In a move that has caused more than a bit of unease among many investors, insiders at some of the hottest private and publicly traded Internet companies got rid of substantial personal stock stakes before the March slump began. Many believe that this reveals a lack of confidence in their stock prices and see it as an opportunistic move that, while not particularly illegal, borders on unethical.

“Individuals selling before going public is always a bad sign,” said Mr Sebastian Thomas, a portfolio manager at Allianz Global Investors. “If you believe in the business, why would you take out money at what is presumably a lower valuation in the private market?”

Executives and directors at many large tech companies have been steadily selling shares due to the fact that the lockups which prevented insider sales after their 2012 IPOs has expired.

In the last six weeks shares of these “software as a service” companies have fallen upwards of 45% from their peak.

“It was a great deal for them – they took advantage of a big run-up,” said one tech investor.

Some corporate insiders actually had no discretion over the timing of these transactions as many of the sales were made through prearranged stock trading plans. The fact that the tech stock slump wiped out most of the gains made during the last six months also left share prices at about the level they were selling for during much of the past year.

One of the biggest sellers was the  chief executive of Amazon, Jeff Bezos, who saw his total  sales rise to over $1 billion in the last six months after raising $351 million in February. That’s more than three times the amount he raised in 2013 but, since then, the shares of Amazon have fallen back 11%.

The C00 of Facebook, Sheryl Sandberg, sold over half of her stake in that company’s IPO a little less than two years ago, something that benefited greatly from the steady rise in Facebook’s stock since about the middle of the previous year. Her disposals however began when Facebook’s stock was still at $21.08 because of a prearranged plan in place, meaning that a majority of those sales were made when Facebook’s stock price was well below its $58.33 peak price.

Research firm PrivCo reported that approximately 11% of fundraising rounds for private companies last year had at least some selling by insiders, in comparison to 6% from three years ago.

PrivCo’s Sam Hamedah said that  “The old adage in Silicon Valley? used to be that founders didn’t get to cash out until all investors got to cash out, “ adding that “Fierce competition among venture capitalists to back the hottest companies has made them more willing to countenance insider sales.”

Backers of King Digital Entertainment were among some of the tech insiders to take money out of their company before it went public. King Digital is the maker of the extremely popular Candy Crash Saga game and, before their company went public, $504 million in dividends were paid out to them. Recently shares of their company ended at 22% below that initial IPO price from March.

“It’s a yellow flag with regard to what’s really going on with the company,” said Thomas. “It makes you worry what they are trying to sell to investors.”

When it comes to owning mutual funds, nearly half of the households in the United States own them today, according to the Investment Company Institute. Their “2013 Investment Company Fact Book” found that most of these families have their employers to thank, as 72% of households that have invested their money in them have done so through a sponsored retirement program from their employer.

Indeed, one of the mainstays of retirement these days are mutual funds and there is a steadily growing number of funds to choose from.  While waiting back in 1940 there were less than 70 mutual funds to choose from, today there are nearly 7600. Not all of them are available through employer sponsored plans of course, but still there are many options available to employees. The trick is simply knowing which ones give the best returns, something that takes a little bit of research on homework.

If that’s what you’d like to do, you could do worse than taking advice from the CEO of Huber Capital Management, Joe Huber.  For over five years he’s been managing to the number one –ranked mutual funds, including Huber Capital Small Cap Value Fund and Huber Capital Equity Income Fund.

In fact, his investment firm received the strongest performing funds award, the Lipper Industry Award, for the third year in a row this year.

Recently Huber was talking with Tyler Matheson from CNBC  and said that there have been two main schools of thought for the last 80 years when it comes to investing; fundamental analysis and technical analysis. He said that his firm takes a completely different approach by including one more key factor, the psychology of the stock market.

This is an idea that emerged in the late 1960s and became known as “behavioral finance”. The research of two cognitive psychologists, Amos Tversky and Daniel Kahneman, focus on how people make decisions when faced with risky or uncertain situations. Since those early days of behavioral finance study, the theories have become much more elaborate.

Robert Shiller, the Nobel prize-winning economics professor, pointed out in his book “Irrational Exuberance” that market bubbles are often unintentionally amplified by the media.  He said the reason this happens is that news organizations concentrate on things that are already grabbing viewer’s attention.

An example of how the theory of behavioral finance works was offered by Huber when he talked about how uranium prices, at a multi-decade low, are only there due to the negative media brought about in the wake of the Fukushima nuclear plant disaster in Japan in 2011.

The perception that the public has, due to the disaster, doesn’t correlate with how nuclear power and uranium prices will likely be in the future he explained, because “the fact of the matter is that China, South Korea and India haven’t slowed down.” Huber also noted that even the Japanese government has recently expressed the desire to grow nuclear power in the future, something that the average consumer doesn’t realize.

Unfortunately, trends like these emerge because of what are known in behavioral finance circles as “decision flaws”. All consumers, indeed all humans, make these mistakes according to Huber, because most people tend to give too much weight to any recent data that they happened to see on television or in the news.

One of those assumptions, which keeps people from investing their money in nuclear power, is the assumption that the Fukushima disaster would bring it to a complete halt. And it’s by bucking these trends, and not making these assumptions, that Huber has done so well.

There are about a hundred retirement calculators available online that supposedly make it simple to see just when you should retire. However, these calculators are really nothing more than simple adding machines. They have no powers to affect your completely individual situation. In fact, there’s no way that any of these calculators can do much more than show you what you already know to be true.

 

4 Factors That Determine Your Retirement Age (no calculators needed)

 

  1. When do you want to retire?
  2. How much do you want each year to live on?
  3. How long will you live after retirement age?
  4. How much you have to invest with along the way?

 

How old do you want to be when you retire (realistically)? That’s the first question to answer. If you are now 46 and would like to be retired at 66, then you have 20 years to work. So, in this example, 20 is one of the key numbers we’re going to consider.

 

Next, how much cash and asset value do you want available to you each year of your retirement? Let’s say that you would like to have $35,000 at your disposal, annually. OK, so we have 20 years to develop enough of a fund to have $35,000 available to you, each year of your life after you reach retirement at 66.

 

The next variable to this equation has to be how long you will live passed retirement age. You don’t really know this, but you can take a pretty decent guess. For argument purposes, let’s say you live 18 years after you retire, until you’re 84 years old. Seems fair enough, right?

 

So, at this point, we have determined that you have 20 years to develop your holdings to be worth ($35,000 x 18) which is $630,000. That translates into ($630,000 / 20 years) which is $31,500 you’re going to need to come up with, every year, between your cash savings and the gains you receive from current investments.

 

Whew, those are some big numbers to consider banking away for those rainy retirement days. Now, the final question is how much you are able to contribute to your retirement assets development fund along the way. Can you squeeze $31,500 annually out of your earnings in order to make your goal? If not, then what’s next?

 

Well, it follows logically that if you don’t have the necessary funding to grow your assets to the degree you desire, then you have just a few options:

 

  1. You can rethink that $35,000 you want to have at your disposal annually, make it less, or
  2. You can start generating more to invest and save each year to make your goal, or
  3. Something unseen could happen, like winning the lottery, inheriting from a loaded relative, or many other possibilities – none of which will ever be likely to most of us.

 

If you are like the majority of all retirees, then you will come to see that retirement calculators all fail to factor in key elements of determination like how long you live, market conditions and the power of your investment decisions. When the time comes that you decide that you are now in fact retired, you’re going to be dealing with the exact amount in your retirement portfolio that many variables, over years of effort, have led you to hold. So, spend economically, save copiously and manage your assets wisely. Those are the real ways to make your retirement age come as soon as possible – and have the most available to you in those golden, relaxed years.

 

 

Why are so many people Investing in ETFs?

Over the last few years there has been a great proliferation in ETF’s, both in the number and type that are being offered to investors. Indeed, approximately 700 new ETF’s have come into existence since 2010, which has created a much greater access for investors to a wider variety of asset classes.

Since ETF’s trade on a major stock exchange they can, unlike mutual funds, be bought and sold during the trading day at any time.

$188 billion was the net inflow last year of US listed ETF’s, just a hair shy of the record in 2012 of $190 billion, according to Morningstar, a financial research firm. It’s actually not surprising that US equity ETF’s garnered the biggest amount of investment dollars among all ETF categories last year, given the eye-popping performance of the US stock market.

“ETFs are sort of the Amazon.com of the fund world,” said Ben Johnson, Morningstar’s director of passive funds research. “They have had a leveling effect, offering both individual investors and large institutions access to a wide variety of exposures at very low prices.”

Short duration bond ETF’s have increased greatly in popularity because, as experts are quick to note, many fixed income investors have become nervous recently by the prospect of rising rates.

Bank loan ETF’s have also gained favor with investors as they invest in floating-rate bank loans that are made to companies who are rated below investment grade. One reason that investors find them attractive is that, in general, they offer higher yields than corporate and government bond funds as well as protection against rising rates. Floating-rate bank debt is also adjusted periodically as short-term rates rise or fall, making ETFs better than bonds that pay a fixed interest rate or coupon.

ETFs are also closely tied to the flexibility that the offer. For investment advisors, this is a very alluring feature as it allows investors to target very narrow segments of the fixed income and equities markets.

For example, target maturity bond ETF’s invest in bonds that mature in the same year, as well as baskets of bonds that are tied to an index. When their underlying assets reach maturity the funds liquidate, something that appeals to investors who want the certainty and regular income that comes with buying and holding bonds until they mature, as well as gaining greater diversification that would be difficult to achieve on their own.

The funds do not have a guaranteed return however, and investors may well end up getting back less than their original principal if a bonds (or bonds) in their portfolio default, as well as if they cash out before a fund’s expiration date.

Like other types of bond funds however,  target maturity ETF’s of shorter duration are less sensitive to rising interest rates than their counterpart longer maturity ETF’s.

“Because of the way you are able to manipulate small segments of the market, you can build what you want using ETFs,” said Krell of Cassaday & Co. “You can literally pick your exact bond maturities and credit qualities through ETFs.”

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