Charles H. Dow Award

I’m extremely honored to announce that I’ve won the 2017 Charles H. Dow Award given by the Market Technicians Association (MTA). The Dow Award is given by the MTA for research completed that’s helped advance the study of technical analysis and has been received by many authors and money managers I greatly admire. My research paper, “Forecasting A Volatility Tsunami,” which takes a unique look at market volatility will be released in several weeks and I’ll be sure to share it on the blog once it’s made public.While I completed the paper over six months ago, the topic and findings are quite pertinent during the current market environment.

After joining the MTA and earning my Chartered Market Technician (CMT) designation several years ago, it was a professional goal of mine to complete a piece of research that was worthy of receiving the Charles H. Dow Award. I consider it a great honor to have my work acknowledged and I look forward to the feedback it gets by those I respect in our industry.

From the Market Technicians Association:

In 1994 the MTA established the Charles H. Dow award to highlight outstanding research in technical analysis. The Award has received over 160 submissions, and recognized 17 papers for their excellence. Of the 21 authors/coauthors who have won, eight have gone on to publish books based on their submissions to the Charles H. Dow Award. Winners have presented at the MTA Annual Symposium, local chapter meetings, and participated in MTA podcasts and/or educational web-series.

Charles H. Dow Award (MTA)

2017 Market Technicians Association Symposium Press Release (MTA)

Financial Enhancement Group Press Release (Inside Indiana Business)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

Consider This… Radio Show 3/25/2017

Here is this week’s radio show, hosted by Joe Clark, CFP with Sherri Contos.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

When It Comes to Asset Classes More Than Size Matters

Even the novice investor understands the importance of breaking asset classes into importantly distinctive categories like small and large, growth and value.  After that step though, discarding the various ways in which those categories can be measured by various indices is all too easy.  One might simply think – “A mid cap index is a mid cap index” – (and by “one” at this point I am often referring to me!) And that type of thinking isn’t all bad since we have limited time and resources for gathering information and making decisions, and the asset class distinction itself is nearly always going to be the bigger issue. But, sometimes taking the extra step in being careful as to which index to use can pay extra dividends. This is especially true in small cap stocks where the (much older) Russell 2000 is the granddaddy of indices in this space with the S&P 600 taking on the role of stepchild.

The two indices are measured differently with the Russell 2000 casting a wider net. They both represent similar sizes of companies, with both indices having a median market cap between $1 billion and $2 billion. The Russell 2000 methodology, though, is much more apt to catch companies that are on their way down as opposed to their way up.  Think of it this way, companies that are up and coming will at one point be small on their way to being big. Companies that are severely struggling can also be small caps on their way to being non – existent. Those are two clear different paths.  In maybe the clearest difference between the two, check out the profitability profile. Over the trailing 12 months, I find about 18% of the S & P 600 as having negative earnings while nearly 1 out of 3 in the Russell 2000 does so.  For reference, just 11% of the S & P 500 had negative earnings. 

This isn’t to say you always want to own the “higher quality” as anything can be attractive at the right price. When exiting more depressed situations, the Russell 2000 can be more poised to rebound a little harder.  Over the long run, though, the S & P 600 has materially outperformed the Russell 2000, and has done so with less volatility. A study by Morningstar and IFA shows the S&P 600 returning 11.1% from 1994 through 2013 vs. 9.3% for the Russell 2000.  Meanwhile, the standard deviation was slightly smaller in the S & P (18.8 vs. 19.7).

Source: Small-Cap Face-Off: Russell 2000 vs. S&P 600 (IFA)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

 

How Childhood Projects Transform Into Adulthood Hobbies

Growing up in the sixties and seventies in Indiana the internet did not exist (I don’t even think it was on Al Gore’s radar) nor where there TVs with two hundred plus channels. The closest thing to a cell phone was the communicator Captain Kirk used in Star Trek.       

It can be really cold during the winter months, so when you couldn’t dribble a basketball outside because your hands were stinging or the ball simply wouldn’t bounce you had to go inside (playing in the snow wasn’t something you could count on).

I did have a hobby: I liked to fly remote control planes and run RC cars.  In our basement I had a workshop where I built models to fly once the weather permitted.  These weren’t what they have today, commonly known as “ARF”, (Almost Ready to Fly) where you open a box, snap the wings on the fuselage, screw in servo’s, add a receiver, battery and you’re done. My planes were made from scratch using parts you created from a blueprint.  There were all types of planes.  New flyers would choose something in a high wing model, keeping speeds down and usually had faster build times.  The military replicas were then; as they are now, very popular, but the rule of thumb is – the faster they go the harder it is to fly them.

The parts were entirely made out of balsa wood.  You may know very little about this versatile material.  It’s light, but surprisingly strong. Grown mainly in South America, it has a variety of uses.  If you have ever used a crankbait fishing lure it was probably made of balsa wood.  Every inch of the project was cut, shaped, and sanded.

Assembly of the fuselage, wings, tail, rudders, elevators and ailerons was completed with five minute epoxy.  Five minutes doesn’t seem like a long period of time but when you’re fitting literally hundreds of pieces together it can seem like an eternity.  You then painted everything. Starting with a primer coat, (very, very thin coats, as weight is your Achilles heel) then sand, then prime, then sand, if every looked good and smooth you were ready for the final color coat.  The wings were covered in a plastic film.  Think of a really tough shrink wrap. I used my sister’s hair dryer to get the surface tight as a drum. 

Next the internals, mount you motor with linkage, gas tank and electronics.  If you did everything correctly you could hold the completed plane on the forward tips of each wing and it would balance front to back.  If you paid attention to your details and exercised patience you should have a flight worthy aircraft, just waiting for a day of calm winds and green grass to take off and land on. Construction time would easily eat up forty five hours of work or even more in the completion of a single plane.  If you were replicating a real, full size aircraft to scale you might spend a year or two of dedicated work. 

I told myself when thinking of a topic for this blog that I was going to write about something that had nothing to do with finances.  Something different, but in the last paragraph I can’t let the opportunity pass by without making the following analogy.  The design a plane no matter the size starts with a detailed, well thought out plan.  Some planes have more pieces and nuances than others, but care has to be taken with each one. It’s an extremely rewarding feeling when you fly the model for the first time.  The second and third are no less satisfying, but anytime your craft is moving there are conditions that you can’t control, wind gusts, engine or radio issues.  Adjustments must be made, caution exercised or you may face some horrifying consequences and hours upon hours of work can be lost in the blink of an eye.

Are your dreams of retirement and financial security any different?  Carefully you put away part of your income while trying to balance everyday living.  Paying the mortgage, saving for the education of your children, all the parts of your daily life just like the plane, you are shaping, contouring them, trying to make them fit, holding them together with the very fabric of your will.  But wait, what’s missing, the plan?  That detailed guide that identifies each part and shows you where each piece goes, how they all fit together to ensure that you too will have your day in the sun, where time is your friend.  Do you have one?  If so, like the plane is it balanced properly, have you calculated the variables in your future?

Life takes twists and turns.  You marry, have kids, a house and soon the hobbies fade away.

Fast forward thirty-five years.  Just because I wasn’t flying didn’t stop me from looking and reading about what was new and exciting in RC aircraft.  Okay, confession time:  I may be a grown man but I do like my toys (this statement was put in as an acknowledgement to my wife).

About ten to twelve years ago a buzz word hit the scene of small remotely controlled aircraft… DRONES!

Parrott was one of the first companies that made a reliable, functional, affordable drone for the mass retail recreational market.    They’re drones were like something out of a fantasy alien movie.  It could fly like a helicopter, hover and spin on its axis, it had a forward looking, high definition camera, a downward looking camera, the maneuverability  was simply mind boggling  and you were controlling the whole thing not with a box and toggle sticks, but with your smart phone, while watching live video feed from the craft itself.  You may think it sounds too complicated while actually nothing could be further from the truth.  The technology is so advanced in these little machines that my four year old grandson was flying mine after two minutes of instructions.  This fueled the public’s willingness to accept them not just as a form of entertainment and pleasure but as a tool.

Needless to say, I had to have one!

Suddenly, the market was flooded.  Companies were coming out with bigger, more advanced machines, both in payload capacity and functionality.  Huge corporations touted that soon you wouldn’t leave your house to shop, a drone would deliver your items within minutes of your order. The media flooded the airwaves with stories on the new innovations and how they would affect our lives.  The world had gone drone crazy in that every day someone was thinking of new ways to fully utilize these wonderful creations.  Sports’ reporting is just one area where the use of drones has dramatically improved the viewers’ ability to be fully immersed visually. 

Sadly, negative press about military drone strikes and individuals who fly personal drones that have little regard or respect have exploited and missed used the mindless drone.  The general public now has a stigma of these marvelous machines as being either a type of weapon or a vehicle used to invade the privacy of others.

The FAA has put forth legislation regulating the use of drones and has created a registry for those who own them.  Safety is there concern as it should be.   

Today when I have mine in the air I am mindful of those around me for their safety and privacy.  I do enjoy it.  Flying has always lifted my spirits; there is a sense of freedom.  So maybe, just maybe if you see one, think first that someone is just enjoying the day with a marvelous creation, having their day in the sun.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

Reading and Understanding Your Individual Tax Return

Tax time is just around the corner. For some of you, refunds are in the mail. But for others, take note – the IRS is waiting to hear from you! Regardless of where you are financially, we all deal with the same annual tax return known as the IRS form 1040. Interestingly enough many individuals don’t understand what they are reading or how the components combine to tell the Internal Revenue Service their story. Following are some ideas for helping you understand your return.

First and foremost, understand that there is a huge difference between being proactive and reactive in almost all areas. Tax planning is proactive and may be the largest opportunity that many people simply miss. Tax reporting is reactively telling the IRS what happened the year before – your story. How your CPA reports that story is critical. Never underestimate the value of a good tax preparer!

Tax planning must occur before the end of the calendar year. We consider strategies all year long but pay special attention between mid-November and December so that the best choices for taxation and deferral can be selected.

Your tax return is made up of many parts that work like an orchestra.  Each line is separate and yet they work in harmony with one another. Similar to a single person in the strings section making a mistake and destroying the beautiful music of the group, one poorly reported number on an individual line of a 1040 can wreck the entire return.

The key lines for most tax payers are line 7, the bottom of page one and line 43. Line 7 is the amount of earned income you have that year. It tells you in large part if you qualify to contribute to various retirement plans and IRAs. It is also the income you have subject to Social Security and Medicare taxation.

The bottom of page one is your adjusted gross income or AGI. This number tells us all of your income that is subject to taxation. Any change you can make in income is referred to above line (above the AGI line) and is more beneficial to you than a below line deduction.

Line 43 tells you the amount of income you have subject to taxation after your itemized or standard deductions and exemptions. Those numbers are key for understanding your marginal (the tax rate you pay on your very last dollar of ordinary income) and effective (what you pay on your average dollar of taxable income) rates. From a planning perspective, those rates or percentages are critical in making the proper decisions. You cannot engage in tax planning without reasonably knowing what those numbers will be.

Keep in mind your taxation resembles a staircase with multiple steps. As each step goes higher the percentage you pay to the IRS increases. Tax planning has many facets but one is to make certain you don’t go any higher than necessary. Obviously there is more. Lots more, but this is a start. Happy tax planning.

Tax advice provided by CPA’s affiliated with Financial Enhancement Group, LLC.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.