May/YTD S&P 500, Asset Class & Sector Performance

	May	YTD
S&P 500 Index	-6.01%	5.16%
Asset Class Category Average Performance
Large Cap Value	-6.68%	2.64%
Mid Cap Value	-6.81%	3.71%
Small Cap Value	-6.84%	2.69%
Foreign Large Cap Value	-11.02%	-4.13%
Foreign Small/Mid Cap Value	-11.22%	1.00%
Large Cap Growth	-7.35%	6.52%
Mid Cap Growth	-7.53%	5.34%
Small Cap Growth	-7.88%	3.86%
Foreign Large Cap Growth	-10.35%	0.63%
Diversified Emerging Markets	-10.64%	0.46%
Gold & Precious Metals	-9.72%	-15.87%
Real Estate	-4.29%	8.74%
Broad Basket Commodities	-9.71%	-6.74%
Sector Category Average Performance	April	YTD
Technology	-9.11%	6.70%
Consumer Discretionary	-5.51%	11.68%
Financials	-7.41%	7.18%
Telecommunications	-6.53%	-0.45%
Industrials	-6.56%	5.41%
Utilities	-2.99%	0.33%
Natural Resources	-12.17%	-7.65%
Real Estate	-4.30%	8.72%
Health Care	-3.59%	9.18%
Consumer Staples	-4.69%	5.28%
Energy	-11.00%	-7.89%

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Problems With Gold or Trust In the U.S.?

This will be a short post today.  I have been hearing much to do about why gold is not acting as a safe haven at this point in time with all of the problems going on in the Eurozone.  I am not an economist but I can apply some good old fashioned common sense as to why gold is not behaving as it has in past times of crisis.

Investors need to remember how the U.S. dollar was perceived just a few short years ago.  Everyone was convinced, rightly or wrongly, that our federal policies were destroying the value of the U.S. dollar.  As the printing presses were cranked up, and billions of dollars were pushed into our banking system, the attitude toward the future value of the U.S. dollar sunk to an all-time low. 

The problem’s in the Eurozone, and thus the Euro, in my opinion, is the very reason why gold is not the asset of choice as a safe haven at this time.  America has found its footing, and the collapse in the value of the Euro versus the U.S. dollar has brought people back to trusting the greenback.  How bad had the dollars reputation became?  It was just a few short years ago that supermodel Gisele Bundchen declared she wanted to be paid in Euros because her lack of faith in the U.S. dollar.  How has that worked out for you Gisele?

In the end, some economists may be correct that our Fed’s policies will have a negative impact on the U.S. dollar and eventually lead to massive inflation.  For now though, the U.S. is looking pretty good when compared to options in the European Union, and therefore has re-established the U.S. dollar as somewhat of a safe haven.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Week Ending 5/25/12 S&P 500, Asset Class & Sector Performance

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

S&P 500 Index	1.77%
Asset Classes		Sectors
Domestic Large Cap Value	1.54%	Technology	1.70%
Domestic Mid Cap Value	2.60%	Consumer Discretionary	3.20%
Domestic Small Cap Value	1.96%	Financials	1.61%
Foreign Large Cap Value	-0.12%	Telecom	1.04%
Foreign Small/Mid Value	-0.45%	Industrials	3.09%
Domestic Large Cap Growth	2.30%	Utilities	1.13%
Domestic Mid Cap Growth	3.23%	Natural Resources	2.35%
Domestic Small Cap Growth	2.82%	Real Estate	2.42%
Foreign Large Cap Growth	0.35%	Health Care	2.30%
Diversified Emerg Markets	-0.03%	Energy	2.45%
Gold & Precious Metals	5.41%	Consumer Staples	1.13%
Real Estate	2.42%
Broad-Basket Commodities	-1.36%

http://seekingalpha.com/article/606471-june-historical-sector-analysis-weak

Facebook: A Common Sense Approach

Why do you want own Facebook’s (FB) stock?  Do you even know why?  Perhaps you want to own the stock because you think you would be missing out on something if yid did not.  Perhaps you feel it is a great investment because you log on to your Facebook account several times a day.  Either case does not resemble a strong investment thesis.

I admittedly only buy stocks in companies that I use and that have a business model that makes sense to me……the investor.  I missed out on the wonderful IPO performance of Google (GOOG) because I did not understand why advertisers pay for ad space.  I use Google and Facebook several times a day, but in the last seven years I have never clicked on an ad, and I probably never will.  I understand people must click on ads because companies continue to buy ad space.  I do not, so I have trouble relating to a business model that depends on behavior that I do not exhibit.

If you are considering purchasing shares of Facebook, then you need clearly understand why you are doing so.  I just purchased shares (going against my own philosophy) because the valuation is very compelling to me.  Facebook shares are now trading at roughly 15 times earnings and that is a very reasonable valuation for a growth company.  I did not buy Facebook because I log on to my account every day.  Heck Facebook does not charge for their service.  I bought the stock because the financials make sense to me at this point in time.

I believe a better approach, with the use of common sense, would be to look at companies that offer products that people need to buy to be able to access Facebook.  Has anyone heard of the iphone?  The iphone is a hard asset that people are buying like crazy so they can use the free Facebook application.  An investment in hardware is one that I can relate to versus relying on companies to buy ad revenue, while hoping for clicks that I do not make.  Sure the Google IPO was successful, but over the last five years Apple’s (AAPL) stock price is up 394% while Google’s stock is up 29%.  Or how about a company that supplies technology to make many iphone features possible such as Qualcomm (QCOM).  Qualcomm shares are up nearly 34% over the last five years.

I’m not claiming Google or Facebook’s stocks are not a good investment at this point in time, but I am claiming that investors should understand why they want to own them.  I believe we have not been in the most robust economic environment, and yet Google and Facebook are still pulling in a tremendous amount of advertising dollars.  I believe this trend will get stronger as the global economy gets stronger in the future.  That is why I bought Facebook shares, and why you should be able to clearly state your position before buying shares for yourself.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

ETFs Double-Edged Sword

Good Article
http://www.marketwatch.com/story/how-to-handle-etfs-double-edged-sword-2012-05-15

Latest Article

You can check out my historical sector analysis for June at seekingalpha.com:

http://seekingalpha.com/article/606471-june-historical-sector-analysis-weak

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Week Ending 5/18/12 S&P 500, Asset Class & Sector Performance

Now that is a systematic sell program!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

S&P 500 Index	-4.23%
Asset Classes		Sectors
Domestic Large Cap Value	-4.42%	Technology	-5.64%
Domestic Mid Cap Value	-5.62%	Consumer Discretionary	-5.31%
Domestic Small Cap Value	-5.06%	Financials	-5.82%
Foreign Large Cap Value	-5.71%	Telecom	-4.28%
Foreign Small/Mid Value	-6.16%	Industrials	-5.25%
Domestic Large Cap Growth	-5.03%	Utilities	-3.09%
Domestic Mid Cap Growth	-5.83%	Natural Resources	-6.57%
Domestic Small Cap Growth	-5.80%	Real Estate	-6.43%
Foreign Large Cap Growth	-5.51%	Health Care	-3.75%
Diversified Emerg Markets	-6.45%	Energy	-6.14%
Gold & Precious Metals	-3.40%	Consumer Staples	-3.30%
Real Estate	-6.43%
Broad-Basket Commodities	-1.06%

Gross Love Affair Is Back On

The love affair with the “Bond King” Bill Gross appears to be back in full effect.  Perhaps it has to do with all of the excitement surrounding the launch of the managed PIMCO Total Return ETF (BOND) back on February 29, 2012.  On the other hand it could have to do with the fact that the PIMCO Total Return fund is once again outperforming its peers.  Either way, the 2011 Gross critics seem to have disappeared.

The silencing of the critics is not a major surprise to me.  In December of last year I wrote a piece titled “Premature To Dance On The Gross Grave”, which can be read here http://bit.ly/HF3InH .  Again, no matter what field we are talking about, people seem to enjoy jumping on someone who has achieved a high level of success when they stumble.  I understand columnist have to come up with material.  I also understand when it comes to missteps Gross has not exactly provided many opportunities to jump on over the years.  Maybe that is the true sign of his greatness.  As of the close on May 16, 2012 Gross’  PIMCO Total Return Fund has once again re-established itself as a top performer.  Here is the performance data as of January 1, 2000:

	PTTDX	US Agg Bond
YTD	4.56%	1.86%
1 YR	5.64%	6.96%
3 YR Avg Ann	8.56%	6.90%
5 YR Avg Ann	8.55%	6.53%
10 YR Avg Ann	6.70%	5.79%
Avg Ann	7.28%	6.43%
Since 1-1-2000

Obviously the returns for bonds have been stellar the last decade.  This has led to many economists warning against the future possibility of a correction in long-term bonds.  With rates sitting at 0% and nowhere else to go but higher in the future, it is not hard to understand their concern.  I wrote about this as well back in March with a piece called “Chasing Yield?  Buyer Beware!”, which can be read here http://bit.ly/vZWOAp .  My short-term concern is the hype that has surrounded the newly launched PIMCO Total Return ETF (BOND).  All the enthusiasm surrounding BOND has pushed the price of the ETF well ahead of the managed funds NAV.  For example, since March 1^st the managed mutual fund is up 1.87%.  Yet BOND is up 4.64%.  Being that the ETF holdings mirror the holdings of the managed PIMCO Total Return Fund I would pause before buying BOND at this point.  I feel that placing a buy today would be the equivalent of paying a 2.72% sales charge to buy the ETF considering it is trading at a premium to Net Asset Value (NAV).

Gross has earned his stellar reputation.  However, the launch of BOND is another classic example of the difference between ETFs and managed mutual funds.  As ETFs are bought and sold like stocks, this leads to them either getting ahead of themselves or unfairly falling behind based upon the headlines of the day.  Right now investors are chasing a legend, and as a result have sent shares of BOND higher; higher than what Gross has actually been able to achieve with the holdings.  The same will be seen someday when investors react to negative headlines.  I guarantee you if BOND had been trading last summer that the ETF would have performed at lower rate than the managed fund.  With every financial publication jumping all over Gross’ miscalculation to bet against treasuries, you would have seen investors reacting by selling shares of the ETF.  Yet the holdings of the mutual fund would not have been affected by the news.

Every investor has a different appetite.  I own both the managed mutual fund and the ETF, because I manage mutual fund models and ETF models.  However, I feel it is important for investors to know that at this point in time, if you are considering a purchase of BOND shares, that you know you are paying approximately 2.72% more than what the actual holdings are worth.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Week Ending 5/11/12 Performance Data For S&P 500, Asset Classes & Sectors

S&P 500 Index	-1.06%
Asset Classes		Sectors
Domestic Large Cap Value	-1.21%	Technology	-1.94%
Domestic Mid Cap Value	-0.75%	Consumer Discretionary	-1.02%
Domestic Small Cap Value	-0.41%	Financials	-0.82%
Foreign Large Cap Value	-1.98%	Telecom	-1.13%
Foreign Small/Mid Value	-2.62%	Industrials	-1.58%
Domestic Large Cap Growth	-1.41%	Utilities	0.55%
Domestic Mid Cap Growth	-1.20%	Natural Resources	-2.53%
Domestic Small Cap Growth	-1.03%	Real Estate	0.41%
Foreign Large Cap Growth	-2.75%	Health Care	1.11%
Diversified Emerg Markets	-3.20%	Energy	-1.94%
Gold & Precious Metals	-5.38%	Consumer Staples	-1.00%
Real Estate	0.41%
Broad-Basket Commodities	-1.92%

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

Sirius Questions

I rarely discuss individual stocks, and when I do I try to apply common sense to my thought process.  When I look at myself as a consumer and an avid technology user, I cannot understand how the Sirius XM Radio Inc. (SIRI) subscriber base can go grow or be sustained at current levels going forward.

My friends and I have a simple philosophy when it comes to looking at publicly traded companies.  That philosophy is if someone else is giving consumers access to a very similar high quality product for free, for that which you are charging access to, then your business will ultimately fail.  I have been buying new vehicles for the last decade, and they all came with a free subscription to satellite radio.  I have never once bought a subscription after the free trial period.  You would think I am the ideal consumer for the likes of Sirius.  I am in my late 30’s.  I am tech savvy, and huge music and sports fan.  Yet I have never felt the need to spend extra money for content that I can access, for the most part, for free.

A decade has gone by and advancements in technology have increased.  This increase in technology has made paying for Sirius’ content even more of a question mark for me.  Almost every new vehicle today comes with a streaming feature that allows you to stream audio content from your smartphone to your vehicle speakers.  If your vehicle does not offer this feature then you can still achieve this with the use of an auxiliary cable that cost just a few dollars.  With my iphone I am able to stream and listen to several music services and radio stations that play the same content as the music stations I listened to on Sirius.  On my iphone, for free, I currently use the following applications that allow me to achieve this:

-        Shoutcast not only allows me to listen to whatever genre of music I wish but I also have free access to ESPN Radio

-        AOL Radio

-        iHeartRadio gives me access to hundreds of public radio stations

-        Pandora

-        Jango

In addition to these app’s I am also able to access several radio stations directly from app’s they have created.  For example, I am able to listen to one of my favorite radio stations, which is located almost 3000 miles away from where I live.  The same access to this content can be achieved in my home.  With numerous media servers available and applications on my iphone, such as AirMusic, I have around the clock access to this content.  More and more consumers are becoming increasingly more comfortable with the various free options available to them, and that is not good for the future of Sirius subscriptions.

Now, what is the one drawing card that Sirius offers that cannot be accessed for free?  Howard Stern.  I believe Howard has been the only reason satellite radio has been able to survive this long.  However, what does a future look like without Howard Stern?  I love Howard Stern, but there are two facts about his show.  1)  If you can’t live without Howard, and he is the only reason you subscribe to Sirius, you could just as easily buy a subscription to Howard TV from you cable or satellite provider.  This gives the consumer complete access to everything Stern Show for about $80 less per year than a Sirius subscription, and 2) The drawing card will not be on the air forever.  All die hard Howard fans know he is winding down his radio career.  The number of hours he does on the show have drastically gone down the last ten years, and all fans know he has hinted many times that he is ready to move on to new adventures and challenges; ie America’s Got Talent.

The challenges the Sirius business model faces are obvious, which is why the street has priced the stock near $2 per share.  What is less obvious is the desire Liberty Media (LMCA) has to acquire this headache.  The immediate benefit is in the numbers when you know John Malone’s aversion to paying taxes and love for free cash flow, and Sirius offers both with positive free cash flow and negative earnings.  However, without an immediate plan to combat the other free choices available for consumers, and the one day departure of Howard Stern, I do not see this potential takeover as a long-term positive for Liberty.

Thank you and good luck everyone!

Disclosure:  I do not have a long or short position in SIRI and do not intend to establish one for any reason.

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

http://www.allocationforlife.com/

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Week Ending 5/4/12 Performance Data For S&P, Asset Classes & Sectors

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

www.allocationforlife.com

S&P 500 Index	-2.41%
Asset Classes		Sectors
Domestic Large Cap Value	-2.43%	Technology	-3.57%
Domestic Mid Cap Value	-2.77%	Consumer Discretionary	-2.26%
Domestic Small Cap Value	-3.72%	Financials	-2.84%
Foreign Large Cap Value	-3.00%	Telecom	-1.95%
Foreign Small/Mid Value	-2.48%	Industrials	-3.31%
Domestic Large Cap Growth	-3.11%	Utilities	-0.88%
Domestic Mid Cap Growth	-3.29%	Natural Resources	-4.38%
Domestic Small Cap Growth	-3.92%	Real Estate	-0.60%
Foreign Large Cap Growth	-2.56%	Health Care	-2.49%
Diversified Emerg Markets	-1.60%	Energy	-3.12%
Gold & Precious Metals	-5.32%	Consumer Staples	-1.39%
Real Estate	-0.60%
Broad-Basket Commodities	-2.94%

Backtesting My Life

Almost twenty years ago I had the fortunate pleasure of getting to know one of my college business professors.  He was a great man and when it came to buying equities he had one simple philosophy that he passed on to me.  That philosophy was to buy what you know and buy what you use.  If you don’t use the product, then don’t buy the stock.  It sounded simple enough, and at times I thought it was a bit too simple. 

I thought it would be interesting to test his philosophy with a backtest on my life.  I thought hard about what products I use or consume on a daily basis.  I then looked back five years to look at each company’s stocks performance during that period of time.  The five year period I examined ended on May 2, 2012.  Here is the list of companies I came up with that I use on a daily basis, and each companies trailing five year total return.

Colgate-Palmolive (CL) – I brush my teeth with Colgate toothpaste and use Speed Stick deodorant every single day.

Procter & Gamble (PG) – I shave my face and head with Gillette razors nearly every single day.

Chrysler – I have driven nothing but Jeep’s my entire adult life.

Time Warner (TWC) – While I can honestly say I do not watch the same stations every single day, but for a couple, I do have the television on every single day and my provider is Time Warner.

Walt Disney Co. (DIS) – The one station I watch every day is ESPN.

Netfilx (NFLX) – I have been a subscriber to Netflix since its inception, ie. Before Streaming.

Sony (SNE) -  I watch my Sony television every day.  I also stream media via my Sony PS3, and play a sports video game almost every day.

EA Sports (EA) – The only video games I play on my PS3 are EA Sports games.

Dell Computer (DELL) – I use my Dell laptop every day.

Microsoft (MSFT) – I use Microsoft software on my computer every day.

Apple (AAPL) – Forget the iphone, which I love and use every day now, but 5 years ago I also used my ipod every day when I exercised or drove in my car.

Google (GOOG) – I use the Google search engine almost every day.

Verizon (VZ) – Verizon has been my mobile service provider for over a decade.

Monster (MNST) – I do not eat breakfast, but I do drink a Monster energy drink every morning.  Five years ago I drank the “Lo-Carb” version and today I drink the “Absolute Zero”.  Sorry Starbucks but I do not drink coffee.

Whirlpool (WHR) – I have used my microwave and stove (Both Whirlpool products) on a daily basis the last five years.

Morningstar (MORN) – The only website I visit on a daily basis for my work is Morningstar.

Charles Schwab (SCHW) – Where I have done my banking for over five years.

General Electric (GE) – Every light bulb in my house is made by GE.  For many years GE was the parent company of CNBC which I also watch on a daily basis.

JPMorgan Chase (JPM) – The bank that holds my mortgage.

Metlife (MET) – I wake up each morning with my life insured by Metlife.

Nike (NKE) – I exercise almost every day and I always where my Nike’s.

Energy (XLE) – We all use energy every single day.  I never stop at one specific gasoline provider so I thought looking at an energy ETF would be a good representation of my daily use.

Company	Symbol	Invested	5 Yrs Later
Colgate-Palmolive	CL	$10,000	$16,810.85
Procter & Gamble	PG	$10,000	$11,918.15
Clorox	CLX	$10,000	$17,757.26
Chrysler		$10,000	$0
Time Warner	TWC	$10,000	$19,289.25
Walt Disney Co.	DIS	$10,000	$13,266.24
Netflix	NFLX	$10,000	$36,890.98
Sony	SNE	$10,000	$3,004.43
EA Sports	EA	$10,000	$3,095.98
Dell	DELL	$10,000	$6,281.55
Apple	AAPL	$10,000	$58,364.54
Microsoft	MSFT	$10,000	$11,402.59
Google	GOOG	$10,000	$12,832.24
Verizon	VZ	$10,000	$13,942.41
Monster	MNST	$10,000	$36,929.28
Whirlpool	WHR	$10,000	$6,608.25
Morningstar	MORN	$10,000	$11,180.18
Charles Schwab	SCHW	$10,000	$7,927.86
General Electric	GE	$10,000	$6,435.52
JPMorgan Chase	JPM	$10,000	$9,127.33
Metlife	MET	$10,000	$5,780.98
Nike	NKE	$10,000	$23,192.85
Energy	XLE	$10,000	$11,852.02
	Total	$230,000	343,890.74

If you’ll notice I only took a look at companies whose products I use on an everyday basis.  Yes an investment in McDonald’s (MCD) would have been fantastic, but I do not eat at McDonalds on a regular basis.  I also enjoy Coca-Cola and Pepsi products, but also not on a daily basis.  I did not take into consideration my food consumption.  I shop at the local Wegmans grocery store, which is not publicly traded, and I tend to buy fresh produce and meats, which are locally produced. 

Again this was just a fun look back at my daily consumption habits and how taking my professor’s advice would have done for me.  As you can see by the numbers I would have done quite well.  An equal investment made into all of the companies I used on a daily basis prior to and including the last five years would have grown by 49.50% over that period of time.  The S&P 500 was up 4.02% for the same period of time.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”

www.allocationforlife.com