FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Investors Still Doubt The Rebound In Earnings Growth (BMO Capital Markets)
Investors distracted by all the noise are ignoring an important trend, writes Brian Belski. "Earnings growth has staged a nice rebound in recent quarters," he writes. "For instance, 4Q13 year-over-year quarterly growth is tracking at 21.3% (with 93% of S&P 500 having reported), its highest level since 4Q10."
"Nonetheless, many clients we speak with remain skeptical regarding earnings growth, owing to the perception that quarterly EPS estimates have been reduced significantly from the start-to-the-end of the past few reporting periods, which they believe implies a deteriorating earnings outlook.
"…Truth be told, earnings revisions are an important part of our investment analysis process and we pay close attention to trends within the data. However, given the recent mood of the markets, we believe that some investors are misinterpreting the signals that earnings revisions are sending."
Warren Buffett's Berkshire Hathaway tries to beat the market. But this is not the path Buffett recommends for the average uninformed investor. From Buffett's Berkshire Hathaway letter to shareholders: "What I advise here is essentially identical to certain instructions I've laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife's benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."
'Advisors Manage So Much More Than Money' (Vanguard)
Back in 2008-2009 when we saw a bear market in stocks, talk of the death of equities started making the rounds again. But the stellar run in 2013 has seen investors flood back into stocks. Now, we're seeing a lot more volatility in the stock market and that has investors worried again. "It’s tempting to follow the crowd, but this is a period that reinforces the value of discipline," writes Martha King, managing director of Vanguard Financial Advisor Services.
"With the Standard & Poor’s 500 Index up more than 30% last year, now may be the perfect time to review clients’ asset allocations and remind them of the importance of sticking to their plans. Successful advisors manage so much more than money. You manage people and their expectations. When clients are scared about market drops or overly enthusiastic about market increases, you stop them from overreacting and potentially making poor choices."
Brokers Aren't Fans Of FINRA's Proposal To Gather Client Data (Investment News)
A 2013 Financial Industry Regulatory Authority (FINRA) proposal called Comprehensive Automated Risk Data System (CARDS) has become a top industry concern, reports Dan Jamieson at FA Mag. This system would collect customer trade data "and analyze it to identify churning, pump-and-dump schemes, excessive markups and mutual fund switching. The data would also be used for exams of broker-dealers," reports Jamieson.
"The CARDS concept would result in lot of sensitive information about individual customer holdings and [transactions] being kept at one place -- Finra," Ira Hammerman, general counsel at the Securities Industry and Financial Markets Association told Jamieson. "That raises both privacy and data [security] concerns,” Hammerman said. “These issues really are top of mind with our members’ customers, the mom and pop investors."
Advisor Confidence In The Economy And The Future Of The Stock Market Drops (WealthManagement.com)
Advisors optimism on the U.S. economy and markets saw its biggest monthly drop since April 2013, according to Wealthmanagement.com’s latest Advisor Confidence Index. The current state of the economy component of the index fell 4.8% this month, while that of markets in six months was down 2.5%. "The US Stock Market is an area of caution and concern for me. The last decline in the equity markets bottomed in 2009. Historically, US markets have experienced a major decline every 4 years. Cycle theory suggests that advances that extend beyond the norm are usually followed by more forceful declines," Kevin Stockton of Horter Investment Management told WealthManagement.com.
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