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Richard Rosso
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Richard Rosso Is a Certified Financial Planner, Senior Financial Advisor for Clarityfinancial, LLC located in Houston, Texas. He has appeared on various radio & television stations throughout the U.S. and he has contributed to & been quoted in many publications and websites including USA... More
My blog:
Clear Thoughts Blog
My book:
Random Thoughts of a Money Muse
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  • The Great Gatsby - His Greatest Financial Gaffes.

    So everyone loves Gatsby, I get it. We're mesmerized by the over-the-top glamour, the trappings of wealth. Don't get me wrong, I love the story too although I've always felt Jay Gatsby was a financial disaster waiting to happen. No, seriously. I've always felt Gatsby suffered from several emotional and financial pitfalls. Hey, the super-wealthy are people too, old sport!!

    They make mistakes.

    How can you avoid what I call the Gatsby's Greatest Financial Gaffes?

    Ideas and actions to take:

    1). Gatsby lived too much in the past. Most likely, he held on to losing investments too long believing they would "come back" to the price he paid for them. It was obvious Gatsby was seeking to obtain something he lost long ago I call it the "Daisy Dilemma." He couldn't move on. As Nick wisely told Gatsby: "You can't bring back the past." "Why of course you can, old sport!" Consider selling losing investments and placing money into a better vehicle.

    Action Step: Work with your financial partner for encouragement. Consult with a tax pro to create a plan to move away from the losers. Don't look back. The past is over!

    2). Gatsby spent too much in (on) the present. He wildly overspent on parties. What was the return on these garish events? Not much. Most attendees didn't know him - they knew of him. It's always healthy to step back, live in the present and assess at the end of the day, how much cash you blew. Before you hit the check out line or expose the credit card, step back into reality, the NOW, ask yourself: Do I truly need this purchase? At the least, a brief pondering may take some of the excitement out of it all, cause you to delay gratification.

    Action Step - Before you spend $25 on something you want, wait 24 hours. You may be surprised how the urge to splurge may pass. Then write down how you felt when you made the decision to walk away.

    3). Gatsby lived a false future. He envisioned a life that was never going to happen. His income was, his investments were derived mainly from Prohibition which eventually was repealed. It was only a matter of time, at the rate Gatsby was spending, before financial disaster was imminent. He wouldn't have dodged this bullet, either. A smart Gatsby would have diversified his business or at least his investments. He was dangerously focused on the green light. His focus was ostensibly, deadly. Myopic.

    Action Step: Incorporate realistic assumptions; manage risk, when it comes to preparing for the future. For example, you direct your career attention, devote your human capital to one industry and, in addition, focus your investment dollars toward same industry, there's a risk of danger.

    We've seen in the past how a concentration of lives, investments, in one company destroyed employee nest eggs - Enron, Lehman Brothers, Stanford. Don't take the chance.

    If more than 20% of your total investment portfolio resides in the path of the green light of the industry which employs you, then you're dangerously under diversified. Maybe everything will be fine. Are you so overconfident? Are you as eternally hopeful as Gatsby? He believed he possessed the girl long before he had the girl.

    It's time to examine your overconcentration and begin a strategy to contain or minimize your heavy exposure. Team closely with a qualified tax professional and financial advisor well versed in liquidation strategies.

    Action Step: Are you making pragmatic assumptions about your future? Are you beginning to work with an objective financial advisor to forge a clearer picture of retirement? What kind of investment return expectations is your financial partner estimating for your portfolio allocation? I've found most future return estimates are skewed to over optimism, not realism. To combat this, subtract 1% from the future return calculations provided by your advisor. Increase your savings rate by 1% to compensate.

    4). Invest in what Gatsby couldn't. It's tougher to find undervalued situations these days and the investments Gatsby was involved in would get you arrested! Imagine if Gatsby had Xerox (NYSE:XRX) in his portfolio to streamline the business process. With revenues at close to $23bil Xerox is no longer a "copy maker." While its ongoing transition to primarily, a service model, from a document technology platform (even though some of us who are Gatsby-like still like working with paper documents), bears monitoring and operating margins have been pressured, XRX pays a dividend of 2.6%, trades at roughly 7X forward earnings and still holds a respectable TTM free cash flow of $2bil up from $1.5bil in 2011.

    What's troubling is the company's long-term debt to shareholder equity which may drag on performance. TTM 2013 - Long-term debt to shareholder equity is currently at 65%. Ursula Burns, Chairman & CEO seems to understand the delicate dance of managing the transition of XRX from copying and printing to services, which now accounts for 52% of revenue (as of 2012).

    XRX is able to generate such strong operating and ostensibly, free cash flows, from 84% of revenue which is "annuity based" or ongoing. In the face of the financials, it makes sense that Ms. Burns is willing to take on additional debt to continue the company's direction from document delivery to service contracts.

    Unlike Gatsby, you can focus on the real green light: A more secure financial future.

    Disclosure: I am long XRX.

    Tags: XRX
    May 20 2:22 PM | Link | Comment!
  • Gold Is A Rock - Lessons From The Drop.

    We've heard it all too many times. Still hearing it: Gold will continue to move higher.

    Fine.

    Even if possible based on the lack of faith in global leaders, or a fiat currency, you must remain cautious when signs begin to literally throw themselves at you. No investment goes the way you expect it, indefinitely.

    I don't care if it's stocks, bonds, widgets, antique toys (in original packaging), nothing goes straight up forever. For example, back in the 1930's investors were convinced radio stocks would never falter. Radio was going to "change the world." And it did. And the stock market got bored with it. Been there done that. Ostensibly, what's hot goes cold.

    How do you sniff out a top in the shiny stuff (or anything else)?

    1). Know the signs from relatives. Watch for Aunt Bev calling and demanding you own gold because the world is indeed over, or at the minimum, going to heck. Vengeful gods accept gold as a medium of exchange for souls. Didn't you know? Ok, not that accurate an indicator. But count it as a warning sign. Please?

    2). You notice consistent bantering about gold in elevators, on escalators. Or on rude, loud cell phone discussions at the supermarket or the movies, or in public restrooms. I give you permission to eavesdrop. Bragging about an investment is a bad sign. Money loss is imminent.

    3). Metal detector sales are through the roof. Top global retailers of such equipment are experiencing a revolutionary boom in volume. Minelab, a company out of Australia that sells high-end metal detectors (about $5,600 each, not a typo) moved $118 million worth in 2010. That's more than twice the sales numbers achieved in 2009. In 2012, gross revenues for metal detection products were strong but beginning to tail off from the peak in 2010.

    Have you lost a spouse, significant other, or friend to metal detecting? If I'm out $5,600 not including shipping and handling, you can bet I'm not seeing you anytime soon. I'm planning to be feverishly obsessed with uncovering precious jewelry you lost on the beach. Probably best you move on. I'm busy. This actually happened to a female friend I know in 2011. She's much happier now.

    4). More people are wearing apparel professing their love of gold. I don't care if it's a hat, t-shirt, dress, doggie shirt, whatever. It's a sure warning sign of a top.

    According to ElvisBlog.net, a comprehensive authority on all things Elvis, the King wore a gold lamé suit for a performance in March 1957. The suit was designed by famous clothing artist to the country stars, Nudie Cohn. Yes, Nudie (go ahead and laugh, it's fine).

    In 1957, gold was $34.95 per troy ounce.

    A decade later in 1967 (Elvis was making embarrassing movies singing to racing cars by then) gold was $34.95 per troy ounce.

    Is it a coincidence that you made zilch in gold for ten years? Maybe. Maybe not. Respect history because we do similar things repeatedly.

    4). Gold-related kiosks begin popping up in interesting or unusual places. You probably noticed more of them in your nearby mall. Oh and watch out for the gold bar vending machines and gold ATMs. They already exist overseas. And you've seen and heard the commercials, so many advertisements to buy or sell gold.

    5). You're beginning to believe the stories how gold always goes up in recessions and depressions. Dr. Robert Prechter, author, financial analyst and founder of Elliot Wave International dulls the shine from this story using historical data. Excerpts from his research that appear in his E-book "Robert Prechter on Gold & Silver" are below.

    In most recessions, gold has been flat or negative in return. The recessions in 1973 and 2001 were good for gold. Only two out of eleven recessions were beneficial for gold. Ten-year U.S. Treasury notes beat gold during every recession since 1945. T-note provided a capital gain in ten of the eleven recessions and also paid interest. The average total return in Treasury notes per recession is a full 10 percent, beating both stocks and gold.

    5). Forty year-old nerds who live at home with their parents start blogs about gold. I've read them. Nothing against nerds or blogs, I love both but there are way too many nerds on the same side of the argument. It's what's called on Wall Street, "a crowded trade." It's like a boat with everyone fishing off the same side. By then the game is about to change.

    6). Gold can be hoarded, confiscated (it's happened already), can't be valued as an investment (although some get real creative), and doesn't pay a dividend. You can only make money if you sell it. If you truly have a sell discipline for metal or anything else you own including investments, you're in the top .1% club as most investors are notoriously lousy at selling or trimming anything of value.

    If gold can be hoarded that means you may not be able to access it. Governments can come break down your door (figuratively but don't test them) and take your gold away which means you should begin investigating an adequate burial place for your stash - like under a tree. Watch "Shawshank Redemption," for guidance.

    Gold pays you nothing along the way. No income.

    Gold can't be valued to indicate whether it's cheap or expensive. Valuation is based on fear and uncertainty. Measuring based on those metrics is anybody's guess.

    As author, friend, investor James Altucher said on a segment of CNBC's "Fast Money,"

    "Gold is a rock." Genius.

    7). You can't use gold to buy toothpaste. Or anything else. I tried. I was tossed out of Walgreen's. So those people telling you it's a "currency" are wrong. I called to subscribe to a newsletter about gold and wanted to pay in gold. The operator and her "manager" told me they won't accept gold to pay for the newsletter on gold.

    8). It's ok to hold some gold. Or other metals as part of a diversified portfolio. Two to five percent will work. I prefer GLD and IAU, the exchange-traded funds which actually hold gold bullion. If you're really daring, examine GDX which provides access to publicly-traded global companies involved in mining. I don't like catching a falling knife and have been out of all gold investments since December 2012. I'm now seeing a consolidation in GDX and thinking of committing a quarter of the money I've earmarked for this trade.

    9). Expect "flash crashes." In everything: Precipitous, explainable moves in asset prices higher or lower. Thank the Fed for what I call "freakish asset flows" as money strives to seek returns or rapidly avoid losses thus herding and creating big returns (or losses).

    Last, I do understand the allure of owning physical gold. We like stuff we can touch and feel. I can caress my house until the cops get called and take me away for indecent exposure. It doesn't mean my home is increasing in value. Or that it's an investment. A house is wood, concrete, dust (sometimes a rabid raccoon in the attic - true story) and gold is indeed, a rock.

    If you remember that any investment can drop like a rock.

    You'll be better off.

    And richer for it.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    May 10 9:13 AM | Link | Comment!
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