Harvey Rowen opens his kimono  and shares his personal and professional sides in an interview with Servcorp.  Servcorp is the company from whom we rent our San Francisco office. 

We’ve been busy Bloggers!  Vivian Groman’s blog 5 Tips To Become a Better Investor was picked up by not only Starmont.com, but WomenAdvisorForum.com and Forbes.com.  Make sure to follow Vivian on Forbes.com here: http://blogs.forbes.com/people/viviangroman/. 

Harvey’s blog was also featured on Forbes.com 5 Questions to Ask Before Picking a Mutual Fund in 2012.  It seems 5 was a popular number this month. 

Harvey was quoted in a recent MarketWatch.com article Where To Put Your Money If The Bond Bull Stumbles where he shares his perspective on bond investing.

As always we strive to keep our Clients informed on the market and Starmont’s investment actions.  You can read two emails we recently sent to our Clients, When will investments go up? and Tax Loss Harvesting & Asset Allocations.

Hope you stay warm and healthy through the rest of this season.  Do not hesitate to reach out if we can be of any service to you or yours.

The Starmont Team

by Harvey Rowen

When Registered Investment Advisors (RIAs) like myself choose investments for clients we have a fiduciary responsibility to find the most appropriate investments. We want to avoid taking too much risk while also looking for returns above the benchmark.

We take that responsibility very seriously. We look for mutual funds, for example, that we believe will provide good returns without taking unwarranted risk, funds we think will be stable for the long run and will put the investor first.

Over time, we have developed an effective technique for selecting what we consider to be best-of-breed mutual fund managers and investment companies. As an investor, you can use this same approach when researching where to invest your 401k, IRA, college savings fund or other investment.

Get the answers to these questions before you invest in a new fund.

1.  Have returns been generally consistent through both up and down markets?

When you look at a chart of the fund’s performance over time, does it look like the Alps, with huge peaks and valleys, or like gently rolling hills?  The Alps can be dangerous and so can mutual funds with returns that swing wildly up and down. You are looking for consistent, generally positive, returns over time.

2.  What is the manager’s experience and track record?

Experience counts when it comes to managing your money. Look for a mutual fund manager who has been managing money for at least five years, either in a mutual fund or in some other vehicle (like a separate account).  Look at his or her track record over that time, and see how he/she did versus other managers who invest in the same investment category (large domestic companies, small foreign companies, etc).  You want someone who consistently ranks in the top quartile in both up and down markets.

3.  What are the fund’s costs—all of them?

Some mutual funds carry sales charges, or “loads,” that can be 4-5% of the purchase price or more. The load typically covers the fund’s sales costs, such as a stock broker’s commission. There is nothing inherently wrong with “load” funds, but it’s important to understand the costs associated with your investment.

At my firm we invest only in ”no load” funds. If we invest $1,000 in a fund, we want the entire amount going into the investment.  If we pay a 5% load. we are actually investing only $950. That means we have to earn 5.26% on the $950 just to get even.  We do not want to start out in the hole.

All mutual funds charge what’s called an OER—Operating Expense Ratio—a fee to cover expenses incurred in running the fund.  The OER is the total of annual operating expenses expressed as a percentage of the fund’s average net assets.

Different kinds of funds have different levels of OER. For example, a “large-cap” mutual fund will typically have a lower OER than a global “small-cap” fund. It makes sense when you consider that the large-cap fund’s costs to research large, domestic companies would be less than the global small-cap costs to research small companies located in foreign outposts.

Morningstar research indicates that funds with the lower OERs in the same peer group tend to outperform those with higher OERs. You will find a fund’s load and OER on Morningstar and other websites.

4.  Does the fund rank among the top 25% of its peers?

It’s not exactly a beauty contest, but mutual funds—all 16,000+ of them—get evaluated and ranked by industry researchers like Morningstar. You’ll want to know if the fund you are considering typically ranks high among its peers. There are so many funds to choose from—why not choose one that is, at least historically, a good performer compared to others like it?  The ranking will take into account not only the skill of the manager, but also the strength of the investment company whose fund it is (like Vanguard or Fidelity), and how much return that support is costing fund shareholders.

5.  Has the fund performed consistently above its “benchmark” over time?

Not only can you compare funds against each other, but you can compare them to investment indexes like the S&P or Russell Small Cap Index. Since you can always “buy the market” by buying an index fund or an ETF that tracks an index, you want to know if the fund you are thinking about buying has outperformed its index over a complete market cycle—a historic up market and down market cycle.  This is referred to as “adding alpha” to your portfolio.

Here is the interview…Harvey shares his personal history as well as his perspective on the advice business – Read on and Enjoy!

  In deciding how much of what kind of fund to buy, we will use the asset allocation in which Client Consolidated Portfolios were invested prior to the tax loss harvesting, with a slight adjustment upward for equities. Most Starmont Clients were between 30-35% in equities, with the remainder of their portfolio in fixed income and a little in cash. We will aim for equities in most portfolios to be between 35-40% in equities, with the remainder in fixed income and a little cash. Economic fundamentals in the United States appear to be strengthening. On the other hand, Europe is still a concern. But edging a little more toward equities seems in order.If you have cash needs over and above what we normally hold in cash in your taxable account to meet periodic needs, please let us know. And if you want to talk about your particular asset allocation, please let us know.We know that 2011 was a trying year for many of you. Even though the Wilshire 5000 Index (which tracks the U.S. equity market) closed the year down only about 1.5%, the year felt much worse because of what was going on in Europe. The Dow Global Index was down 13.6% for the year, and the volatility in both the U.S and international markets was staggering.When we receive final numbers for 2011 we will be sending to you another e-mail discussing in greater detail what happened in 2011 and what we think is likely to happen to global economies and markets in 2012-and beyond.We will be scheduling meetings with you to discuss this as we do normally. The company from which we rent our new office space in San Francisco also has meeting space in downtown LA; Irvine; New York and Washington, D.C. to which Starmont has access. This will make it easier for us to see more Clients sooner.  

Sincerely,

Your Starmont Team

A lot of people become reflective at the beginning of a year, mulling over the highs and lows of the year that just ended. We decided, instead, to take a look ahead and give you some ideas that will help you be better investors in this new year. 

1. Be News Agnostic — Avoid being swayed by the news of the day, whether it’s good or bad. Focus on trends versus headlines. Expose yourself to thoughtful interpretation of what’s going on by following analysts, journalists and bloggers you trust.
2. Cash is Not Necessarily King — You may sleep better at night if you are invested in cash and thus avoiding the ups and downs of the market. However,  cash has a price since it isn’t returning enough to cover even our current low inflation rate—so you are actually losing money when you are overly invested in cash. 
3. Prudence is Queen — A diversified portfolio, modified for current economic, political and global circumstances, is the best approach. Make sure you are not over-invested in your company’s stock and that you have a good mix of various types of investments, including cash.
4. Time for Generosity — If your assets exceed $5 million as an individual or $10 million as a couple, you can reduce estate taxes in the future by making some strategic gifts to heirs now.  The $5 million per person estate/gift tax exemption is going away by the end of 2012.
5. Give Plans Another Go-Around — Many experts are projecting lower returns on investments in the coming years.  So this is a good time to get a financial plan—or refresh your last one—and assess whether you are still on track to meet your retirement goals.

To Our Valued Clients

As the attached chart shows, in the past 115 years there have been four secular bull (up) markets in the United States, and four secular bear (down) markets, as measured by the Dow Jones Industrial Average (DJIA).

A secular bull market is a long term upward trending market, where each successive high point is higher than the previous one.

Conversely a secular bear market is a long term downward trending market, where the trend does not rise above the previous high.

According to the attached chart, the four secular bull markets lasted 43 years in total, while the four secular bear markets lasted 72 years. Yet the cumulative return for the secular bull markets was 1,601.06%, while the cumulative return for the longer lasting secular bear markets was 4.05% (through December 2010).  For that reason the DJIA over that period of time has gone from about 50 to over 10,000.

We are in the 12th year of the fourth secular bear market right now.  But the chart tells us that even in secular bear markets, there are up years in which money can be made. 

The current secular bear market is an example.  It began with the popping of the tech bubble in March 2000 and a severe down market.  But the market turned in October 2002 and we had up markets from then until October 2007.  The market turned down again with the busting of the real estate and credit bubbles, and was down until April 2009.  Then it turned sharply up and gained until June of this year.  Now it is down again, but will turn up again at some point.

Starmont has been able to keep the losses small in the downs, and take advantage of the ups.  As a result Client portfolios are positive across the board.  We have been able to do this by expanding Client stock allocations into international markets, both developed and developing,  and through investing in bonds, both domestic and international, corporate and government, investment grade and non investment grade, dollar denominated and non dollar denominated.  And we have done all of this using the very best stock and bond portfolio managers in the business, with long successful track records in up and down markets. It has not been easy in this environment, but we have worked hard and have been successful at it.

We know that it is not an easy time for you.  But still in these difficult times there is opportunity for those who are vigilant.  Starmont will continue to look for the best, while trying as hard as we can to prevent the worst—just as we have done in the past. We appreciate your trust and confidence in us, and we work hard every day to earn it.

 Moving Into the Next Secular Bull Market

What has to happen for the current secular bear market to end so that we can move into the next secular bull market? And what do we have to do now to enjoy the benefits of that bull market when it arrives?

Bring Resolution to European and United States Debt Issues; and Solve the Underwater Real Estate Problem

As mentioned above, the current secular bear market was caused by two bubbles and the collapse of those bubbles—the tech bubble collapse in 2000-2002 and the real estate bubble collapse still going on.  The real estate bubble in turn was caused by what you can think of as a debt bubble as lenders granted mortgages to borrowers who were not in a position to pay it back when the real estate bubble collapsed, and as countries and States took on enormous new debt to fund wars and to provide goods, services and jobs to their voters.

           Europe—Member countries of the European Union will spend much of 2012 resolving their government (sovereign) debt issues.  Resolution could take the form of (1) restructuring (delaying) the debt; (2) defaulting on the debt (causing the holders of the debt serious problems); (3) the creation of a larger role of “Federal Europe” in member countries’ financial affairs; and/or (4) member countries leaving the European Union so that the various countries would go back to having their own currencies (instead of the Euro), and each country could then create new currency and pay off its debts in the new (and deflated) currency.  By the end of 2012 we expect EU members to have figured out what they wanted to do, and to have begun executing their plans.

           United States and State Debt—States are making progress in bringing debt under control by reducing costs—mostly by (1) firing people (not great in a high unemployment environment); (2) reducing their obligations on retirement plans for those workers who remain; and/or (3) raising revenue mostly in the form of fees and new/higher taxes. We think that by the end of 2012 most of the States (and their inhabitants) will have worked through this.

                                                     The United States Government has not been able to deal with the debt issue.  The Democrats want to lower some expenditures and to raise revenue by increasing taxes on the wealthy so that services are not cut too far for those needing them most, and that some money can be spent on programs to generate growth and create jobs.  Republicans want to lower expenditures but will not agree to raising taxes on the wealthy.  The American people will have to resolve this in November 2012.

          Individual Debt—the Mortgage Problem.  There are millions of mortgages owed by individuals in the United States that are underwater–the property which was purchased using the proceeds of the mortgage loan issued during the credit bubble is now worth less than what is owed on the mortgage.

As a result the people owing on the mortgage (1) are not making mortgage payments (but retaining possession of the property); and/or (2) are mailing in their keys and moving out (leaving the property vacant and deteriorating); and/or (3) being foreclosed against by the holder of the mortgage; and/or (4) are making their mortgage payments but not spending on other things (thus hurting the economy and keeping unemployment high).

The solution to this problem seems to be some kind of national debt reduction program so that people could get above water again and get on with their lives.  This program might include solutions such as principal write downs, refinancings, forbearance on present mortgage payments, and converting some ownership to rentals. Without such a national program the United States is likely to see continued slow economic growth, high unemployment and stagnant home values.

A national program would require action by the Congress of the United States—which could happen after the election in November 2012.  Losses to lenders as a result of this program likely would be shared in some manner by the Federal Government and the lending institutions.

 2012—A Transition Year

While this is going on, what should we be doing with your investments and other items on your balance sheet to prepare for better times? 

1.  Preserve and grow at least at the inflation rate.  Starmont has been doing this successfully for our Clients for the last 12 years.  We want to avoid the big loss.  We want to take advantage of rallies in the markets.   And we want to invest in investments that will return at least the inflation rate so as to prevent any loss of purchasing power in your investments.  The inflation rate is running around 3% at the present, and the bond funds in which we have your money invested at present are covering that—and a bit more.  As interest rates go up (not likely any time soon), and the value of outstanding bonds (and bond funds) go down, we will have to revisit the bond fund investments.  We are watching this situation closely. 
2. Look for opportunity in non traditional asset classes.  We have been reviewing real estate funds (commercial and residential); commodities funds (including gold); mutual funds that follow hedge fund like strategies (i.e., long short; distressed; arbitrage; managed futures; etc.).  We want only liquid investments at this point given the volatility in the global economy and markets.  We plan to be in a position to implement some of this research in January, where any taxes on the sales of existing positions would not be due until 2013.   
3.  Look for opportunity at other places on Clients’ balance sheets. For example, there is likely to be some horse trading in 2012 as Republicans seek to have the Bush tax cuts extended, and the Democrats look for extensions of unemployment benefits and other programs designed to lessen the pain of the unemployed.  Speaker of the House Boehner said at the end of 2010, the last time this kind of thing went on, that he got 95% of what he wanted.  Assuming this happens again, there may be some changes in the income, gift and estate tax laws that need to be examined and utilized where appropriate, for example for those of you making gifts, and for those of you expecting gifts at some point.

Conclusion

These are difficult times.  We know that many of you are nervous.  We are focused on preserving what you have, while taking advantage of opportunities as they arise.  If the pattern in the attached chart continues (which our lawyers hasten to point out may not happen), there are better times ahead.  We will continue to work with you to deal with the present, while positioning you for the future.

 Introductions

If you know someone who you think could benefit from Starmont’s services, please introduce them to us by calling 888-386-8630 or e-mailing advisors@starmont.com.  Our Clients are just like you.  If you have had a good experience, anyone to whom you refer us is likely to have a good experience.

As always contact us with questions, concerns or comments.

 Your Starmont Team

Read Vivian’s Blog Here

To Our Valued Clients

Here are your Third Quarter Reports.

The Quarter to Forget, an October to Remember (so far)

As we told you in our October 7th e-mail, the third quarter produced the worst results for stocks and bonds since the market meltdown in the Fall of 2008, wiping out 2011 gains and putting returns solidly in the red as of September 30^th.

The good news is that October has been a very strong month and returns for 2011 have returned to the black, or are close to it, as I write this in the last week of October.  If this week is decent, your Schwab October statements will bring a smile to your face and some joy to your heart.

Europe and Congress: Full of Promise but Resolution Still Elusive

Just as fear of a European meltdown and some troubling economic data about the pace of GDP growth and unemployment caused the terrible third quarter, the belief that European leaders now are serious about solving that problem and some solid U.S. earnings reports and resultant low p/e ratios, have caused the October rally.

In order for the rally to continue the European leaders must follow through on their pledge to resolve the problems of Greek debt, weakened banks and a bailout fund in need of reinforcement.  Failure to do so could send stock and bond markets tumbling again.

It also would be helpful if Congress passed some of the pieces of the Obama Administration jobs bill—which seems unlikely.  Indeed we could be facing another bout of bad news coming from Congress when the so called Super Committee is required to report back to Congress toward the end of November.  Reports in the media indicate that the Democrat and Republican members of that Committee are working as well together as the Democrats and Republicans did on the Debt Ceiling Legislation that produced the Super Commttee.  There are some who suggest that the horrible Third Quarter is a legacy of that terrible July “debate”.

No End in Sight for the Stock and Bond Roller Coaster

Whatever happens we expect that market volatility will remain high. And we expect that stocks and bonds will continue to be more and more correlated in their movements (stocks up, bonds up; stocks down bonds down) because it is emotions that play a large role in the market movements and those emotions apply to equity and to debt. So stocks and bonds, which used to be non-correlated, are becoming more correlated.

Diversified portfolios invested in non correlated assets (one goes up when the other goes down) historically have been a way to protect against large losses.  As stocks and bonds become increasingly correlated, Starmont is evaluating other asset classes that are not highly correlated to stocks and bonds that we can use in Client portfolios.  We are also considering implementing some additional investment styles that can take advantage of the increasing volatility in the market.

There May Be Possibilities in Hedge Fund-like Mutual Funds

I was at a conference in Los Angeles last week where the topic was hedge fund like investments offered in a mutual fund format.  Starmont has not used hedge funds in the past because of their lack of liquidity, lack of transparency, high minimums and high costs. However, the ability to utilize hedge fund like investment strategies in a mutual fund solves most of those problems.  And some of the investment strategies presented at the conference appear to have low correlations to stocks and bonds and/or may have the ability to take advantage of market volatility (i.e., long/short funds).

Some of you attended Starmont’s program in San Francisco on June 4^th of last year where Rick Lake of Lake Partners discussed the way his fund of hedge funds protects and grows your net worth.  Starmont is evaluating other mutual funds with hedge fund like strategies to accomplish the same end.

This whole topic, known in the investment community as “alternative investments”, will be a subject of a number of sessions at the Schwab annual investment conference, being held next week at the Moscone Convention Center in San Francisco.  Craig, Vivian and I will be attending different sessions during this four day event, which features some of the leading fund managers in the United States, and which will be featured on Maria Bartiromo’s segments on CNBC.  We’ll circle back afterwards and compare what we have heard, and what it means for Client portfolios going forward.

By the time that all happens we will know more about Europe, and perhaps more about the Super Committee and where that all stands. 

Introductions

If you know anyone you believe could benefit from Starmont’s wealth advisory and investment management services, please introduce them to us by calling us at 888-386-8630 or e-mailing us at advisors@starmont.com. The features, advantages and benefits of using a Registered Investment Advisor, which Starmont is, were listed in Schwab’s two page ad in the October 22-23 print and electronic editions of the Wall Street Journal that we mentioned in the press release that we e-mailed to you last week. We will be obtaining a copy of the ad from Schwab, which we will post to the RIA section of our website, now under construction.

As always, please contact us with any questions, comments or concerns.

Best regards,

Harvey A. Rowen
Chief Executive Officer and Chief Investment Officer

 For Immediate Release                                            

Contact:       Sondra Harris/Sondra Harris PR/(415) 888-2394/ sharrispr@comcast.net

San Francisco, October 20, 2011—Starmont Asset Management LLC, an independent wealth advisory and investment management company, announced today that it will participate in the advertising campaign being launched by Charles Schwab & Co. to promote registered investment advisors (RiAs). 

Charles Schwab already has placed its campaign banners on the websites of the Wall Street Journal, Forbes, Bloomberg, Economist and Atlantic, using the special Schwab RiA Logo that Schwab has developed for this campaign.  And this weekend (October 22-23) Schwab will run a two page ad in the Wall Street Journal print and electronic editions touting the use of RiAs by investors.

Said Harvey Rowen, CEO of Starmont, “We will be communicating with our Clients about this campaign using the RiA Logo.  We also will be developing a special section on the Starmont website for information Schwab has developed about the benefits RIAs provide to investors.” 

Mr. Rowen, former President of the Charles Schwab Trust Company, continued,  “Starmont houses our Clients’ assets with Charles Schwab. We are delighted that they have decided to make a considerable effort to educate investors about RiAs and how they differ from other investment advice providers.”

Starmont Asset Management is an independent wealth advisory and investment management company serving affluent individuals and families, and their businesses.  Its goal is to preserve and grow its Clients’ net worth by constructing and managing a diversified tax sensitive investment portfolio, using traditional and “alternative” investments, and by providing ongoing advice to its Clients on all matters impacting their financial affairs over the course of their relationship with Starmont.

End