a big negative for the quarter. Apple is still paying a 2.5% dividend at these levels, but the downside risk makes even a value play unattractive. With the sentiment in negative territory, even positive news is likely to be twisted to a negative. The play remains on the downside barring any surprise on Tuesday… none expected.

    Intel is starting to gain some attention from analyst and investors. What is the attraction? The 4% dividend yield paid to shareholders to hold the stock as it figures out the semiconductor market transition to alternative devices for computing. The stock is trading at 11 times current earnings and technically the break from the consolidation range on Friday is a positive. The move above $22.50 on Friday was the first sign of a move higher and worth our attention. See the Watch List for more details.

    There are plenty of issues facing investors this week as we gain a glimpse into some key sectors earnings. Ford will announce on Wednesday and show how the bottom line is shaping up relative to the automotive industry. Caterpillar is on Monday for the industrials. Haliburton, ExxonMobil and ConocoPhillips will impact the energy sector. Eli Lilly, Glaxo, J&J and Pfizer for the drug sector. Technology as mentioned above will also provide insight. Throw in the economic data of existing home sales, PMI manufacturing, durable goods orders, energy inventories, jobless claims, GDP for Q1 and consumer sentiment, all will be watched as this will prove to be a make or break week for the markets.

    Tags: AAPL, technology
    Apr 22 11:25 AM | Link | Comment!
  • Up Or Down? Yes!

    Rally ON? Wait, yesterday it was Risk off that led to selling, right? Which is it, risk on or risk off? Do we really have any way of knowing for sure? The market/investors are getting short-sighted again. It is taking the lead from the headlines day by day. With gold diving more than $100 to open the trading week, investors panicked and started selling stocks. That led to a drop of more than 2.5% for the broad indexes. Tuesday the housing starts were positive along with solid earnings from Coca-Cola and Johnson & Johnson and optimism about earnings helped set the tone for the day as the broad indexes gained 1.5% on the day. When the market lacks clarity, it defaults to news. The result of a news driven market is insanity day to day. Thus we have to take the good with the bad and determine the trend by the charts. The challenge for you and I as investors is putting it all in perspective relative to our portfolio. When logic meets emotions the results are days like Monday and Tuesday.

    Gold attempted to hold support and pretend as if things could turn around on Tuesday, but the metal ended the day up $6 and closed at $1387. The good news is the selling stopped for the day, but the challenge is for the metal to regain any substance of a rally or upside trend. Gold is not dead, but it is not exactly tops on my list of opportunities short term. The Goldminers (GDX) ended the day lower and they are acting (technically) like they would like to move even lower. Silver (SLV) managed a 2.6% gain on Tuesday, but like gold, is still not very attractive short term. The silver miners (SIL) were higher, but not convincingly. The precious metals (DBP) were higher overall, but plenty of work left to be done before this reversal plays out. Not interested in the upside here, the risk remains to high.

    Joining the precious metals were the base metals (DBB) which have been in a distinct downtrend since February. They bounced 1.7% on Tuesday, but a quick glance at the chart shows the damage. Copper (JJC) has been the primary leader on the downside for the sector. The metal was up roughly 1%, yet the mining stocks moved lower again on the day. Again the disconnect between the metal prices and the mining stocks. Still not interested in jumping in on this sector either, but it is of interest and on my watch list of opportunities going forward.

    The theme of meeting or beating earnings estimates, but struggling on the revenue side of the equation has carried over from last quarter. Yahoo after hours beat on earnings, but the ad revenue continues to erode. That pushed the stock down more than 4% after hours. Intel was essentially the same story just slightly less of a miss on the revenue and the stock was flat in after hours trading. The point being we have seen this from Wells Fargo, Goldman Sachs and others well. The bottom line is a validation of the economic data showing little in terms of growth. Companies are creating growth any way they can, but keeping their primary focus on earnings. Investors didn't't punish the sins of revenue last quarter as they gave the benefit of the doubt. Will the same mercy be present this quarter? The result thus far have been mixed relative to the companies. This is something to watch the next couple of weeks as we hit the heart of earnings season.

    Sticking with the earnings theme Citigroup earnings were lost in the gold droppings on Monday, but was rewarded Tuesday with a gain of 4% for the bank. The importance of this was the banking sector is in need of some good news. KBE traded off the lows and is holding support near the $26 level. The upside for banks takes a longer term view and some patience in trading the sector. The key is to buy the positions you like going forward and trade around the position to protect your downside risk, putting yourself in a better position to make money from the sector. We will start adding these positions to our models and set up the trading strategy to benefit from the positions as well as the sector overall. This requires discipline and patience to accomplish.

    Today is another day of news wagging the market - Yahoo's earnings could weigh on tech as the stock has run higher on expectations of a turn around. Intel is flat, but could weigh on tech as well. The focus is to remain patient today and take what the market gives, eyes focused on the longer term goal.

    Tags: GDX, Gold, Silver
    Apr 17 11:25 AM | Link | Comment!
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