Skip to content

Questions to Ask Your Financial Advisor

August 23, 2016

Many that have a financial advisor or investment manager get periodic updates and reasonably unlimited phone calls. However, I notice that many do not. Here are some questions to consider asking to determine how your money is being handled. If you know the answers to all of these questions, then good for you – it seems you are in good hands. Otherwise, ask these questions.

  1. How often should I expect communications from you regarding my portfolio, its performance, and strategy or any changes in strategy?
  2. Why don’t you ever call me when there is a major drop in the stock market?
  3. How does the present portfolio match up with the original plan or instructions that were discussed when you started managing my investments?
  4. Why has there been no co-ordination by you or attempt to find out about my other investment portfolios?
  5. What arrangements do I need to make with you now for my spouse if I die unexpectedly or become disabled?
  6. Why should I recommend you and to whom?
  7. Who decides what to buy in my portfolio, e.g. foreign vs. domestic or large and small cap, and how does the decision process work?
  8. What is your fixed income strategy – the yield appears very low after deducting your fees?
  9. It seems the fees I am charged are different than what we agreed to – can you explain your charges?
  10. Why is there always a balance in my cash account and how come some of the purchases in my account are for very low amounts, and how often do you make purchases?

It’s your money; it might be your future financial security and missteps might alter the plans you made for the rest of your life. Be a little involved. Ask these and any other questions that are on your mind.

When you get the responses, evaluate them to determine if this advisor is still the right person for you.

State Sponsored Lotteries

August 18, 2016

There are many state sponsored lotteries promising humongous dollars of prizes, yet when a winner is announced the fixed payout amount is much less.

The wining prize payout is announced as the aggregate of the thirty annual payments. However, the winner is provided with the choice to receive a lump sum payment, which is lower and what is usually chosen.

The reason for the lower cash payout is that the thirty years of payments include interest that will earned by the Lottery Commission retaining the funds until making the annual payments. The total of these 30 years of payments is what is advertised – not the lump sum that is claimed. People take the lump sum for various reasons such as anticipating a greater investment return, or being able to spend what they want now, or to just hold on to the money and know they have it.

The state is using a financial technique called discounting and employs principles of compounding. Here is the general rule:

  • Money you will receive in the future is worth less today.

Here is how this works:

  • Assume someone will pay you $1,000.00 in five years.
  • Would you rather have $784.00 today or wait five years to get your money?
  • Assuming there is no default risk, the $784.00 was calculated using an interest rate of 5.0%.
  • Therefore if you think you can earn more than 5.0% you should take the $784.00 today. If you think you cannot earn at least 5.0% you should wait.
  • If you don’t care how much you can earn because you want to spend the money now, take the $784.00.
  • If you don’t care how much you can earn because you will feel better having the $784.00 in your account, take the money.

The Lotteries work the same way. In a recent Powerball the interest rate used was 2.843%. Assuming the payout was $1 billion to one person. A lump sum (pretax) payment would be $620 million which is a 38% discount. The first payment would be $15,067,000 and would increase 5% each year until the final payment grows to $61,000,000. I always thought that the payments were equal amounts – not so.

Next is that if you take the annual payout and die your heirs will receive the balance of the payments, BUT your estate would be liable for Federal and possibly State [depending upon where you live] estate taxes, and would most probably not have the money to pay the taxes. The estate might be able to borrow against the future payments or get a lump sum settlement at that time [depending upon what your state’s rules are]. Either way this is a complication. An alternative is to buy a fixed premium declining term life insurance policy to cover the estate taxes, but then this would further reduce your investment proceeds.

If you take the lump sum it is advisable to hire an investment manager, understanding that those fees will reduce your cash flow. Also, taxes will be due on the lump sum now. If you take the annual payments and the tax rates go up, you will receive much less than at today’s tax rates. Bottom line: It ain’t simple, but I am sure you wouldn’t mind having these problems.

Getting back to the 2.843% rate, this might sound like a low rate, but there are very little alternative guaranteed rates today. The 30 year Treasury rate at that time was 2.79% [it is lower today], but the rates for each of the years up to 30 years are lower than that. Here, the Lottery Commission is offering a fixed 2.843% for the entire period. This is reasonable. By the way, if the rate they offered was greater, the lump sum payout would be lower. In the $1,000.00 example if the rate was 7.5% instead of 5.0% the lump sum today would be $697.00 instead of $784.00.

There are other issues for those fortunate enough to win the lottery, but I wanted to discuss the compounding and present value financial features and the estate tax complications.

Babe Ruth’s Pitching Statistics

August 16, 2016

There is no argument that Babe Ruth was one of the greatest baseball players, particularly for his home runs and batting average. However, not as well-known was his pitching statistics and I will share some of them with you here. His game appearances are too low for him to be included in the Top Pitchers listings.

Babe Ruth

Note that the Babe had very high win/loss and complete game percentages and an extremely low earned run average (ERA). There are many other great pitchers but I chose to compare the top legendary New York pitchers that we seem to always talk about at lunch.

Embracing Change

August 11, 2016

“Embracing Change” has become a buzz word by people that want to show they are innovative, imaginative and creative. I think otherwise.

The people that make meaningful changes do it, have clear trails of the benefits and value they created and have open minds that listen to problems and find needs and suggestions of solving them. They do not have the time to talk about embracing change because they spend their time developing and implementing changes and keep at it through many failures until they reach the success they are seeking and then look for more.

I know this because I have worked with people that are creating changes every day and who must make changes to compete effectively and succeed. These are our entrepreneurs and business leaders. Very few come from our political leaders where many of their best ideas die in committees or they are afraid to proceed or act on their own because of the threat of failure or of offending someone and the high likelihood of criticism from the do-nothings.

I do not want to waste this space offering examples when all you need to do is look how you spend your time and do things and compare it to how it was just ten and certainly twenty years ago. It is businesses that sprouted forth the changes we enjoy today and will continue to enjoy. Not government!

In this presidential election season we will hear about the many changes the candidates say they will make, particularly in their first 100 days that gets me to wonder about their veracity and even more so about their character in that do they really believe what they are saying.

There are many different types of changes: Social, Cultural, Economic, Environmental, Business model, Process and Procedural, Taxes, Spending, Habitual and Personal. Some can be made easily and without affecting or impacting anyone else such as how we personally feel about people of certain ethnicity or sexual persuasion; or a resolve to lose weight by eating healthier foods. However, some changes cannot be made without impacting directly on something else. These are the changes our candidates are talking about making. For instance, an increase in minimum wages will impact the costs of those paying these wages and could cause a reduction in work force, an elimination of a high labor intensive product lines or an increase in prices which would raise consumer costs or cause a reduction in units sold. It would also increase the spending by those with the raises and certainly improve their standard of living and remove some of the daily pressures they always face – so these changes are complicated not devoid of numerous effects. Another example is a decrease in taxes for some people that will either have to cause an increase for others, a decrease in government spending or spur a growth of such great proportion that net government revenues will not decrease. Likewise economic growth will cause an increase in inflation, an interest rate rise that will raise costs of money that increase governmental interest costs but also increase cash flow to retirees living on interest payments which will also increase their spending in an inflationary economy perhaps leaving them worse off than before their cash flow increased.

I do not have the answers and certainly not even all of the questions, but what I would like to know is that those making the claims and promises do and that they show them to back up what they promise. I want to trust that they thought it through, worked it out with economic and financial models that considered all the alternatives, interactions and causes and effects, and really know what they are talking about and promising. If I could be assured of this, I will believe them. Until then these are empty promises with a high likelihood that they will not be kept. If that is so, what does this mean about the veracity of what they are saying?

Likewise those bragging about embracing change are not the category of people that make the changes that benefit us.

“It’s not the life I chose.”

August 9, 2016

That quote was from Mikey Nichols, who became a quadriplegic after shattering his C5 vertebrae in a Monroe High School ice hockey game. My son Andy Mendlowitz wrote an article about a charity golf outing to raise money for the Nichols Family Trust and the Christopher & Dana Reeve Foundation for the Home News Tribune’s August 6, 2016 edition.

That quote mimicked what I wrote in response to comments about an article I wrote about children that are “forced” to work in the family business who feel “it’s not the life I chose.” Here I was dealing with regrets of rich people making big bucks but not happy with their life while Andy was dealing with someone that truly had no choice about what happened but who was upbeat and optimistic. Life stinks sometimes but many times it seems the difference between happiness and regret is the mental attitude and trying to make the best of the situation versus being down on everything you do because something is not going right. Andy’s article put things in the right perspective for me.

Many of us tend to look at the glass being half empty and feeling bad instead of seeing it half full and being happy about it. There are many things in life that we cannot control. It is how we deal with the unpleasantness that shapes our character and whether we are someone that people will enjoy spending time with. I know many downers and of course many really happy people. Give me the happy people anytime. I also try to avoid the downers as much as possible.

I have a fixed budget of time – I just do not know when it would run out. So, I have gotten stingy how I care to spend it. I want to continue accomplishing things and being with people that encourage this and who also make me feel good and who do not complain about really picayune things and who exude positive outlooks. I do not like to listen to ranting about others and small talk that draws out negatives about things we cannot control or that might never happen.

I was touched by Andy’s article about Mike Nichols and upset at myself for getting caught up in the travails of my rich clients’ sons and daughters that have not taken control of their lives but rather, chose the comfort of working for Mommy and Daddy and then feel they have been short changed by life. They chose their path. Mikey Nichols did not.

My article and comments are at .
Andy’s article is at .

Mike’s full quote is “It’s not the life I chose, but it’s the one that I was given, and I’m making it work. I understand the importance of also spreading the word on spinal cord injury.” If you care you can make contributions at

What the Fortune 500 Tells Us

August 4, 2016

In June, Fortune gave us their 500 largest companies list in sales, profits, market capitalization (“market cap”) and some other criteria. My question is does this tell us anything? I think so.

To simplify my analysis I separated the list into the top 50 companies based on sales. That resulted in a grouping that represented 47% of the sales and 51% of the profits. So in numbers we picked about half which should be a pretty representative group. Additionally the total assets were 55%, stockholders’ equity 46% but the market cap was only 41%. This is our first major difference – What this means is that the price earnings (“P/E”) ratio is lower on the top group than the 450 group.

Using the Fortune numbers, the P/E ratio for the top 50 is 16.22 rather than 24.37 for the 450 group. Here the Top 50 comes out much better than the 450. Note that the P/E for the entire 500 companies is 20.21, a number that is not as informative as the two separate P/Es we obtained by the bifurcation. It seems the larger companies are priced lower than the smaller ones. However the debt to equity ratio for the 50 is a very high 5.84 while for the 450 is 3.94. The 5.84 seems very high (as does the 3.94 but the 5.84 is way out of sight). This could mean a vulnerability to losses or increasing interest rates.

Here is another observation. The excess of market cap over book value for the 50 is $3.873 billion and $6.476 billion for the 450. These amounts were determined by market forces that on some basis, in my opinion, should base most company values on earnings and expected dividends. The P/E is a reflection of this. Another reflection of value is the intrinsic value which supposedly is represented by book value, but is not really so. The excess market cap balances this off and is comprised of a number of components including real estate and equipment that is used daily but whose full values are not reflected on the books of the companies that are using these assets, land that was purchased generations ago that is on the books at the original costs, other assets, tangible and intangible, that are generating revenue that also are not reflected on the books such as the animated movies Disney made in the 1940s and Coca-Cola’s secret formula. If we can determine those true market values and can add them to the book values the differences between market cap and book would make much more sense and the intangible value that is really a buffer adjustment to reflect the companies’ values based on earnings might appear more reasonable. This being so, then perhaps the debt to equity ratios are not as high as they appeared earlier in this article. This is so because we should add the excess of the actual values to the book. To be completely religious we should then tax effect the excess values, but I am not trying to be super scientific but rather to illustrate the art of valuing a company.

The Fortune 500 list offers a wealth of information, but to get benefit from it careful analyses need to be considered and then thought about and deliberated and acted on, if appropriate. If anything, it is complicated with a lot of moving parts. There doesn’t appear to be an easy way to determine value. Use this article as a brief lesson on company valuations and if you care, a beginning. I leave it to you to draw your own conclusions and to make your decisions based on that.

Here is a link to the entire article:

Assistance for this article was provided by Stephen Panfile, a summer intern at Withum.

Forbes’ Mobile Moguls

August 2, 2016

I try to read the magazines I subscribe to as they are received, but the cover of the July 26, 2016 issue of Forbes intrigued me so I put it aside. I was going to take the bus into Manhattan last week and grabbed that issue figuring I would flip through the article to grasp the thoughts, but instead ended up with a bunch of WOW moments that I am sharing here with you.

The cover had a photo of Mobile Mogul Kim Kardashian saying how she made $45 million from an app game. The story inside also told how Kim, Ellen DeGeneres and others have made over $200 million that way. This is an eye opener and something I felt I should at least learn something about – and so should you. New things are happening quickly and while we might be late finding out about them at least we can use this knowledge to possibly change the way we look at and think about what we are doing and how we might adapt to the new way things are happening. There certainly is big money being made out there in many new ways, not imaginable just a few years ago.

I opened the issue and before I got to the first article I saw ads with the following headlines:

  • Anticipate tomorrow. Deliver today.
  • A watershed for watersheds \ half of the Everglades has already disappeared.
  • Customers are hiding in your data. Do you have the insight to uncover them?
  • Transform your business, transcend expectations…
  • Want to read your customer’s mind? Too late. She just changed it.

There are many more such ads in the issue. These certainly indicate changes in the way business is being done.

The first article I came to provided glimpses of America’s 25 wealthiest families. Interesting! #1 is the Walton family with 7 members and #3 shows the people that make Milky Way and M&Ms being worth $78 billion with 3 members. A little further at #22 and #23 are the Mellon and Rockefeller families comprised of about 374 members. They are still going strong. Money has been made in varied ways with no one universal way; and no app people…yet!

Another article lists the ten most successful Broadway shows that were based on books. The record for the most copies sold goes to Wicked with 3.6 million books sold. Hamilton misses the Top 10 cut with “only” $80 million in box office receipts and sold 623,000 books, but it is still a new show.

The Game Changers article has the top 100 Celebrities. Taylor Swift is #1 with a whopping $170 million earnings last year. Ellen DeGeneres is #13 at $75 million behind Rush Limbaugh who clocked in at $79 million. Tiger Woods who hasn’t been playing much golf was #51 at $45.5 million just beating out Eli Manning at $45 million. The only Baseball player is Clayton Kershaw at #92 with $32 million, mainly from his $30 million salary.

There are many other fine bits of information and things to think about. If you want to be relevant and competitive, you need to “be in the game.” This issue shows what some of the new games are, and some old ones too that are still significant. You can get the issue in your local public library. Check it out – that issue is a treat!


Get every new post delivered to your Inbox.

Join 867 other followers