FAQ
-
When a stock loses
value or receives a Wall Street downgrade, why don't
you sell the position?
-
When are stock models
rebalanced?
-
What is the minimum
account size?
-
How often will I receive
Performance Reports for my accounts?
-
How much are trade
commissions at the discount brokerage company that
most of your clients use?
-
Why shouldn't I simply
buy mutual funds, and forget it?
-
Why does one Wall
Street analyst have a "buy rating" on
a stock and another analyst have a "sell rating"
on the same stock?
-
My stockbroker has
started selling life insurance, mortgages, and various
planning services. What does BCM offer in
these areas?
-
I have seen other
investment strategies that claim to use formulas,
especially on the Internet. What do you think
about them?
-
How long does it take to transfer my brokerage account to
Schwab Institutional?
-
Can I access my accounts on the Internet?
Q. When a stock
loses value or receives a Wall Street downgrade, why don’t you
sell the position?
A.
Since we follow an unemotional and disciplined investment
approach we would be going against our fundamental investment
strategies if we sold on emotion. We believe that by remaining
faithful to our strategy, and not reacting emotionally to
short-term news or other situations, we will be able to
outperform the market over time.
Exceptions are rare.
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Q. When are stock
models rebalanced?
A.
Most models are rebalanced about every 12 months.
Annual rebalancing is a part of the strategy formula that
produced market-beating results for long time periods. We
believe that rebalancing annually increases our chances of
market-beating returns.
Some large cap models that emphasize dividend yields seem to not
need rebalancing as often as mid cap models and small cap
models.
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Q. What is
the minimum account size?
A.
We have no minimum account size. A $3 million portfolio is
managed the same way as a $300,000 portfolio as is a $30,000
portfolio,
by using time-tested equity models with a heavy dose of discipline.
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Q. How often
will I receive Performance Reports for my accounts?
A. The
Gain/Loss section of your personal Schwab Alliance website
shows live gains and losses for your accounts. Your
monthly statement also shows gains/losses for each security
purchased through Schwab or securities transferred in to Schwab
providing you have the original cost basis.
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Q. How much
are trade commissions at the discount brokerage company that
most of your clients use?
A.
Currently,
all accounts managed by BCM are held in custody at Schwab
Institutional, a division of Charles Schwab & Company. Schwab Institutional
commission rates are located on the
Client Information page.
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Q. Why
shouldn't I simply buy mutual funds, and forget it?
A.
(1) Style drifting,
(2) high fees,
and (3) lackluster performance,
just to name a few.
Many mutual funds engage in
style drifting
- changing their model - from time to time, based on hunches and
emotions. The style of the fund drifts away from its stated
purpose, often leaving you with your money managed quite
differently than you originally intended.
It is not unusual, for example,
to invest in a large cap, dividend-oriented balanced fund of,
say, 50% stocks and 50% bonds only to open up a quarterly or
annual report to find 80% of the fund invested in mid cap and
large cap stocks. Now that's style drifting!
If the same model is not used
year-after-year there is no way to know how your funds current
model performed in the past, which makes past returns worthless
in evaluating your fund. In our view, the high number of funds
engaging in style drifting is reason enough to steer clear of
most mutual funds.
The models utilized by Bowers
Capital use the same formulas year-after-year, and never engage
in style drifting.
High fees
are another reason. Many funds' annual expense ratios exceed 1.50% per year, and many are
more than 2%. The expense ratio is the percentage of your
assets that the fund charges you every year.
Since the fee is net of your returns, it might feel painless,
but the cost is real. A fund with an expense ratio of, say,
2.00% has to grow 10% in a year for you to net
about 8%. The expense ratio is in addition to the sales
charge that many funds charge up front (built into the price of
the shares). Even no-load funds can have high expense ratios;
and for those funds with low expense ratios, don't forget about
style drifting.
Funds with high fees and that
do not consistently beat the popular indexes does not sound like
a good investment to us. High annual management fees charged by
mutual funds also only compounds the problem when style drifting
backfires.
Performance
is another reason.
About 85% of mutual funds fail to beat the simple S&P 500, an
index of 500 of the largest companies in the United States.
In addition, of the 15% of actively managed funds that do beat
the S&P 500, only about a third out perform it by more than 2% a
year; that's one out of twenty. This failure rate
is incredible.
When a
bridge falls down, engineers study mistakes to learn what works and what doesn't work, and then add that to the body of
knowledge relied upon by all bridge designers.
With investing the opposite is
true. Novice and professional investors alike make the
same mistakes over and over again because they let their
emotions--greed and fear and ego--out vote their intellect. BCM believes that using
time-tested strategies that have outperformed the popular
indices over long periods makes more sense when striving for
market beating returns. Although models are no guarantee of
future success, we have much greater confidence in an investing
process that has a profitable history.
If stock market returns remain
in single digits over the next few years - as many high-profile
pundits predict - performance in alliance with capital
preservation will be more important than ever.
Before you invest in mutual funds, check out
Mutual Fund Facts To Consider.
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Q. Why does one Wall Street
analyst have a "buy rating" on a stock and another analyst have
a "sell rating" on the same stock?
A. Analysts are only human,
and it seems they allow their emotions and biases towards
valuation measures (and other factors) to influence their
recommendations. Think about it, if their opinions were
not subjective they would all have the same opinion.
If a stock has 15 analysts
recommending that you buy
the stock and 10 analysts recommending that you sell, whose
recommendation are you going to follow? And why?
Time-tested stock models take
the emotions out of the stock selection process. You shouldn't
want an analyst's emotions - or Bill Bowers' emotions - involved
in managing your stocks. Emotions destroy performance.
Our stock selection
method is based
solely on facts and we check our emotions at the door.
Q.
What if, say, 1 or 2 of my stocks (in my model) soar? Shouldn't
I take a profit?
Taking an early profit in any of the stocks in your model goes
against the fundamental time-tested strategy of the model. Once
again, your emotions get in the way of your success. Yes, your
first impulse will be to lock in your profits by selling it.
But should you?
A 1997 University of
California study, cited in the Wall Street Journal, found
that investors
keep their losers longer than they keep their winners, even
though the winning stocks they sell subsequently outperform the
stocks they continue to hold!
Again, our emotions are usually
our worst enemy. Short-term thinking destroys performance.
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Q. My stockbroker has started
selling life insurance, mortgages, and various planning
services. What does BCM offer in these areas?
A.
One-stop shopping
for financial services sounds like a nifty idea, but Bowers
Capital believes that concentrating on one area provides you
higher quality management. We focus on one thing day after day
- managing your investments.
Buy your insurance and
mortgages from people who spend as much time on insurance and
mortgages as Bowers Capital does on managing investments.
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Q. I have
seen other investment strategies that claim to use formulas,
especially on the Internet. What do you think about them?
A. It depends on which
formula strategies
you are talking about. Some models touted on the Internet
and in books are often tested over short periods of time of only
5 to 10 years, which is hardly enough.
Patterns emerge over short-term periods that do not last
over the long haul. Testing the 20-year period 1980 to
1999 suggests that large cap growth stocks like the "Dot Coms"
were the only stocks to own. You know the rest of that
story.
I
place more confidence in formulated models that have been tested
over multiple market environments and cycles.
I have great respect for
time-tested models developed by Dan Dreman, Benjamin Graham,
Peter Lynch, Warren Buffett, and Sir John Templeton, to name a
few. Their genius stems from understanding that "keeping it
simple" and leaving their emotions at the door is what works in
the stock market.
Q. How long does it take to transfer my brokerage account to
Schwab Institutional?
A.
About two weeks from the day that Schwab receives your signed
transfer form.
Q. Can I access my accounts on the Internet?
A. Yes. Your
personal Schwab Alliance website may be accessed for real-time
market values, including gains and losses; and quotes, charts,
news, research, activity history, and other information.
In addition, copies
of the last 10 years of your monthly account statements, trade
confirmations, and tax documents are archived on your website
for easy access, printing, and/or saving to your hard drive.
Your "Quarterly
Portfolio Profile" is available by email about three weeks after
the end of each calendar quarter. It is a detailed
allocation report which breaks your consolidated accounts down
by asset type (stocks, bonds, cash) and by industry.
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