Dan’s Posts Are Back to Dan

If you look over on the sidebar you can see the authors here – Carl and Dan (dfm).  When we moved to the new (free) location all the posts were credited to Carl which of course wasn’t right.  I’ve been painstakingly going through post after post and putting tags on them and fixing the links (they were pointed to media on the other web site) and this is one thing I’m fixing, too.

Lots of good stuff here by Dan and click on his name on the side and it will filter down to just his posts.  Someday I will drag a few more authors over here, too.

Ha ha I followed up on your FPRS Ford recommendation in the comments when I updated the link from a few years ago bought back in 2011 you did well…

Our New Blog Home

I’d like to welcome everyone to our new blog home, at WordPress.com.

WordPress.com offers free hosting that meets the needs of us at trustfundsforkids.com.  The domain name trustfundsforkids.com now redirects here, and the official site is http://www.trustfundsforkids.wordpress.com.

I would have hosted over at blogger since then you get the “Google juice” in terms of distribution but for some, ridiculous reason you can’t embed excel files into the blog posts (you can if you link them to google docs, but that is a pain).  I want the excel files here so that I can see the portfolio details from any computer.

My friend Dan and I are both amazed at what’s available, for free, on the internet.  I was able to import the blog over in half an hour, and then I re-directed the domain name after I tested it out a bit.  One annoying fact is that the media links all are tied to the former domain name and I need to manually fix them which will take an hour or so (I can’t just use a plug in since it is a hosted blog) but, in the grand scheme, that’s pretty minor.

I guess there are occasional ads, I hope that they are not too annoying.  They aren’t from me and if they help support wordpress.com that’s fine with me, too.

Another minor item is that Dan’s posts were assigned to me but since our royalties are zilch it isn’t that big of a deal.

Maybe someday I will look at some of the enhanced services but for now it seems like the free blog can do everything I need.  That’s great and I hope that you, as a visitor, enjoy your time here at the blog.

It’s Tax Time…

It’s tax time for the portfolios. Since the stocks are held in the name of the beneficiaries any gains or losses on sales are passed down along with dividend income (which is getting larger, especially in portfolio one, and is a big part of any long term investment strategy) and interest income on cash in the fund, which is basically zero since our interest rates have been lowered to nothing.

I also use this opportunity to review performance. Like everything else we got hit with the recent end to the bull run caused by Japan and the spike in oil prices based on Mideast unrest. We also may review some stocks for potential sale if they are going nowhere… I will put it up here and let Dan get his 2 cents in since frankly he follows investments better than I do now.

Also I updated the site a bit because it was SLOW. I got rid of the picture at top and I guess an SEO package turned itself on when I upgraded to the latest version of word press so I deleted it entirely because all this site does is attract spammers, anyways. We do appreciate the good, occasional comment we get from knowledgeable outsiders.

Remember – do your research. Anything we put up here is our opinion and if you are going to invest you need to come up with your OWN answers.

Finally – I went to the Fairmark site (see sidebar) which is a GREAT resource and bought a couple of their books (now they sell through Amazon) and will be putting up some commentary that utilizes their material (giving them credit, of course). If you are at all interested in taxation for minors, tax minimization (legally), or a host of related items, give their material a try.

Municipal Bond Firm Calls Out Bloggers

Municipal bonds are going through a rough patch right now. They are being attacked in the media, as featured in a “60 minutes” segment, and their values are falling in mutual funds that hold a portfolio of different issuers. I summed it up in this post but frankly you can just find it everywhere on the internet now.

Municipal Bond Fund Letter

A municipal bond specialist firm called FMS Bonds, Inc. attempted to defend the municipal bond market in the above full-page advertisement that they took out in the Wall Street Journal. This article calls out bloggers (like me) in the first sentence:

A steady drumbeat of opinions is prediction a muni market meltown. Bloggers, columnists and too many people with microphones have weighed in on what they proclaim is imminent danger in the municipal bond market. This fear mongering has spooked investors and disrupted the market.

Well first of all I am a tiny bit flattered; I didn’t think that BLOGGERS had the power to “disrupt” the municipal bond market. The total size of the US municipal bond market is approximately $3 trillion; does it make any sense at all that bloggers or even journalists should be able to impact this market?

One issue is that many bloggers and journalists live in states where municipal markets are particularly dysfunctional. Any resident of New York, California, New Jersey or Illinois (Chicago) sees up-close and personal that state, local, and county governments are being buffeted with high cost union labor and pension benefits at a time when revenues are flat or falling. While New York, California, New Jersey and Illinois don’t comprise the total universe of municipal bonds by a long-shot, they represent a significant portion of the total and many of the bellwether issuers.

We put a premium on common sense, which indicates that there is significant opportunity amid the hyperbole. Today, for example, investment grade, tax-free municipal bonds can be purchased to yield 5 1/2% or more. This is the equivalent of an 8.46% corporate bond yield for investors in the 35% tax bracket.

Now they are on to something. In any panic or disruption there is often opportunity. Should investors consider buying high quality US municipal bonds TODAY? Maybe. But what FMS Bonds fails to mention is that many firms that are cheerleaders for the US municipal bond market have been loading up clients with bonds at rates far below this; that is why in a month many investors in mutual funds (that hold a basket of bonds) lost an entire years’ worth of interest (4%) in a single month. If FMS Bonds said something along the lines of “We told our clients not to invest in bonds previously because we didn’t think fiscal risks were factored in correctly, but get in the market now” that would be useful information; but these types of firms have been proponents of municipal bond purchases at yields that the market today show did not reflect their true risks.

Another element to consider is that the governments are inter-twined; in Illinois the state is virtually broke, Cook County is virtually broke, and the City of Chicago is virtually broke. When one leg of a stool is bad you can lean on a different leg; but when they all collapse at the same time you are in real trouble. In the past the backstop has been the Federal government and the stimulus package; don’t look for the US House to approve many more of those.

Higher rates for new issues are going to push all of these factors even harder since the debt laden entities will need to get more and more debt at higher rates which is going to hit their average cost of borrowing and make the problem worse over time.

As a general rule it can be said that the markets are saying that municipal bond debt needs to reflect its true risk and this can be seen in the cost of recent issues (significantly higher than for previous issues for the same quality debt) as well as the cost to insure through CDS or other methods against default.

This letter attacked the messenger and failed to point out that today’s opportunities meant that past recommendations were wrong. A little more hubris would have made this a lot more effective. And it scares me more than anything else to think that a $3 trillion dollar market can get shaken up by a few bloggers and commentators.

Cross posted at Chicago Boyz

Time To Calculate Portfolio Performance

It takes me some significant time to calculate performance on the 5 portfolios that I run. This is due to the fact that I do a lot of analysis on stocks held today and previous sales as well as calculate expense ratios, dividend ratios, and other tasks by individual stocks. I am going to try to find time to do this over the three day weekend since the stock markets are closed on Monday, January 5th (in the US).

By some measures it is a disheartening time to calculate performance. Indexes are down about 10% for the second quarter, and some international stocks in the portfolio were pummeled even harder by currency moves that hurt the Euro and favored the dollar.

I am going to use this information to distribute to the nieces and nephews and use the month of July and early August to select the six stocks for my 2010 recommendations. There may also be some recommended sales of stocks in the existing portfolios.

The most encouraging part of this for me is that this trust fund effort has done a great job on encouraging savings and thrift and teaching about real-world financial performance, both the good and bad. Since each beneficiary only puts in net 1/3 of the total investment (I put in $500, they put in $500, and then I match $500 more) the odds that the portfolio is reduced to the point where they are losing money on their portion of the investment are low (i.e. that we are down 66%). Every loss is painful, however, and I get questions to answer about how I selected the stocks and what happened. This is part of life today, and will be part of life in the future. There are no easy answers to these questions, just a life of education and the fact that having an in depth understanding of finance and money can be just as important as learning a trade or building an otherwise successful career.

Also if any legitimate commenter are out there, feel free to say something. It was nice to have someone comment that they agreed with my approach on the “match” as far as being an effective approach for teaching and increasing involvement in the outcome. As Dan has noted this site is an insane spam-comment magnet for whatever reason and while I used to occasionally peruse the spam comments before I deleted them now I just delete away because there are over 100 in the queue if I go even a few days without purging it.

Word Press 3.0

This site recently upgraded to Word Press 3.0.  I initially did not understand all of the enhancements present in the new version.  I went to the Word Press.org site and saw a brief video and boy, oh boy are there lots of new features to learn about.

While any half-way decent programmer could always customize a Word Press site, I don’t qualify as a half-way decent programmer.  I focus on content and am only marginally interested in spending hours tweaking code.  In fact if I get 30 minutes to focus on anything that is an eternity.

To me the most immediate benefits were due to the fact that a new Word Press THEME comes with 3.0.  The original Word Press theme is called “Kubrick” and it is VERY old.  You have probably seen it all over the web and this theme screams “I am all about content” and don’t care about presentation.

This new theme finally makes it easy to customize the header and the sidebar and widgets and a million other features.  You’ll notice the picture on the top – it is one of my own and while it may or may not have much to do with investing it is a nice start.

I will be spending some time with Word Press 3.0 and will put in some more advanced features on the site over time.  Since Dan and I run a few sites any knowledge gained can easily be applied across all these sites with a bit of work.

I would like to thank Word Press for putting out such a great product and all of the volunteers who do all the work.  And I especially want to thank them for updating the default theme because this will allow me to learn a lot without having to navigate through myriad themes on the site which all have different features, capabilities and bugs.  These default themes are really for people like me because skilled programmers just tweak them anyways, so thanks again for thinking of us poor people who just want to focus on content.

Tracking Your Investments

There are many ways to track your investments. I have used a number of free online portfolio tracking tools over the years including the one at the Wall Street Journal and Yahoo. I really like the tool from google because:

1) it is very easy to set up
2) it lets you add cash independently of creating a “cash” account and treating everything as a transaction
3) you can see at a glance, and hide / unhide right off your home page