MIKE: Good morning everyone. This is Mike Decker and Brian Decker with Decker Talk Radio’s “Protect your retirement. Brian Decker from Decker Retirement Planning Inc. out of Kirkland and Seattle, Washington. We’ve got a great show lined up today about the economy but before we get started, I had a funny thing I came across this week and I wanted to share it because it’s a… kind of has to do with our economy and that is… there’s this new Instagram handle that came out that just recounts funny things people say in big cities and apparently, true story, someone from Santa Monica, California, a babysitter, asked the seven-year-old child, “What do you dream about at night?”
MIKE: And [LAUGHS] this seven-year-old kid says, “I don’t dream.” “I only have nightmares about this economy.” [LAUGHS]
BRIAN: Oh, that’s funny.
MIKE: I thought that was pretty funny but truth be told, a lot of people are nervous about the economy. They’re worried about what’s going to be happening, so we’re going to dive into the economy and different… I mean, Brian, correct me if I’m wrong but different aspects and things that would affect our economy for it going up or down between more stable or maybe more volatile, so let’s dive right into that.
BRIAN: All right, sounds good. Well, I wanted… I want to start off with some economic reports. For example, looking ahead to this week, politics, well, we’re recording the radio show and Decker Retirement Planning in Kirkland where we taped the show, we haven’t had Thursday yet but Thursday, the house votes on the new health care law. Failure to pass that would be an incremental negative for stocks, so we’ll see how they vote there. Markets right now, year-to-date, are up about six and a half percent, 6.23 to be exact.
BRIAN: Bullish trend in the markets since the election in November, key support levels on the S&P right now, 23, 64. If technically we break 23, 64, then the uptrend line which has been in place since November would have been broken. Near term stock market outlook is defensive because we’ve got the market right now sitting pretty close to support levels. Easily the biggest event this week will come Thursday when the house votes on the Obama Care replacement bill.
BRIAN: If that vote doesn’t occur or the vote fails, that will darken the outlook for any sort of meaningful corporate tax reform and will call into the question the agenda of the Trump presidency and that will increase the risks for stocks in coming months. The S&P 500 right now is stretched even on generous valuation estimates at 2380, the S&P trades at 17.75 percent… 17.75 times next year’s earnings, so better earnings. This is very important Decker Talk Radio listeners. Better earnings by themselves can’t really push stocks higher from here.
BRIAN: It just maintains where we are from here, so further upside from stocks got to come from one of three places. Number one, corporate tax cuts which is a bullish game changer if we get them. Number two, further acceleration of economic data and number three, rising inflation pressures, so up to three tax cuts remains the most likely catalyst by far. We’ll see what we get.
BRIAN: Right now, we remain cautiously positive on stocks. The FOMC last week, hiked 25 basis points as expected and left the dot projections for 2017 and 28. Eighteen unchanged at three hikes each. Why is rising Fed hikes bullish for stocks? There used to be a saying in the market, “Three steps and a stumble.” When the Fed rate hike… hikes rates three times, usually the market stumbles. Historically, that’s been the case. We’ll see if that happens. We’ve got two hikes in place right now.
BRIAN: Some of the economic reports that came out this week. Bullish numbers came out on the soft data from the Empire Fed Manufacturing survey that came out better than expected. The March Philly Fed survey came out better than expected. The NFIB Small Business Survey came out better than expected. The ISM and the PMI numbers came out better than expected. Consumer confidence for February came out better than expected and Federal employment came out better than expected. All of those good numbers, people are optimist and spending money.
BRIAN: Not surprisingly, and it’s not due to the brick and mortar store’s retail sales missed estimates. Most of the retail sales problems are because of consumer’s shifting their purchases from brick and mortar sales to online sales, so that’s kind of interesting to watch. Whoever has owned stocks in Macy’s, Target, K-Mart, Walmart, has seen their stocks not really participate in the stock market as of late…
BRIAN: Because in the last 18 months particularly, trends in retail stocks have been going down, not up with the market. Consumer spending missed estimates. January, durable goods missed estimates. January industrial production missed estimates and the housing numbers were soft, so this is kind of a mixed bag. The hard-economic numbers missed estimates. The soft economic data came in all better than expected. What I wanted to talk about for the majority of this show today at Decker Talk Radio is specifically, I’m going to be very transparent…
BRIAN: How our managers work. We’re going to talk about the stock market, we’re going to talk about trend following algorithms and how peoples in the last 16 years, since January 1, of 2000, there’s been two 50 percent drops. Two thousand 01 and 02, is a 50 percent drop in the S&P and from October of ’07 to March of ’09, that was another 50 plus percent drop. We’re going to talk about models that have made money every year in the last 16 years and you should know about these models and we’re going to go into tremendous details about the stock market, what your options are.
MIKE: And Brian, when people come in they’re often pretty surprised about these numbers; right? I mean, is it… it’s a kind of a fun situation. You get to have… showing people about these models that were… the managers that we’re using.
BRIAN: Yes. I had a meeting just before this one. Cute couple. He… they’re both in their 80s. They’ve have managed their own money because the experiences that they had with their stock brokers… they knew that they could quote, unquote, “lose money” as easily as they could and not pay a fee to do it, so that’s what [LAUGHS] they told me. When they learned about what we’re going talk about here, they were stunned that they hadn’t heard of models that are designed to make money in up or down markets both on the stock side, on the gold side, on the silver side, and on the Treasury bond side.
BRIAN: We’re going to go through all these models that have just had spectacular returns. We’re going to go into detail on them. A couple of things I wanted to get out of the way. Actually, one specific data point. I was very surprised to see what a worst-case scenario of an IRA and the taxes owed on an IRA could be, so here’s a worst-case scenario. Let’s say that you’re 65-years-old, you’ve got your IRA, it’s $1.1 million dollars and let’s say that you die at age 90, so for 25 years your IRA is going to pull required minimum distributions.
BRIAN: And we will assume that that money isn’t spent, that it’s reinvested in taxable accounts at a four percent rate and then that at death, your required minimum distributions will be quote, unquote, taxes at death, so on a $1.1 million-dollar IRA Mike, what would you guess, take a wild guess on total taxes paid for a 65-year-old with an IRA worth $1.1 million when he dies 25 years later at age 90?
MIKE: And the current value… are you asking for a percent or an actual dollar amount.
BRIAN: Dollar amount. $1.1 million at 65. He’s going to live 25 years, die at age 90. What would you guess the total dollars spent on taxes on a $1.1 million-dollar IRA?
MIKE: I’m going to throw out there and say maybe $200,000.
BRIAN: Okay, try $820,000.
MIKE: No. [LAUGHS]
BRIAN: Yeah.
MIKE: No.
BRIAN: Required…
MIKE: [LAUGHS]
BRIAN: Required minimum distributions are going be $460,000. Taxes at death, meaning the other required minimum distributions that he’ll be taxed on after… after he dies, and then the reinvested RMDs are another $160, so $460 plus $200, plus $160 is $820,000 in taxes by age 90 on a $1.1 million-dollar IRA at age 65.
BRIAN: Okay, all right. Did you know that from 1929 to 1954, let me say that again; 1929 to 1954, by the way, that’s 25 years. There was a zero-stock market return, zero. The S&P from 1929 to 1954, went nowhere. Another period; from 1973 to 1985, that was 12 years, the stock market went nowhere.
BRIAN: From the year 2000 to the year 2013, 13-year period again where the stock market went nowhere. Zero return on the S&P, so I want to talk about a better way to invest. I want to talk about options that you have and a better way to invest. I want to talk about lowering your risk and by the way, at Decker Retirement Planning, Kirkland and Seattle, what we do for a living is we have people come in and we look at their plans that they’ve got from their bankers and brokers where they have all of their money at risk.
BRIAN: Their mutual funds, their stock mutual funds, their bond mutual funds and they have all of their money at risk. Typically, a 60-40 blend. 60 percent at risk in the stock market. Forty percent at risk in the bond market, so we’re going to talk about… we spent so many radio shows talking about bonds and bond market risk, we’re not going to do that. Approximately 75 percent of our clients have approximately, well, all our clients have approximately 75 percent of their money with no stock market risk.
BRIAN: Only 25 percent of their money is quote, unquote, at risk. We dramatically… once you’re over 60… once you’re over 55, we dramatically reduce your risk. Why is that? Because when you’re in your 20s, 30s, and 40s, you can afford to have all of your money at risk. We’re okay with that. You have your paychecks coming in, you can ride things out, and we believe, like Warren Buffet, that you put it all at risk in the indexes like, the SPY which is the ETF for S&P 500.
BRIAN: We believe that you should, in your younger years, 20s, 30s, and 40s, have all your money at risk and ride things out and be aggressive. Totally fine. Once you’re over 55-years-old, if you do that, it makes no common sense, number one. Number two, after you’ve taken 40 years to grow your money, now you’re putting that money at risk, so a 30 percent hit on that kind of a sum that you’ve taken a lifetime to gather is 100s of 1000s of dollars that you lose and you take four or five years to just break even.
BRIAN: And then if you’re in retirement doing this kind of nonsense, now you’re drawing money from a portfolio that’s taken a 30 percent loss and you’re accentuating the market losses by drawing money when it’s down. This makes no common sense and we’ve talked about… gosh, I don’t want to get hung-up or side-tracked by this. I want to talk specifically about the options that you have to manage your stock market money in retirement. Option number one is to listen to your bankers and brokers.
BRIAN: Have you fill out a risk questionnaire that based on your risk, will produce an asset allocation pie chart that diversifies you among your large cabinet, cap, small cap growth value, international emerging markets, indexes, ETFs, and all of your bond components are organized into diversified fashion and you’re supposed to hold that, number one. Ride out the markets, number two, and pull income from that number three, so let’s shoot holes in this because this is by far the most popular method out there in retirement.
BRIAN: Decker Talk Radio listeners, if you do this, you could hurt yourself in retirement by listening to the nonsense that comes from these bankers and brokers that spew this out as financial advice. It is medic… it is financial malpractice to say these kinds of things. On many fronts, it doesn’t make any commons sense, so number one, you’re putting all your money at risk. That makes no common sense as opposed to us, we have 75 percent of client money in retirement that has no risk. Number two, your money’s in bond funds when interest rates are at or near all-time historic lows and they tell you that that’s your safe money…
BRIAN: … that using the Rule of 100 when the stock… when you are 55-years old, you should have 55 percent of your money in bonds or bond funds. When you’re 65, you should have 65 percent of your money in bonds or bond funds, etcetera, so when interest rates are at or near all-time record lows, you should have 55 or 65 percent of your money earning almost nothing.
BRIAN: Common sense says that that makes no sense but the bigger problem is when interest rates go up, you lose money on your bond funds. You lose money on your bond funds and these financial advisors at the banks and brokers tell you to put your safe money in bonds when interest rates are this low. It is… it lacks commons sense and they tell you that it’s safe and it’s not. You will lose money when interest rates go up. Number three, the older you get the more of your money, using the Rule of 100, that’s earning almost nothing. Number four, the lack of common sense is that stock markets cycle every seven or eight years.
BRIAN: The stock market gets nailed. You guys know this. Markets get hit every seven or eight years; 2008 was the last hit of over 20 percent. That was a 50 percent peak to trough drop from October of ’07 to March of ’09. Then, from January 1, of 2000, March of ’03, that was a 55 percent drop, so seven years before ’08 was 2001. Twin Towers go down middle of the three year, 50 percent Bear market. Seven years before that was 1994. Iraq had invaded Kuwait.
BRIAN: Interest rates went up, the economy slowed, the markets dropped. Seven years before that was 1987, Black Monday, October 19th, 30 percent drop in one day. Seven years before that was 1980. From ’80 to ’82, with sky-high interest rates, the economy was in recession. Stock market took a big hit. Seven years before that was ’73, ’74, that was a 44 percent drop. Seven years before that was the ’66, ’67 Bear market that was also a 40 percent plus drop and it keeps going. Every seven or eight years the markets get nailed.
BRIAN: So, markets bottomed in March of ’09, and seven years plus that is 16, seven or eight years, we are due is my point. We are due ladies and gentlemen. I hope that you have a downside plan for your retirement. Now again, once you’re in retirement, we would tell you that you can no longer afford to take the hits in the market. The biggest reason that we see people go back to work and have to sell their home, move in with the kids, go to Plan B, is because their portfolio took a 30 percent hit…
BRIAN: And now they have to… now they have to go to Plan B because they no longer have the assets to stay retired. It… when you draw income from fluctuating accounts, you are committing financial suicide because you compromised the gains when the markets go up and you accentuate the losses when the markets go down, so when it comes to the stock market, the buy and hold strategy that’s linked into all of this, means that every seven or eight years you’re going to take a 30 percent hit of all that you’ve accumulated on the risk side…
BRIAN: And then you’re going to take three or four years to get that money back, so a total of, what? Four or five years where you earn nothing and are pulling money in those years at the rate of four percent. By-the-way, the Four Percent Rule, in my opinion, is responsible for destroying more people’s retirement in this country than anything… any other strategy. These are all things that we’re reviewing here but I don’t want to spend time on. Let me just summarize and say that the banks and brokers will hurt you in retirement with keeping all your money at risk, putting your safe money in bond funds, telling you that they’re safe. When interest rates go up, you will lose money.
BRIAN: A buy and hold strategy, taking hits in the market every seven or eight years, all of these things make no common sense and you know this and that’s why a lot of people who come in to see us, have a big majority of their investible funds sitting in cash. They’ve missed the markets because they know that the markets do. The economy is long in the tooth and the cycle’s ready to go down and you know that you’re not protected, so we’re going to talk here. Now, I’ve kind of set the table in contrast to the ridiculous banker-broker buy and hold, put all your money at risk model.
BRIAN: We’re going to give you in contrast to how we do it. Mike, we’re already 23 minutes into the radio show and we haven’t made an offer here. I’m just going to highlight one thing and we’ll make the offer and that is where we put our safe money ‘because we agree that you should have some of your money that’s safe money. Some of your money should be in cash. We call it emergency cash. Some of your money should be safe money. Typically, 75 percent of our investible funds are in safe money and they’re laddered principal guaranteed accounts.
BRIAN: By the way, our best principal guaranteed account, last year, made over nine percent. If you don’t know about principal guaranteed accounts that are averaging six and a half, seven percent returns when… in the last 15 years, you should give us a call.
BRIAN: Okay, so in retirement here’s typically the different options that you have. By and hold, listen to the bankers and brokers advice. I think we covered that one. Another one is to put a dividend portfolio yourself where you string together a whole portfolio of dividend producing investments yielding six, seven, eight percent dividends and you’re just going to live on that income stream. Here’s the problem with that. We’ve talked about this on the radio show before. I’ll review it right now. I’m going to go through it quickly because I want to get to our managers. The dividend portfolio flaw two-fold.
BRIAN: Number one, it’s typically sector specific. What I mean by that is you’ve got your dividends and they’re keyed into two, typically two different sectors. One is the real estate sector through rates, real estate investment trusts or generally a majority of it is energy related, so these are the partnership income for energy and you’re getting a fantastic return on dividend income, so I’m going to review this in one of two very important ways. Here’s their two flaws.
BRIAN: When I say sector specific, yes, people in the energy sector is… are getting six, seven, eight percent on their dividend portfolio but in the last two and a half years, they’re down 40 percent on the sector itself. When the markets dropped, when the oil market dropped from $120 dollars a barrel down to $30 and now back to $50, the underlying stock or LLC, I’m sorry, or LP… the underlying investment in the sector has dropped, so if you were to liquidate your portfolio, yes, you’re getting seven or eight percent but that sector is down 40 percent in the last two and a half years.
BRIAN: Real estate, every seven or eight years that market cycles to some of the big real estate portfolios drop 60 and 70 percent in 2008, so how is it that you’re getting six, seven percent but your underlying investment is down 40 plus percent? It that a good deal? Heck no. Total return is where you look at your underlying investment and you include dividend income. That equals total return.
BRIAN: Principal appreciation plus dividends is total return, so when we look at comparing strategies, we want to make sure that you know that you’re not diversified typically sector-wise, based on your dividend portfolio and the second problem, when it comes to retired people using dividend income, has to do with the dividend itself. Now if some very smart people fall into the trap of getting half the information that they need.
BRIAN: Common sense says that if the riskless rate of investment is around three percent and you can get around three percent in a treasury, then four percent is better than three. Common sense; right? And five percent is better than four and six percent is better than five and so on, so eight percent is better than five. You’re only getting half the information here. When your investment yield, your dividend yield goes up, you got to know the other part which is the risk of default.
BRIAN: The percentage risk of default, so now let’s give you the whole… all of the transparency that you need to make an investment decision. Now, the proper question should be would you rather have three percent with no default risk or would you like five percent with 25 percent default risk? Would you like seven percent with 40 percent default risk? Would you like…
MIKE: Yeah.
BRIAN: How would you like…
MIKE: Doesn’t… I mean, doesn’t have…
BRIAN: To have eight percent or nine percent with 60 percent of two-thirds default risk or surely, how would you like to have 90 percent default risk in order to get 12 percent dividend rate? That’s not going to happen, so when you talk about dividend portfolio, we want to make sure that you have all the information.
BRIAN: Number one is the dividend rate. Very important but not the whole story. Number two is the default risk and you can’t know the default risk until you put the third piece in place which is number three. If the dividend is covered or not. Now you can go. This is a free service. You can go plug in your dividend portfolio into bigcharts.com, hit profile and it pulls up financial… financial data that lets you see the dividend per share. Let’s say it’s a dollar a share in dividend per share and then you also have… you can see EBIDTAH.
BRIAN: Earnings Before Interest Dividend Taxes and Appreciation, so you’ve got that number and let’s say that the EBIDTAH number is $1.15 and the dividend is a dollar. Now, they have, in that case they’ve got the dividend covered but too often, Decker Talk Radio listeners, too often the dividend isn’t covered which is why you’re getting an 8, 9, 10, or 11 percent return because the default risk is very high, so what happens now?
BRIAN: If you’ve got a one dollar a share dividend and you’ve got 75 percent EBIDTAH per share, now the dividend isn’t being covered and the company is borrowing to pay the dividend, so of course the dividend rate is going to be high because once they cut that dividend, the price per share drops spectacularly and the dividend, once it’s cut, you’ve got the worst of both worlds because your underlying investment has just dropped by 30 percent and now the dividend you thought you were getting 8, or 9, or 10 percent, now you’re getting four.
BRIAN: So please make sure that when it comes to your dividend portfolio, that you’re looking at the whole enchilada when you make that decision. That’s a very popular strategy. Now, I’m going to talk about one more strategy before I go into our managers and that is the thought that you’re going to use stop losses to protect the principal on your portfolio. Well, it’s a good idea on the chalkboard, it’s very difficult to actually use in real life because here’s what happens. Twenty percent or greater stock market drops typically happen every three or four years.
BRIAN: Ten percent stock market drops typically happen every year, so guess what? Every year your ten percent stop loss is going to be triggered and then the… let’s say your XYZ stock, you love your XYZ stock. You have a trailing stop that goes up automatically with it, so that if it ever pulls back ten percent or more, guess what happens? You automatically sell out of XYZ stock and that’s to help you protect your capital in a market downturn.
BRIAN: But what happened? In the market downturns, every year for the last several years, there’s a market downturn like January, February of last year in 2016 or like, right before the election when the markets were down. Where they take you out of the stops and then the markets turns and goes on a terror and leaves you in cash and you’re sitting there wondering how do I get back in?
BRIAN: Also, I want to let you know that many times I’ve had clients, even as the markets have gone up, the stock seems to have quote, unquote, your number and the stock goes down, triggers your stop and then turns right around and laughs in your face and goes and makes new highs without you involved, so this happens so many times that guess what you do? And I’m describing a lot of you out there that have done this. Now, you have mental stops.
BRIAN: Now you don’t have automatic stops in place. You have mental stops, so now that you have mental stops, number one, and you have fear and greed because you’re a human being, number two, that combination is horrible because here’s what happens. Every seven or eight years the markets go down and markets are down ten percent, hit’s your stop but you’re not going to sale.
BRIAN: You’re just going to tell yourself, well once the markets bounce up like they always do, I’ll lighten up but this time, because it’s every seven or eight years, the markets don’t bounce up. Now you’re down 15 percent and in no time, you’re down 20 percent and you’re sick to your stomach and you tell yourself that whenever the markets bounce up, that you’re going to lighten up but this time they don’t. Any bounces are limited to five to seven percent and they keep trending down, so now you’re down 30 percent, you’re losing sleep, you have a stomach ache, this is a lot of money, this is six figures.
BRIAN: And this is money you can’t afford to lose and just like that, you’re down 35, 40 percent and now you panic and you’re selling at the bottom. Human nature. People do this. Smart people do this. Some people say, quote, unquote, “Well, I’m in it for the long-term.” “I’m a long-haul investor.” “I’m a long-term, smart, big picture investor.” Which, by-the-way, is code for I should have sold, I didn’t. I feel stupid, so this is the lipstick on the pig to justify that I didn’t sell. Nice try, didn’t work.
BRIAN: You’re going to take that hit every seven or eight years. I just want to point out that the stop losses look really smart on paper; very difficult in practice, so what do you do? I’ve just shot down buy and hold. I’ve shot down a dividend portfolio, and I’ve shot down stop losses. I want to tell you what’s been available for over 30 years.
BRIAN: Since computers were built, engineers, software engineers, engineers from all type have put mathematical equations to work in technical, using all kinds of algorithms to combine two very focused parts of an investment plan for your risk money. Number one, in trend following models, have the markets tend higher, when the market’s trend is up and number two, protect capital when the markets go down.
BRIAN: So, I want to tell you that in the big picture, the S&P 500 is in a flat market cycle since January 1, of 2000 and $100,000 invested in the S&P, January 1, of 2000 to 12-31-16, a $100,000 has grown to about $220,000, [average?] January turns four and a half percent. Dividends reinvested on the S&P and that, by-the-way, is with two 50 percent drops.
BRIAN: Two thousand, ’01, and ’02 was a 50 percent drop in October of ’07 to March of ’09 was a 50 percent drop, so we are in a flat market cycle. Most people haven’t made much money in the last 16 years. In fact, from January 1, of 2000 to 12-31-10, the S&P, that ten-year period is called the lost decade and $100,000 dollars has its worst growth in all of the ten-year periods ever. Worse than the great depression in the 30s.
BRIAN: So, this is a good laboratory to compare how our models have done. In fact, $100,000 invested January 1, of 2000, is still $100,000 to… until we get to 2013; until we start to make new money, so I want to say again in contrast, $100,000 grows to about $220,000 average your annual returns four and a-half percent net of fees. A $100,000 in the six models we use grows to over $900,000. Average annual return is 16 and a-half percent net of fees.
BRIAN: And these models have made money combined every year. In 2000, ’01, and ’02 when the markets lost 50 percent, they made money. ’03 to ’07, when the markets doubled, they did too. ’08, when the markets lost 37 percent, these models collectively made money and ’09 to present when the markets are up over 150 percent, these models have made money and tracked with the S&P as the markets go up.
BRIAN: We are fiduciaries to our client. You would expect us, if we are fiduciaries to our clients, to do the homework. I shake my head at how most banks and brokers make their investment decisions. For example, XYZ Brokerage firm is going to recommend XYZ mutual funds. Why? It’s not in your best interest. It’s because that’s how the broker gets paid more money.
BRIAN: Why did a person select the mutual funds that they buy for you? Think about that. Why do they do that? Is it because their front-end loaded fund? Is it because they’re backend loaded fund? Is it because they’re 12-B1 funds that they don’t have to tell you is front or backend loaded? They get an extra one percent every year. Those are called C shares. C as in Charlie. If you look up and see that you’ve got C shares on your statements, I hope you call us at Decker Retirement Planning. We will tell you that your broker has lied to you. Telling you that there’s no front-end or back-end fee. Not telling you about C shares.
BRIAN: This is sadly, tragically, the biggest problem that we see when we meet with clients, is their broker wasn’t transparent is also behind the DOL Rule of more transparency, so that you can see how you’re invested. Gosh Mike, it’s 41 minutes in and I’ve got to get into our managers here. I’m just going to dive in. Okay…
MIKE: Okay, sounds good.
BRIAN: With the six managers that we have, how did we choose the six? I we are fiduciaries to our clients, we chose them based on net of fee performance, so since January 1, of 2000, we have two requirements. Number one, who has the highest returns, net of fees, and number two, who has protected principal in 2000, ’01, ’02, and ’08? That’s how we at Decker Retirement Planning, that’s how we choose our money managers and mutual funds and we’ve got our six and every quarter, four times a year, I contact the Wilshire data base and I go on the Morningstar data base.
BRIAN: And I want to see who’s beating the six managers that we’ve got and I’ve got… I get around 60 or 70 that legitimately beat the ones that we’ve got and they fall into four categories. Yes, they’re beating us, number one, but they’re closed to new investors. I can’t work with them because these managers that are beating us are not taking any new clients but I know who they are, so number one of that group. Number two, they’re hedge funds and we’re not going to put client money into hedge fund with that kind of volatility.
BRIAN: We’re not going to do it. Number three is the per account minimum that is $3,000,000 million dollars and more, so even though they’re beating us, I can’t diversify your funds when the per account minimum is $3,000,000 million dollars or more and then number four. Yes, they’re beating us but BETA or high BETA is keeping us from using these funds. For example, CGM Focus and the Bruce Fund are two mutual funds that technically, mathematically deserve to be on our platform but we can’t use them because they both lost over 40 percent in 2008.
BRIAN: We can’t do that to our clients, so what is left? These are the six managers and I’m going to describe the six managers that we have, so the first manager that we have is mathematically, it is a… it is a ten-day moving average overlay on the VICs, the Volatility Index, so that means when the markets go up, you’re along the S&P. When the markets go down, you are short the S&P. You make money when the market swings and is highly volatile, so in the first year of this model, the S&P is up five, this model’s up 12.
BRIAN: In the second year, in ’08, when the market’s down 37, this models up 108 percent. That’s not a typo. These models love volatility. Next year when the S&P’s up 26, it’s up 54. Next year the S&P’s up 15, it’s up 25. Next year S&P’s up two, it’s up 13. Next year it’s up 16. S&P’s up 16, the market’s… it’s up 12 and then in 2013, when it’s up 32, it’s up 27, etcetera. It just kind of tracks with the S&P as the markets go up.
BRIAN: So, these models are out there. The next one is an algorithm where when the… when his algorithms is where he fees 17 different components in. These are all internal things like number of new highs, number of new lows, percentages of stocks trading about the ten-day moving average, or the… I’m sorry, the 100-day moving average, the 50-day moving average or the 200-day moving average.
BRIAN: Anyhow, he trades the NASDAQ 100 Index long cash or short and he’s done very well. He didn’t get off to a good start at first. The last six months of ’06, he was down one percent when the market was up 13 but the next year, in ’07, he was up 21 percent with the market up three. Down six percent in ’08, up 44 percent against the S&P’s 23. Twelve against twelve, five percent when the market’s up flat. 21 percent when the market’s up 11.
BRIAN: 31 percent in 2013, when the market’s up 29. By-the-way, 85 percent of money managers in mutual funds under perform the S&P every year. These managers, statistically, are in the tiny fraction of one percent. Where not only did they beat the S&P but in their mountain charts, there’s a huge gap in the last ten years between what the red line has done, which is the S&P, and the blue line is done which is these managers, so this manger, in the last ten years, the S&P is up 80 percent.
BRIAN: And its up 270 percent. We have two no load mutual funds that in 2001, and ’02, when the markets lost 50 percent, this one was up 40. It made money every year. The other one was up 30 percent and it made money every year and then when the markets go up from ’03 to ’07, it tracked with the market and just tracked with the S&P. The other one doubled what the S&P did. Mike, at this point we’ll make another offer but I’m going to keep going.
MIKE: Mm-hmm.
DECKERTALK 3.26.17 [00:48:31]
BRIAN: All right, so let’s keep going. The next manager we have is a manager that has a long-short algorithm that trades the 30-year treasury bond. Long-short and when the markets got crushed last year, the bond market, the ten-year treasury yield was 1.3 percent April of last year. Now it’s doubled; the yield has doubled to 2.5, 2.6 percent. That means that if you’re in… you have a double-digit loss from April to April, if you own bonds funds.
BRIAN: At the average duration, bond fund is down double-digits in the trailing 12 months and let’s see how this manager did. In 2012, he trades the ten-year treasury. He was up 39 percent. In 2013, 45; 2014, 38; 2015, 20 percent. That was his worst year and last year he did 47 percent.
BRIAN: These are gross numbers not net of fees but he is a manager that has traded treasury bonds, long-short and helps diversify our clients. This next manager says this, “It’s been over two years since we last looked and saw that the model that we have out-performed all mutual funds, ETFs, and worldwide market indexes, except one 2-X leverage biotech fund during a ten-year period.”
BRIAN: It just got better. Our model has now beat every single one of these securities and indexes from a universe of 12,614 with ten years of history over the last 10 years, ending September 30, of 2016, with an annualized return of 18.36 percent. Decker Talk Radio listeners, if you don’t have these models, you’re short-changing yourself. You’re taking too much risk, number one. You’re buying into the nonsense that bankers and brokers are telling you to buy and hold. When you’re retired and just take those hits and ride it out when you don’t have to, these algorithms have been around for quite a while, decades…
BRIAN: And they should be managing a portion of your portfolio. We’re fiduciaries and we use them for our clients on the risk portfolio. I want to cover a couple more models. Here’s another one that trades the S&P and in 2002, when the S&P was down 16, he was down 1.9 percent. In 2003, when the S&P’s up 28, he was up 32.
BRIAN: In ’04, S&P’s up 10, he’s up 16. ’05, the S&P’s up 4.9, he was down three. ’06, when the S&P’s up 15, he’s up 13. ’07, when he’s… S&P’s up 5, he’s up 16. ’08, when the S&P is down 37 percent, he’s up 17 and a half percent, and then recently, he just exploded. In 2013, when the S&P’s up 32, he’s up 47.
BRIAN: In 2014, when the S&P’s up 13, he’s up 21. In 2015, when the S&P’s up one, he’s up ten. In 2016, last year, when the market’s up 11.9, he’s up 11.5. I hope Decker Talk Radio listeners here, you know that these kinds of models are out there. I’m going to spend the last few minutes, I’m going to skip a manager that we have and talk about our most recent manager we’re just adding and if I have time, I’ll go to this last manager. A lot of you know that you should have some precious metals in your portfolio, gold and silver.
BRIAN: You should be because they are a very important part of diversifying your portfolio. The problem with that is a buy and hold strategy on gold got creamed in 2013, ’14, and ’15. In those three years, gold lost 40 percent but silver was worse than that. Silver lost 65 percent in 2013, ’14, and ’15, so how do you have your cake and eat it too? How do you have gold and silver, either stocks or ETFs, GLD, SLV, how do you own and get the benefit?
BRIAN: By-the-way, I’ll tell you I did my own homework on this and it’s interesting, gold doesn’t track with inflation and gold doesn’t go up when markets go down and gold doesn’t correlate with world disasters as much as gold correlates with one standout thing and that it has an inverse relationship to the U.S. dollar. The most tightly correlated investment to gold is when the U.S. dollar goes up, gold prices go down, and vice versa.
BRIAN: Same thing with silver. That’s the most tightly correlated of all that I experimented with and I looked at world disaster’s. I looked at inflation. I looked at whole bunch of different things, so let’s talk about how did gold do. Since 2005, when these managers started, average annual return for gold is 9.6 percent. In their two-sided trading that they do where if the trend is up, your long gold, if the trend is down you’re short. Instead of getting 9.6, it’s 29.6.
BRIAN: And on silver it’s even better because silver is more volatile. Instead of 7.9 on silver, it’s 49.6 on… to trade silver, so by-the-way, we want to make sure Decker Talk Radio listeners, that you know this stuff is out there. Come on in. We’ll show you the managers; we’ll show you the breakdown; we’ll show you the numbers. I’m going to take one more minute Mike and then have you close up.
BRIAN: Another manager we have spends the majority of the month in cash but they take the low risk trade on the S&P and he’s very good at going in, grabbing two or three percent and getting out. When you multiply that 12 times, it’s a very high return. Mike, we have done our best to get the word out there. Compare the risk that you’re taking with your banker and broker, with the two-sided models that can significantly lower risk and significantly add to returns. Mike, you got it from here?
MIKE: We’re always glad to have you as an audience and just want to refer to our website. For more information, a number of articles, and also, updates on any special events that we do have. Either downtown in Seattle or at Ruth’s Chris we do a lot there in Bellevue at Belle Square. Also, tune into our podcast. It’s this radio show, “Protect Your Retirement” but at your convenience, which is either on our website or on ITunes or Google Play.
MIKE: So, until next week, take care, enjoy this lovely spring that we’re having and we’ll talk to you soon.
