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Our Small Account Toolbox

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We hear it all the time.  It’s usually spoken in a lowered tone as if it may be found offensive: “I don’t know if their account is big enough for you.”  Clients, friends, and acquaintances are often fearful that the people they refer to us won’t have enough money to invest, and therefore won’t get enough of our attention.  Let us put this trepidation to rest: the people you refer to us are important to you, which instantly means they’re important to us.

Clients with smaller accounts face the same, or even greater challenges in planning for their financial future, and we have a number of tools to help them do this.

Say a client refers their niece to us who is just starting out in her professional career and is interested in buying a condo in the next five years.  In this case, we’d sit down with her, either in person, by phone, or on Skype, and build a basic financial road map using MoneyGuidPro, the same financial planning software we use for our multi-million dollar families.  One of the most powerful tools for a young account is to set up automatic contributions to her investment account and time it so that the money is deducted from her bank on the same day she gets paid.  That money then can be invested based on the financial road map that we constructed together.

While individual stock or bond selection is a good technique for fund management, the size of the trades relative to the clearing charges by the custodian bank would erode returns. TD Ameritrade does, however, offer 100 Exchange Traded Funds, or ETFs, that we can use commission-free. Once the money is invested, we rebalance the account every three months to make sure the percentages are back on track and in sync with her financial plan. TD Ameritrade offers a robust rebalancing tool that lets us take into consideration things such as tax consequences and future cash needs.

She’ll want to keep track of her savings progress and investment performance, and she can easily do this by logging into Orion; again, the same portfolio reporting software our multi-million dollar families use to view their accounts.  This will give her the quick snapshot she needs until we check in with her in 6 to 12 months to review the account in detail.

This process helps this young woman identify her goals, and lays out the steps to be taken to meet them, a great first step for a young account. Creating a financial plan, setting automatic contributions, rebalancing at regular intervals, and managing risk, especially when done early on, can ensure that you are well prepared to meet your financial goals, whether they include a house, a child, or retirement.

Market Minute – April 24, 2013

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Apple Earnings Release

It is impressive how the market can fixate on a single stock.  Apple has been that focus for a few years now – on the way up and on the way down.  And while I rarely focus on a single company given the diverse nature of our investment strategy, Apple is as much a mainstream news event as American Idol.

Last night Apple released their earnings from the past quarter (their Q2), and gave some guidance for the next quarter.  While there has been a tremendous focus on Apple’s “lost mojo,” they actually did extraordinarily well – selling 37.4 million iPhones in the quarter – a small gain over the same quarter last year.

That fact is huge.  Despite the bad press, the cratering stock price, and the onslaught of competition from Samsung, HTC and others, people still want Apple products in record numbers.  The distorted market perception ignores the global diversification that Apple accomplished last year.  Now two-thirds of their revenue comes from abroad, attributable to the fact that they expanded into over 100 new phone markets in 2012.  To emphasize the appeal of their products, iPad sales increased by 65% over the same period.  Not a small feat – and one done extremely well.

To give you a little context, iPhone and iPad sales combined to roughly 57 million units for the three-month quarter.  That translates to roughly 26,000 sold every hour of every day, or 440 units per minute.  Given an average selling price of $612 for the iPhone and $449 for the iPad, that is stunning demand for a premium product.

The downside is that Apple will not have any new phones, pads or game-changing products for at least another four months – an eternity in the minds of stock traders.  But in my opinion, that is fine.  What Apple has done thus far in logistics and supply-chain in unprecedented.  To wait and build that supply-chain for the next wave of products over the following year is perfectly acceptable for a long-term view of maintaining the world’s most valuable brand.

Consistent with this philosophy, and solidifying the slow-growth nature of such a large market footprint, Apple is radically changing their balance sheet structure to be more friendly to value-based investors.  It is well overdue – this should have been done last year and created a wicked backlash from investors – but the changes are good ones. First, they boosted the dividend to a 3% yield.  Second, they increased their stock buyback by $50 billion, reducing the stock float by 15%.  And third, they will bring debt onto the balance sheet for the first time in decades.  All of these changes have the net result of increasing the value per share, flowing cash to stockholders, and lowering the stock volatility in the long term.  In short, they will now be a value stock.

Unfortunately, Tim Cook and Apple’s culture took many missteps before getting to this point, and the stock has suffered mightily.  Some of those missteps were addressed last night.  Next is execution on the business strategy and the ability to create new and exciting products – and that again is where time will tell.

Regards,

David B. Matias, CPA

Managing Principal