Inflation Hedges

The following post is a direct quote from Investopedia's article on "How to prepare for rising interest rates." We wanted to feature a post on the same topic; but found the way they fleshed-out this particular paragraph  was infinitely better than we could:

"Tangible assets like gold and other precious metals tend to do well when rates are low and inflation is high. Unfortunately, investments that hedge against inflation tend to perform poorly when interest rates begin to rise simply because rising rates curb inflation. The prices of other natural resources such as oil may also take a hit in a high-interest environment. This is bad news for those who invest directly in them. Investors should consider re-allocating at least a portion of their holdings in these instruments and investing in stocks of companies that consume them instead."

Many investors are uninformed on how trends tend to differ with something like rising interest rates, or foreign exchange values when compared to the dollar. They believe the only circumstance that affects their investment portfolio are the consumers who buy a firm's product/service.  In reality, everything affects the potential outcome of quarterly earnings.

A problem as small as the Swiss making exports more expensive could influence a company like Kraft (chocolate rates rising =Cadbury having to raise their prices= Less consumers buying Cadbury sweets= Kraft's net income suffers= shareholder value suffers). Keep an eye out on all economic news, domestic and foreign.  We live in an age where companies are providing their services on a global scale. A seemingly small glitch could severely affect their bottom line.

Extracting project management efficiency

We know we are a financial company. We know you're probably thinking, "why are they talking about project management?"

Here's our reasoning, we're all about saving anyone as much as possible, and inefficient project management is a quick way to form a drain of cash.   There are many effective project management characteristics. We going to address a few: employee satisfaction, automated systems, and optimized database management.

We have yet to master any of these. However, we believe that soon after implementing efficient project management, we will be able to optimize each of the factors. Optimization leads to significantly reducing overhead. And we love the costs saved from reducing overhead.

Employees that get tasks done in a quick, excellent, and enthusiastic manner will produce great results for all parties involved. Customers will be satisfied. And even when things go horribly wrong the right employee can make it all right with attitude, actions, and words.

The automated systems will help improve efficiencies all over your firm. These systems can help make transactions faster, and employee jobs easier. When jobs are easier, more tasks can be accomplished. When more tasks can be accomplished (as long as in great quality), more revenues can be generated. And everyone knows that when more revenues, everyone is happy.

Lastly, data management can make receipts, invoices, proposals, tax records, bookkeeping, employee retention either work for your company or against it. Choosing the right software/system for optimizing data management is of paramount importance.  It can mark the difference between losing a lawsuit and having a case thrown out, or having the IRS breathing down your neck after misreported invoices and payroll. And no one wants an IRS audit, it lowers employee moral and doesn't look good when customers see people flipping through important records.

Remember to keep up with the changes in technology. It seems like everyday that our company hears about a new firm, that has successfully exploited an untapped market and provided an excellent service to benefit entrepreneurs. And with each exploit, finds a way to make our company run more efficiently as well as with more agility.

How investors should think vs. how they do think

Investors always believe that it's a great idea to sell sliding stocks, but they never think of true implications.

When you sell investments just to save face on the principal it ends up coming back to bite you. And this is not a case where the bark is worse than the bite.

If someone were to tell you that a few houses in an upscale neighborhood were on sale for 50% off, what would you do? Assuming you had the liquid capital, you would start picking off real estate lots like sitting ducks (during hunting season)! Now that we are on the same page...why is it that when stocks are cut by 50% in a "down" market; no one buys and everyone sells? Seems a bit counter-intuitive don't you think?

Make sure you think about this the next time great stocks such as Apple or Amazon are on "sale"(the latter of which one of us made over $100 in four hours last fall after buying super low).

Google Games may be a calm before the storm

With rumors swirling about Google possibly partnering up with  online-gaming company, Zynga, stockholder value may be in jeopardy.

Every recent deal, from energy trading to mobile advertising has put Google on regulators' radars. Anti-trust investigations seem to come with every new venture that Google takes on. Both here and abroad. We think if their growth into other markets continue to be dominant, the government (or EU commission) may rule that it's gotten too big.

So what will be the straw that breaks the camel's back? Will it be another acquisition? Or, will it be Google venturing out on its own?

The answers to these questions are virtually irrelevant. How an anti-trust suit will affect stockholder portfolio, is.  If Google is ever ruled against in a suit of this caliber, stock traders will see an effect similar to when Microsoft was told to sell its assets. While, we don't see this as a problem looming over the company's head. We definitely see it as a near future possibility at the rate Google is growing.

A move into the online gaming field isn't the red flag that investors should be looking for. However, if you look at the last 18 months: you'll see ventures into energy trading, mobile advertising, travel (not to mention in-house location based services as well as operating systems), and now rumors of online gaming. We don't have holdings in Google but we wanted to write an article for those of you that do. Stay alert. Google is a great and innovative company.  However, if it is deemed anti-competitive, investors may change their minds about investing in their stock for the long haul.

The next generation of financial planners

In March, the Alpha Group was invited by Texas Tech University to speak in an open forum over the course of two days.  The Alpha Group, is a consortium made up of former financial professionals, the majority of which are ex-executives. The group was formed as sort of a round table of experts who look to research new investment and financial planning ideas. From the visit, we saw a Q&A that pretty much encompasses why Cloud 9 Financial Consulting opened its proverbial doors:

Question (TTU student): "As the next generation of planners, what should we be focusing on to serve our clients best?"

Answer (former T. Rowe Price executive): "Think about the technological world that we live in. None of this was available when we started out. When we communicated with clients, it was by phone or face-to-face. You have amazing technology so that you can work with your clients anywhere, anytime and anyplace. While your clients have access to anything and everything, our clients needed to work though us to get important financial information.

Through technology, you will find new and innovative ways to work with middle-market clients, people who really need your advice."

This is why our company was formed. We saw a large gap between how other industries leverage new innovations. and how the financial industry uses that same technology. These innovations have allowed us to provide excellent financial planning services that can reach any client, anywhere, anytime.

Earning in Real-time

For many day traders, investing information site earningsBuzz will be an invaluable asset. The most benefited group of individuals, are those whose trading trategies stem from market-timing.

The idea behind earningsBuzz is to aggregate real-time news about stocks stemming from twitter updates. You may think that this is remarkably similar to StockTwits. On the contrary, earningsBuzz makes sure that all if the updates are relevant to the task at hand. Its news aggregator only tracks news from companies with an earnings report from present day, yesterday, or tomorrow.

This will help traders realize earnings potential (or shortcomings) in real-time; and allow them to adjust their trading decisions accordingly.

The best and most underused tool for individual investors

The stop-loss. The equalizer for individuals to compete with those lightening quick super-computers a large, international brokerage firms.

In a nutshell, stop-loss trading is a sell side decision that allows the investor to dictate at what price a company's share should be sold. Once the share price hits that number, the system triggers an automatic sell of those shares.

The major benefit of putting a stop-loss on all shares is to curbs potential losses, or maintain present gains. For example: you buy a stock at $25.00 per share. If the share price dips, you create a stop-loss at $22.50 to keep your losses to a minimum (while also giving the stock a chance to return to the initial price). When the stock hits $22.50, the system immediately sells the number of shares that you indicated in your stop-loss for that holding. On the positive side, if a share jumps to $30.00 and you want to preserve your present earnings,  use a stop-loss at $28.00 per share.  This will ensure that you will get out ahead regardless of the share price's fluctuations.

Investors that use the stop loss effectively will use a stop-loss on every trade and continue to adjust it based on how a company's share is faring. If the aforementioned stock jumps to $35.00 per share, you would adjust your stop-loss from $28.00 to $32.00. The adjustment will guarantee that you will maintain your earnings of $7.00 per share from the original price of $25.00, and not allow you to only earn $3.00 ($28-$25) from your first stop-loss order.

Like everything, there is a disadvantage to stop-losses in your portfolios. The automatic trigger that is set off to sell your shares of company does not take into account market volatility.  Meaning, if you set a stop-loss at $22.50, it is very unlikely that the preferred price will be the same as the market price (you may sell at $22.00).

A lot of investors, investment advisors, and stockbrokers refuse to take advantage of stop-loss orders due to pride on the loss of initial clients' investments. If they had, the losses on the majority of their clients' portfolios could have been minimized amid the financial crises. In our investment consulting sessions, we will always ask and recommend that each client put a stop loss on all of their equity accounts.

Contrarian Logic: Why buying really low could be beneficial to you

What I love about being an investor, is that you can develop unconventional strategies that happen to work. With contrarian logic you can channel your inner Buffet and make wealth grow from seemingly daunting situations.

Contrarian
For this post we are going to explore the idea of investing in mutual funds using a slightly different metric. We are going to suggest that you look at the worst performing mutual fund in the "balanced funds" sector. This fund should have holdings in blue chip as well as tech stocks. These two types of stock will represent both, speculative and fundamental markets.

Logic
Everyone and their grandmother wants to grab the hot mutual fund. When a mutual fund is considered "hot", the influx of investment capital always pushes it into the stratosphere of earning potential. So let me ask you a question...why wouldn't  you want to buy the worst mutual fund with the most profitable stock holdings?

On one side, you enter into the investment right after the fund "pops." When a fund "pops," the value of the fund (percentage-wise) jumps by a sizable amount. That jump signifies that the fund has won the proverbial, popularity contest among casual investors. At this time expect the exponential increase in value to level off. This leveling off of earnings is where most individuals investors jump in. That is where all investors agree, jumping into a fund while it is flying high is buying high. And buying high is a major no-no for investors looking to retire with a sizable amount of income.

On the other hand, we are recommending investing before the fund pops. The contrarian way, is to invest in undervalued funds with holdings in outperforming companies.  Your return will be substantial for the lowest amount of invested capital. Even if the return isn't that high for the first few years, by following our process and selecting a fund with a manager with more than 7years experience, you'll see improvements. Our logic is that recession-tested managers will be researching to see what other (higher-performing) funds are holding, as well as the best company for future earnings. This research will show them what they are doing wrong and how they can improve upon their fund's performance. So while they may not be rolling in dough when you first invest, they will be soon enough. When you invest at the bottom for a fund with our criteria, the only place to go is up. And when they roll in dough...so do you.

The Process
The metric to follow contrarian logic begins with going to a fund screener. Once there, screen for funds that have a very poor 3-5 year performance. Among those direct your attention to the funds with the highest  10-15 year performance. Once those funds are populated, look into the holdings of each fund. If the fund holds only blue chip and technology stocks (U.S. Only) write that fund down as one of interest. Here's the last and most important step in contrarian logic: look at the tenure of the funds managers. A  manager that has been there for too long may not be willing to change with the times. Managers with little experience may either be awfully brash or incredibly unlucky. You want neither. We recommend a manger that has survived the recession? But not one that still believes that GE or P&G are the best stocks they will ever invest in.

Conclusion
That's it for contrarian logic. Keep in mind this is a theory of investing strategy, it is not proven nor is it agreed with by accreditted organizations. We have been testing it out, and will continue to  in the next few years with our personal cash (we want to make sure that we lose cash before you do). We think that this investing strategy probably has an official name somewhere; but until we find it, we are going to name it "contrarian logic."

Think about it, if you were to buy low with great stocks, what happens? Now, what do you think will happen if you diversify your  buying low by investing in a fund with over 25 great stocks? Yeah...that's what we thought.

To Maximize or Not To Maximize

Maximizing an investment portfolio is the most important thing to the majority of investors. However, Cloud 9 goes in the opposite direction. We support portfolio optimization over maximization.

Portfolio maximization is the process of making investment decisions in order to earn the highest rate of return. It generally takes risk into account, but accepts it in return for profit. Banking on the common phrase, "high risk=high reward", maximizers' ROI fluctuate in step with market volatility. Only actively managed funds come out positively when putting its first priority on making the most money.

On the other end of the spectrum, portfolio optimization, does its best to perform out of step with market volatility. The key principle behind this style of investing is to make the most profit while taking on the least amount of risk. Historically advisors that manage their clients' cash using optimization, annually earn less than maximizers. But the overall return is a different story. For example, advisors who bet strongly on the high-earning sub-prime field saw their earnings overshadowed by their recent losses. Optimizers were able to minimize their losses by only using investment vehicles that are low in risk but still maintain a moderate return. A little fluctuation is substantially better than a proverbial "tidal wave" sweeping through your portfolio every ten years; potentially wiping out all earning gained through previously outperforming the markets.

Truth of the matter is: every investment(including savings accounts) decision involves risk. Optimization only serves to lower that risk.

The reason we so adamantly support portfolio optimization is simple. Our mission claims that we want our clients' money "to work for them, not the other way around." The mission says it all...We want our clients' money to experience growth during the long-term, while always trying to minimize losses(even in down markets).  Even though Cloud 9 consultants do not manage our clients' money, we still apply portfolio optimization theory to our investment consulting services whenever applicable.

Indinero: a small businesses' Mint

Strategic budgeting has always been a sore spot for entrepreneurs. Indinero launched, on this past Thursday, with the goal to make this spot disappear.

Indinero is a solution to the complicated accounting software provided by companies like Intuit. Indinero shares the same goal as personal finance website, Mint, the company recently acquired by Intuit. The purpose of both companies are to make tracking, budgeting, and financial planning relatively easy. Indinero provides a very easy-to-use user interface that will make any small business owner satisfied.

Indinero is a Y-combinator produced start-up, founded by two computer science grads from Berkeley. These grads, Jessica Mah and Andy Su,  saw a great opportunity after noticing the problems that regular business owners have with accounting. Either the software was too expensive, too complicated, or not comprehensive enough to act as a stand-alone resource.

Indinero tracks spending by connecting bank cards with real-time information, and then graphs out the trends in spending habits. The site gives the user a great looking dashboard, as well as useful tabs (Income, Spending, and Trends). And the company has even announced a plan to add a "forecasting" feature to the menu.

We use Mint, and we believe that if the launch of Indinero is done correctly, it will greatly benefit small businesses all-over. It is slated to be a one of a kind experience. Who knows...Intuit could see the startup as a threat and decide to buy, leading it to walk in the footsteps of Indinero's predecessor for personal finance(Mint).

Wesabe gets the cold shoulder

Wesabe the website for personal finance has decided that the shoestring budget that it operated on, was not adequate enough for the customers it served.

The site after opening in 2005, was very innovative it its approach but was simply outshined by Mint. Wesabe was meant to provide secure tracking of spending for its customers.

The area where it may have made distinguishable mark is its "groups" section, which happens to be the feature they are keeping operational. It allows individuals from all walks of life, join in and ask for advice on certain topics. The community emphasis on Wesabe was definitely a focal point, and is what kept the site up for as long as it did.

There's nothing to worry about, because there are many sites that are clamoring to be the replacement of Wesabe. Such sites consist of the powerhouse HelloWallet. HelloWallet is a financial "guidance" site that operates independently of all banking institutions. It charges fees to each user, but without ads, there's no telling how will be received by the public.