Faith Based Investing

Today I am featuring an interview with Wade Slome, author of How I Managed $20,000,000,000 By Age 32

I will be doing a book review of Wade’s book tomorrow for you and will also interview Wade this week on The Jay Peroni Show.   Today I wanted to bring you some informative insightful thoughts from a great investor!

Wade, your book is titled How I Managed $20,000,000,000 By Age 32. What was the greatest lesson you learned while managing that vast pool of cash?

Wade Slome: Managing $20 billion is like captaining a supertanker – maneuvering is tougher and requires much more forward thinking. Buying and selling large stakes in companies for a fund that size is a challenging endeavor. Now, at the company I founded in 2008, Sidoxia Capital Management, managing my hedge fund and separate accounts for high net worth individuals is more akin to handling a speed boat. Since my firm is earlier in its growth cycle, shifts in direction can be triggered instantaneously. When it comes to trade execution, the difference of managing larger asset pools is like the disparity of a baseball batter facing a Randy Johnson fastball versus an underhand softball pitch. There really is no comparison.

Do you prefer using technical analysis, fundamental analysis, or some combination of those and other factors to understand the market direction?

Wade Slome: Fundamental analysis is the main engine I use for generating new investment ideas. In many instances, the two forms of analysis do not align. There is a lot of noise, volatility, and misinformation that permeates through the market on a daily basis, which can cause a lot of false signals, thereby leading to excessive trading, transaction costs, and ultimately subpar investment returns. However, I do believe technical analysis can add value when interpreting short-term supply-demand trends. For example, I use basic forms of technical analysis such as volume, relative strength, and pricing bands when I trade around core portfolio positions. As a recreational golfer, I consider fundamental analysis as my group of drivers and irons, whereas technical analysis acts as my lob wedge – useful and valuable in certain situations.

Wade Slome (photo left)

Why do so many people give up on their dreams of success in the market, and sell their holdings at a loss?

Wade Slome: There is always fear in greed in the market, but the pain of losses is more severe than the pleasure garnered from gains. Amos Tversky, former professor at Stanford University, and Daniel Kahneman, Noble Prize winning professor from Princeton, were pioneers in the study of behavioral finance and the impact of “loss aversion” on human beings. Through their studies, they showed that losses experienced by people are more than twice as painful as gains are enjoyed. Fear is a powerful emotional force, but eventually memories forget the pain and greed takes over. We see it time and time again.

What are the most common mistakes you see investors making with their portfolios?

Wade Slome: The three areas where I see the most mistakes are excessive trading, excessive fees charged by brokers, and an emotional ad hoc approach to investing. Most recreational investors, or aggressive brokers, read newspaper headlines and are overconfident in their ability to generate short-term profits. They feel they can never be wrong, if they are constantly buying ideas based on good news and selling on bad news.

These tendencies may feel right or work in the short-run, but evidence shows, come the post-mortem review of trading statements, that individuals get crushed over longer periods of time. John Bogle, the very successful founder of The Vanguard Group, did an eighteen year study showing that individual investors underperformed the “do-nothing” index strategy by more than 10%…PER YEAR. Astonishing how much trading, fees, and emotions can impact long-run returns.

We are in a down economy today, and the recession may last for awhile. Are the ideas and techniques you present in the book still useful in tough economic times?

Wade Slome: Absolutely. This has been particularly difficult period over the last 10 years, when the stock market effectively has managed a flat return, but most people forget that this stagnant period came off of a multi-decade run in the 1980s and 1990s when the market increased by more than TEN-FOLD. There have been about 15 bear markets since World War II and historically these have absolutely been the best times to buy equities.

So when Warren Buffett advises investors to “buy fear, and sell greed” it pays to take notice. But stocks are not the only area of opportunity, there are great investment prospects in a wide range of fixed income securities as well, whether you are talking about corporate bonds, high-yield, TIPS (Treasury Inflation-Protected Securities), municipal, and hybrid securities (i.e., convertibles).

This period is particularly unfortunate for retirees that were improperly allocated in their portfolios or did not save adequately, however for the vast majority of investors that have, 10, 20, 30, 50+ year time horizons, this current environment is dramatically more fertile than it was 12 months ago.

When someone is seeking a financial adviser, what qualities should they seek?

Wade Slome: From my perspective, the decision boils down to two key factors – experience and trust. But I’m not talking about sales experience; I’m talking about investment experience. So many of my supposed stock broker competitors are commission-quota sales people that have little to no investment experience and they handle hundreds of clients simultaneously.

I pride myself on the statement that I eat my own cooking, or in other words, I invest in the same types of strategies and investment vehicles that I offer my clients (subject to each client’s goals and circumstances). If there are no material conflicts of interest and there is transparent disclosure of fees charged, that is a good foundation to build a long trustworthy relationship with your adviser.

What are the most important questions a person should ask their current or prospective financial adviser?

Wade Slome: First and foremost, understand how your adviser gets paid. Not all commissioned sales people are evil, and there are indeed some good ones out there. But it’s imperative to understand any potential conflicts of interest that may exist. I am strongly partial towards “Fee-only” advisers, and at Sidoxia Capital Management we certainly are not the only Fee-only advisers around. Fee-only is the minority, but the trend towards this fee structure is increasing.

Secondly, get to understand the educational and training background of your adviser. Do they have a bachelor’s (and master’s) degree? Are they a Chartered Financial Analyst (CFA), or a Certified Financial Planner? These are indicators of how committed your adviser is to his or her profession.

Lastly, find out what you are paying in fees. People are embarrassed to ask, but generally people are not shy when they buy other high ticket items like homes and cars – so don’t be bashful, you are paying your adviser a lot of hard-earned money. Investors should be paying closer to 1% than 2%, and if you’re not, then you could be pushing out your retirement. Good advice can help your situation, but not if fees strip away the results.

What is next for Wade Slome?

Wade Slome: More of the same. This is an extremely exciting period in the investment world, even in the face of tough economic times for the U.S. and global economies. I find it extremely gratifying to educate and advise investors in these difficult, uncertain times. I will continue to selectively build my base of long-term investment clients and add to the incredible number of good ideas available for my hedge fund.

The feedback from my new book has been positive thus far, but I will have to assimilate the responses from other readers and reviewers to determine whether an encore book will be in the cards!

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Wade W. Slome, CFA, CFP

President and Founder of Sidoxia Capital Management

Wade Slome is a CFA charterholder (Chartered Financial Analyst), a CFP certificant (CERTIFIED FINANCIAL PLANNER), and a member of the CFA Institute and the FPA (Financial Planning Association). Wade Slome has worked in the investment industry since 1993, and Bloomberg identified him as the second youngest manager among the largest 25 actively-managed U.S. mutual funds in 2005. Wade Slome has also been a media go-to resource, quoted in USA Today, The New York Times, Dow Jones, Investor’s Business Daily, Bloomberg, and Smart Money, among other publications.

Wade Slome’s website: Sidoxia Capital Management

The full tour schedule and details of Wade Slome’s blog book tour are posted at Virtual Blog Tours.

Autographed copies pf Wade’s book are available at Amazon.com or from Sidoxia Capital Management for $23.95

His book is also on Amazon.com for the retail price.

Finding Purpose
God makes it very clear as to what your purpose in life should be! Look no further than Solomon. He was one of the wisest men who ever lived. He discovered the true purpose in life transcended riches and material possessions and was ultimately about a relationship with God. After having all this earthly life could offer, he concluded, “Fear God and keep His commandments, for this is the whole duty of man. For God will bring every deed into judgment, including every hidden thing, whether it is good or evil” (Ecclesiastes 12:13-14). Solomon had it right in he knew life is all about honoring God with our thoughts, lives, and actions. We should not compartmentalize our lives. All of our decisions and actions should focus on our ultimate purpose – obeying God’s principles set forth in His Word.

Another part of your purpose is to see life on earth with eternal perspective. Our time here on earth is so short, yet eternity is forvever. Yet, we as individuals focus so much time and energy on things that have no eternal value. We worry about today, we neglect tomorow, and eternity seems so far away…. We make investments that may have earthly value, yet often do little to help build God’s kingdom.

Profit at the Expense of Others?
Psalm 73 talks about how Asaph was tempted to envy the wicked who seemed to have no cares and built their fortunes upon taking advantage of others… much like many companies in our society today. Companies blatenly and willfully oppose God’s word. Many advance unbiblical agendas like abortion, pornography, embryonic stem cell research, and homosexuality. Many produce products that take advantage of man by enslaving him in debt, addicting him to sin, and destrying families in the process. Examples would be predatory lenders, sweat shops, tobacco manufacturers, alcohol producers, and casino and gaming companies. Yet many Christians say and do nothing. They invest their hard earned money into funding companies and organizations that lead to further moral decay.

Asaph saw moral decay and the the effects of making profit at expense of others misfortunes and he states in verse 25 what mattered most to him: “Whom have I in heaven but you? And earth has nothing I desire besides you.” To Asaph, his relationship with God was what mattered above everything else in his life. Without a relationship with God, life has no real purpose. Do your earthly investments reflect your true purpose in life? Are your investments biblically responsible?

We glorify God by fearing and obeying Him, keeping our eyes on our future in heaven, and knowing Him intimately. This is our purpose in life. All of our decisions about work, spending, giving, and investing should thus incorporate our purpose. By aligning our faith in all areas of life, we become closer to God and a step closer to living the life He intended for us.

Hannah’s Dilemma
I met Hannah Stephenson in 2005. At the time, Hannah was working for a Catholic university. She had never put much thought into her retirement portfolio or the values it reflected. As she glanced at the list of stocks held in her mutual funds, she recognized a few familiar names. They appeared to be good companies with good products. However, as she progressed farther down the list, some names stood out like a sore thumb:

*Cuties and Beauties, Incorporated –Producers of pornographic videos and magazines
*Extinction Corporation –Producers of abortion related products                                       *We R God & Associates –A company involved in cloning and embryonic stem-cell research
*No-Tell Hotels –Engaged in promoting homosexuality and pornographic video distribution
(*These names are fictitious.)

Beyond the names Hannah recognized, there were probably many others she was unaware of that also violated her moral compass and contradicted the beliefs of her faith. Hannah had made conscious decisions to not support companies that did not reflect her values. In spite of these conscious decisions in her consumer life, the end result showed that some of Hannah’s investment purchases had slipped through the cracks in her portfolio. She questioned whether she should be investing in companies she was so strongly opposed to. How could she do this with a clean conscious? If she did profit with her current investments, was it the moral and ethical thing to do?

Where to Draw the Line
Hannah makes deliberate choices in her life each and every day. Such choices include, but are not limited to: where she works, where she spends her income, what charities/ministries she supports, and where she invests her savings.

Work: Hannah wouldn’t work at an abortion clinic because she is pro-life.

Spending: She wouldn’t purchase pornography.

Giving: She wouldn’t donate money to homosexual lobbyists or fund embryonic stem-cell research.

Investing: Hannah did not even consider where she was investing. She unknowingly was investing in a mutual fund that bought the following types of companies:

* Companies that profited from abortions
* Companies that profited from online pornographic websites and adult entertainment nightclubs
* Companies that profited from cloning animals and embryonic stem cell research
* Companies that were actively promoting the homosexual lifestyle

Where will you draw the line?

Need Some Direction?

As the stock market continues to go south, many wonder when will it end?   Though I do not have a cystal ball, I do believe the markets will be choppy for the days to come.

Check out this neat tool to calculate your financial comeback:

http://www.nytimes.com/interactive/2009/01/06/business/20090106-comeback-graphic.html?ref=your-money

Also check out my new book:  The Faith-Based Investor: Growing, Protecting, and Sharing Wealth in Uncertain Economic Times.   You can now pre-order the book.  You will receive an advanced copy now and receive the final version as well when it is officially released next month!

Check out the article at www.christianpf.com

http://www.christianpf.com/the-best-christian-financial-websites/

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Clarify Your Beliefs
The clearer you are about not only what you value but also what you believe in, the happier and more effective you will be. Your beliefs are the assumptions you make about yourself, about others in the world, and about how you expect things to be. According to the American Heritage Dictionary, the defi nition of belief is “mental acceptance of the conviction in the truth, actuality or validity of something.” This brings home the point that just because you believe something is not possible does not make it true.

When your beliefs change, your behavior will follow. Roger Bannister became the first runner to complete a four-minute mile. He was the first because he was the only one who believed it was possible. No one else, including scientists, thought it was humanly possible. So for a long time, no one broke a four-minute mile. Then came Roger; he not only believed it, he did it! Since the human brain fathomed it was possible, many people have broken a four-minute mile. You believe what you want to believe. Whether you are right or wrong, truth is truth.

Think about your core beliefs. Some of these beliefs move you forward; some hold you back. These empowering and disempowering beliefs often determine how you conduct your life. Throughout history, wise people around the world have recognized that beliefs are so powerful they can create reality. Ralph Waldo Emerson, Henry Ford, and Napoleon Hill are just a few of the well-known proponents of “what you think is what you get.”

Are You Willing to Stand for What You Believe In?
William Wilberforce (1759-1833) was a British politician, a philanthropist, and a leader of the movement to abolish the slave trade. He began his political career in 1780 and became the independent member of Parliament for Yorkshire (1784-1812). In 1785 he underwent a conversion experience and became an evangelical Christian, which resulted in major changes to his lifestyle and a lifelong concern for reform.

In 1787 he came into contact with Thomas Clarkson and a group of anti-slave-trade activists, including Granville Sharp, Hannah More, and Lord Middleton. They persuaded Wilberforce to take on the cause of abolition, and he soon became one of the leading English abolitionists. He headed the parliamentary campaign against the British slave trade until the eventual passage of the Slave Trade Act of 1807.

Wilberforce was convinced of the importance of religion, morality, and education. He championed causes and campaigns such as the Society for Suppression of Vice, British missionary work in India, the creation of a free colony in Sierra Leone, the foundation of the Church Mission Society, and the Society for the Prevention of Cruelty to Animals. His underlying conservatism led him to support politically and socially repressive legislation and resulted in criticism that he was ignoring injustices at home while campaigning for the enslaved abroad.

In later years, Wilberforce supported the campaign for the complete abolition of slavery and continued his involvement after 1826, when he resigned from Parliament because of his failing health. That campaign led to the Slavery Abolition Act of 1833, which abolished slavery in most of the British Empire. Wilberforce died just three days after hearing that passage of the act through Parliament was assured.

He was buried in Westminster Abbey, close to his friend William Pitt. Just as Wilberforce had clear convictions of his values, are you willing to stand for what you believe in? It is easy to blend in with the crowd and let life pass you by. It is easy to say nothing and do nothing. It takes courage, strength, and perseverance to stand for what is right, especially when the world stands against you. Many Americans know what they value yet do nothing about it. Many allow cultural influences to shape life decisions rather than turning to God’s Word. If we all stand for what we believe in, we can make a difference. One by one, we can change the world.

Don’t Blame…Take Action!
We live in a society that loves to blame external conditions for why we fail. However, successful people don’t blame their circumstances on others. They face challenges like true warriors. They perserve, stand for what they believe, and most of all – TAKE ACTION! They aren’t afraid to look for the warning signs. They are fearless in accepting why things aren’t working out, and then they go about fixing it.

God gave us free will. We are all able to make our own choices. We can leave bad situations. We can find a new job or career, we can start a new business if we hate the ones we have. We can choose to forgive those who have done us wrong. We can choose to heal from painful experiences and move on.

I have noticed successful people don’t give excuses. They take destiny by the horns and create the outcomes they desire! They focus on results and solving problems. They commit to actions that will get them where they want to be. They don’t settle for less, they strive to live out their belief system!

Those who choose to be responsible for their own lives use challenges, struggles, and pain, to gain wisdom and understanding. They learn from each lesson and use it as fuel to feed the fire. When we take personal responsibility, we start to gain a greater power that allows us to shape our lives into the ideal life we dream about. Successful people don’t waste time or energy wondering “what if”. Instead they put time and energy into creating value, helping others, and taking action on their most important beliefs.