February 7, 2017


Top 3 Concerns Facing Investors in 2017

The Investment View from Prescott, Arizona

 Weak Economic Growth – What does it mean?

Economic GrowthEconomists frequently talk about a key measure of economic health being Gross Domestic Product (GDP) growth and whether it will be 2% or 2.5% or 3%. These may seem like very small differences, but over time they become huge.

Assuming population growth at 1% per year, we would need 1% GDP growth just to keep our standard of living stable.

With this level of population growth it takes an excruciating 144 years for living standards to double if GDP growth is 1.5%, “only” 72 years for it to double if GDP growth is 2%, only 36 years with GDP growth of 3%, but it takes just 20 years for the standard of living to double if GDP growth is 4.5% per year.

If you think back to the prosperity, job opportunities and economic optimism we enjoyed in the 1960s, that was because we had 4.5% growth back then, and that was after the effects of inflation.  Jobs were plentiful and expectations were that each generation would have a significantly higher standard of living and live better than their parents.

Let’s all hope that economic growth can increase, so the good times can return.

Weak Investment Performance

Standard wisdom is that stock market investments deliver 10%+ returns and those high returns are why investors are willing to take the risk of investing in stocks.  However, for the 17 years ending 12/31/2016 the S&P 500** stock index has returned only 4.47% per year on average, and that is with dividends reinvested.  

The Barclays total bond market index (symbol AGG) currently pays only 2.39% interest.

What is an investor to do if they need to grow savings in this era of low investment returns?

Passive advisers such as Vanguard and others would have you use their index funds.  Simple and cheap they say, and guaranteed to get you average returns (lately, 4.47% or 2.39% in the case of stocks and bonds).  

To me, an investor using an index fund seems like a parent hoping their child becomes an average student.  Not really what most of us aspire to, is it?

If you can retire comfortably with those low returns, great.  But, most of us can’t.

Plus, a passive buy and hold investor usually doesn’t realize that index funds include the full risk of devastating bear market declines that hit the indexes every few years.  Someone needs to decide when to get out of those funds before markets decline.  Will that be you?  It sure won’t be the fund company.

Proactive management of investments, such as Hepburn Capital provides, is the only way I know to get good returns and lower risk at the same time.  Where Wall Street, and to some extent mutual fund companies, are in business to separate you from your money, Hepburn Capital’s purpose to separate you from Wall Street.

Just call 778-4000 for an appointment to talk about the long term returns of HCM's active management vs. the indexes.

Cyber Security

Whether it is Russian hackers after government secrets or crooks trying to steal your money, cyber security is something we all need to take seriously.

At HCM, we take extensive precautions to safeguard your money.  Here are a few things you can do to help.

A– Update Passwords: To better prevent email hacking, change your online passwords often.  Using different passwords for different accounts keeps hackers of one site from using your password anywhere else.  We recommend choosing passwords that contain not only dictionary words but include symbols, numbers and capitalized letters.  Instead of using the word happy, use H@ppy!  And the longer the password the better when it comes to preventing a hacking program from deciphering your password.  Look into password manager programs that will remember your passwords for you.  Ours is called LastPass.  It makes secure passwords a doable thing.

If you haven’t gotten around to using a password manager yet—one of the top safety practices recommended by security experts—you’re not alone.

(copy and paste the link below into your internet browser to read more)


B – Sign Up For Online Statements: To reduce physical identity theft, you can sign up to receive online financial statements with only a link sent to your email, not the full document.  Again, updating your passwords regularly is an easy way to thwart online/email identity theft.

C – Sign Up For Two-Step Verification: Another way to protect your financial information is through a two-step login authentication process where you must provide a password and then a randomly generated security code (sent to your phone).  This two-step approach ensures that unwanted third parties cannot gain access to your sensitive information, and is a security measure starting to be offered by banks and email companies.


 What the Markets Are Doing

 Wall Street

The stock market took a breather after its 1 month post-election surge and the S&P 500 Index** is currently trying to break out from the tight up and down range experienced over much of the past two months.  This is called a trading range.

While the S&P 500 Index** popped above its recent trading range last week, other indexes did not.  US small company, European and Chinese stocks all lag the S&P 500**.  

Japanese stocks appear to finally be coming out of their long slump with the rally that began a year ago having a key Japanese index (symbol EWJ) approaching its highest levels in 10 years.

Bond prices have stabilized after the 5% decline in the major bond index (symbol: AGG) in the second half of 2016, but have not yet begun a sustained recovery.

High Yield (Junk) bonds are strong and this normally bodes well for the stock market, too.

Municipal bond markets have finally begun to stabilize after their 5% decline late last year.

Wealth is best built over the long run by avoiding losses in down markets so more money is left to take advantage of rising, bull markets. But we need to be patient as we wait through trading range markets to see what direction the next trend will take us.


Slice of Life

 Part of what makes my life so rich is the freedom I have due to the skills and dedication of my staff that make sure you all “feel the love,” as we like to say.

Sheri Congdon, the voice of HCM, has been with me for 15 years.

Laurel Fitzhugh, our tech guru, and Yvette Zurita, our operations manager, have both been at HCM for 12 years.


And Mary O’Neill, our “rookie,” has been with us for 4 years. 

Thank you ladies!


 College Classes Coming


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Next classes will be in June.



  What's Going on in Your Portfolio?

portfolioOver the New Year holiday both our Flexible Income* and Shock Absorber Growth* portfolios were positioned for potential market volatility that did not occur.  Basically, I zigged when I should have zagged.  I do this to avoid risk.  Sometimes it pays off when the market does decline, and sometimes it doesn’t.  I would rather lose an opportunity to make money than to lose real money, and this is what happened.

In January, while the S&P 500 Index** made just over a 1% gain, we had small losses in our portfolios.

Currently, the growth portion of portfolios holds 25 stocks, some cash and an inverse fund that goes up if the stock market goes down.  This fund hedges overall portfolio values in the case of a market decline, allowing me to hold stocks with less risk.

The income portion of your portfolios holds two corporate bond funds, high dividend, energy infrastructure stocks (companies that own pipelines, tank farms and docking facilities), and a government bond strategy that has worked very well since we began using it a year and a half ago.

Adaptive Growth* portfolios are currently allocated 80% Shock Absorber Growth* and 20% Flexible Income*.  Adaptive Balance* portfolios are allocated 50/50.

I have a gold allocation in both growth and income portfolios that has been in cash for a few weeks, but which will probably be invested by the time you read this.  I am writing this on Saturday, Feb 4th.

Municipal Income* portfolios are now invested for the first time in several months as in November I moved to cash to side step much of the 4th quarter decline in munis.


Tax Statement Update


Ammended Income Tax ReturnIf you are one of those folks who wants to get your taxes done early, you probably don’t like delays in getting 1099 tax statements.  I understand your frustration, and here is what is happening.

The issue behind delays is not really at the custodian’s level, but begins in Congress and the IRS administration that fiddles with tax law right up until year end.  So companies that have to produce or process tax information have to wait until January to program changes in their computer systems so their accounting can be done and reports can be generated.

Complicating matters are the many layers of financial intermediaries.  Corporations have to report to mutual funds before mutual funds can report to custodians, such as Trust Company of America.  Only then can TCA begin its accounting processes.

With many layers of reporting being done in a rush, errors are common, with each requiring a correction to be sent up the line.  One correction we see frequently is when a mutual fund originally identifies a dividend as taxable when it was really a non-taxable payment.  The company issuing the dividend has to send a correction to the mutual fund, who then has to send a corrected 1099 to the custodian who consolidates all of the many 1099s into one document for you.

Ironically, custodians that try to send their 1099s out the earliest are more likely to have to send you a corrected 1099 later on, probably after your taxes have been done, creating both angst and cost as you are forced to amend your taxes.  So each year custodians have to decide where the balance is between frustrating you with delays and maybe causing you to have to amend taxes that are filed early.

We often forget just how complex is the financial system that we invest in, but it is huge and deep and complicated and to get it to boil down to just a few numbers on a 1099 is not all that easy.  From newspaper reports I read last week, even the State of Arizona is having to correct 1099s it already sent out, so no one is immune.

With that said, 1099s for IRAs have been completed at TCA and are being mailed.  You can see and print them from your Liberty account access platform at any time.  Call the office if you need help finding them online.  

1099s for non-retirement accounts are due to be posted on Liberty around Feb 15th, and put in the mail right after that.

Thank you for your patience as these annual tax reports are generated.


Stock Market Cliches - A humorous look at what pundits say...

TV commentator: "The implied volatility is very positive right now."

Actual meaning: I have no clue what's going on with the stock market, but I heard it has something to do with Trump.


Mental Floss






















 Our Spotlight Strategy - Future Technologies


With our Future Technologies Strategy we strive to provide a high rate of capital appreciation using primarily equity investments in emerging technologies.

We invest primarily in stocks, mutual funds or ETFs, and a money market fund. The proprietary HCM Safety Net suite of indicators is used to warn of potential stock market declines in which case exposure may be quickly reduced or hedged using inverse funds.

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