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Update On American Express And Investing Tips

American Express is down $10 a share from our entry price. Nevertheless we are staying the course and holding this stock long term. We will not be shorting stocks in our 1% portfolio. There are many more “long” millionaires than “short.” Our new position, BND, is performing well. It will be a good anchor for our portfolio as its volatility seems to be very low. So finally the ECB has decided to resort to quantitative easing like the U.S. It actually is going to spend 60 billion euros a month instead of the 50 billion figure leaked yesterday. Will it work? Has quantitative easing worked in the U.S.? The bulls would say yes with 5% GDP and low unemployment. The bears would say no with trillions of extra debt and an upcoming dollar crisis. I’m with the bears on this one. All throughout history printing money has always lead to inflation and a weak currency. Would you prefer to live in Switzerland where the Swiss central bank has decided to stop printing money (finally) or Spain where the ECB is going to print 720 billion euro this year alone? The “unintended consequences” will soon start to emerge as all fiat currencies will begin to lose substantial purchasing power. At this inflection point, the public will rush into hard assets such as Gold and Silver. Our portfolio is doing well with now close to $400k invested. I want to touch on American Express Company (NYSE: AXP ) as a follower asked me about its validity going forward. We bought the stock at $94 and currently the stock is trading at around $84 a share. Also the portfolio received a dividend payment of $69 last week. The stock is selling off today due to earnings that were announced in the last 24 hours. Furthermore the company announced recently that it is cutting at least 4000 jobs. Irrespective of the negativity surrounding American Express lately, we are not selling our position. Yes the dividend yield is low at 1.2% but the company has committed to increased dividends and subsequently has increased its dividend for the last three years. However there are many more reasons to hold this stock long term. First of all it dominates its industry and when a company has this much market share, it recovers from recessions quicker than other companies ( see its recovery in the chart below since 2008). The company is still well-priced at these levels and its market cap just continues to grow over time. Have the courage to hold it. In the long term it will do very well. We as fundamental investors who will continue to collect dividends and option premium and wait for the stock price to recover. (click to enlarge) The follower is fearful the stock may drop ( and it may do – in the short term). As investors we need to invest with the end goal in mind. We can’t be taken off course just because of sharp movements in our underlyings. We stay the course and we stick to our plan. Fear also exists on the way up. One such example is the gold market. Long term gold investors are long and will stay long for the long haul. Gold is up 10% already this year. Do these long investors sell and take their profits? No way. These gold bulls are in it for the long haul and that’s how the big profits are made. In one way, holding physical gold is better than holding an ETF or stock. You can’t sell your asset as easily as you can sell an ETF that tracks the Gold price like the SPDR Gold Trust ETF (NYSEARCA: GLD ). Here lack of liquidity is an advantage. Therefore If you believe in your investment, have the courage to hold it through thick and thin. Be prepared to “ride the bull” as that’s where the big profits are in a healthy bull market. Shorting stocks or ETFs also wont happen in this portfolio. There are many distinct disadvantages when shorting underlyings in your portfolio. You are borrowing shares from your broker. You do not have 100% control and sometimes your broker will “call away” your shares at very short notice because the lender wants his stock back. This happens especially when many investors are shorting the same stock. Losses can be infinite (multiple times your initial trade). You need a margin account to short so you pay monthly interest on your bet. Finally I mentioned the other day that the portfolio bought the Vanguard Total Bond Market ETF (NYSEARCA: BND ). I must say that I like its action. Its going to be a good anchor for this portfolio (at least in the short term until the bond trend changes). This ETF tracks 3000 U.S. bonds (all types) and has a 2% annual yield. What’s interesting today is that the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) and the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) are down but our ETF is unchanged. I believe this is the best place to be in the bond sector but we will be watching closely for a trend change and at that point we will put more capital to work in this sector. Automatic profits were taken on positions in McDonald’s Corporation (NYSE: MCD ) and IBM (NYSE: IBM ) this week and new positions were opened (see the screen shot below). (click to enlarge) Current Balances – Making Progress – Slow & Steady wins the race. Now that you’ve read this, are you Bullish or Bearish on ? Bullish Bearish Sentiment on ( ) Thanks for sharing your thoughts. Why are you ? Submit & View Results Skip to results » Share this article with a colleague

InfraCap MLP ETF: Can An Actively Managed ETF Add Value To The Alerian MLP Index?

Summary The InfraCap MLP ETF is one of the new, actively managed ETFs, bringing return-enhancement strategies to the ETF space. MLP-focused funds face additional tax hurdles not faced by ETFs in other market sectors. The InfraCap fund strategies may help overcome those hurdles. The investment results from the new MLP can be directly compared to the largest MLP ETF, allowing investors to see if the active management strategies work. A new MLP-focused ETF, InfraCap MLP ETF (NYSEARCA: AMZA ) takes an interesting approach to offsetting the rather large hurdles facing an ETF that tracks the widely followed Alerian MLP Infrastructure Index – AMZI . Since AMZA is based on the index tracked by the largest MLP-focused ETF, results from the ETF can be directly compared. Challenges for an MLP ETF Several features of MLPs and the MLP indexes provide distinct challenges for an ETF that wants to mimic the returns of a specific ETF. These challenges result in significant underperformance by the ETF compared to the index or a well-selected basket of individual MLPs. Tax rules concerning investment funds and MLPs provide the biggest drag on returns. A fund that holds more than 25% of its portfolio in MLPs is forced to structure as a corporation and pay corporate income taxes on net income reported by the owned MLP units. A fund organized as a corporation will also adjust its calculated NAV for an accrued, deferred income tax liability. The result is an NAV that lags the index value gains by the 35% top corporate income tax rate. A second challenge for an Alerian index focused ETF is the structure of the AMZI index. The index includes just 25 midstream MLPs, with the five largest partnerships – Enterprise Products Partners, L.P. (NYSE: EPD ) , Magellan Midstream Partners, L.P. (NYSE: MMP ) , Plains All American Pipeline, L.P. (NYSE: PAA ) , Energy Transfer Partners, L.P. (NYSE: ETP ) , and MarkWest Energy Partners, L.P. (NYSE: MWE ) – accounting for 41% of the index value. The result is just a few large MLPs – good or bad – have an over-weighted impact on the index results. Benefits of an MLP Focused Fund Before jumping into the discussion about the AMZA ETF, here are a couple of reasons to use an MLP ETF as a way to get exposure to this historically high-yield, high-average total returns sector: A fund turns the MLP K-1 reporting tax hassle into a simple 1099 reporting investment. Typically, MLP fund dividends are a combination of non-taxable return of capital and ordinary income. A fund may be a better way to get MLP exposure inside of a tax-advantaged account such as an IRA. Owning MLP units inside of an IRA can produce additional tax reporting and tax payments out of the tax-deferred account. The corporate income tax accrual has the additional effect of increasing the yield of an ETF compared to the index. While the AMZI currently yields 5.74%, the tracking ETF yields 6.81%, even with 0.85% in expenses. InfraCap MLP ETF Active Management Adjustments to AMZI According to its prospectus , the InfraCap MLP ETF typically owns the same 25 midstream MLPs tracked by the AMZI index. However, the ETF’s active management strategy allows management to use any or all of the following strategies to boost returns or safeguard against declines. Underweight and overweight MLPs compared to the AMZI based on Infrastructure Capital Advisors proprietary model that values MLPs based on commodity prices, cash flow forecasts, and relative valuations. Fund management will sell call options to enhance the yield earned by investors. AMZA can employ up to 33.3% leverage. The use of leverage provides an offset to the corporate income tax bite. Management can reduce leverage or even move into cash if the model determines the MLP sector is overvalued. The bottom line is that with AMZA, investors get a strategically managed MLP ETF with an expense ratio of just 0.95%. This is significantly less than the typical expenses of an MLP-focused closed-end fund (which also incurs the corporate income tax bite) and the 0.85% expenses of the $9 billion in assets ALPS Alerian MLP ETF (NYSEARCA: AMLP ) . AMLP tracks the Alerian MLP Infrastructure Index. Since AMLP tracks the AMZI index and AMZA holds the same components weighted by its model, it will be interesting to see if the active management strategies produce extra return for investors. AMZA was launched in October 2014 and has gathered $7 million in assets. So we have two questions: Will the active management model work? And will investors buy into it?

SPDR S&P 500 ETF (SPY) Analysis: Using CapFlow And FROIC

Summary Analysis of the components of the SPDR S&P 500 ETF (SPY) using my CapFlow and FROIC ratios. Specifically written to assist those Seeking Alpha readers who are using my free cash flow system. Part II will concentrate on “Main Street” while Part I in the series concentrated on “Wall Street”. Back in late December I introduced my free cash flow system here on Seeking Alpha, through a series of articles that you can view by going to my SA profile . My purpose in doing so was to try and teach as many investors as I could on how to do this simple analysis on their own as I believe in the following: “Give a person a fish and you feed them for a day, Teach a person to fish and you feed them for life” I have been very pleased with the positive feedback that I have received so far, but included in that feedback were many requests by those using my system, to see if they did their analysis correctly or not. Since the rate of these requests have been increasing with every new article I write, I have decided to start a new series of articles here on Seeking Alpha analyzing the SPDR S&P 500 ETF (NYSEARCA: SPY ), where I will analyze each of its components individually. That way those of you using my system will have something like a “teacher’s edition” that will give you all the correct calculations for each component. Obviously I can’t include the results for all my ratios in one article, so I will thus be doing a series of articles, where each ratio’s results for the SPDR S&P 500 ETF will have its own article devoted to it. Hopefully these articles can be used as reference guides that everyone can use over and over again, whenever the need arises. Having said that, I would suggest that everyone first read Part I by going HERE . There you will find the data on my “Free Cash Flow Yield” ratio which is one of three parts that I use it tabulating my final “Scorecard”. While free cash flow yield is a Wall Street ratio (Valuation Ratio), this article with concentrate on my “CapFlow” and “FROIC” Ratios, which are Main Street ratios. The final Scorecard results will be available in Part III of this series and basically combines all three ratio results to generate one final result. Once completed, my scorecard should give everyone a clearer understanding on how accurate the valuation is that Wall Street has assigned each company relative to its actual Main Street performance. Before we show you the final results of our two Main Street ratios, here is brief introduction to what each of the two ratios, which make up my system as well as what the final “Scorecard” score mean. CapFlow CapFlow is the name I have given to the ratio (Capital Expenditures/Cash Flow). CapFlow allows us to see how much capital spending (or capital expenditures, CAPEX) a company must employ in relation to its cash flow to maintain itself and more importantly grow the company. This ratio is extremely useful as it is both a qualitative and quantitative ratio in that it acts as a laser beam into the inner workings of a company. Quite simply if a company is increasing its profits and doing so by spending less money relative to its growth in cash flow, it should, in theory, outperform on Main Street. When you can have such an occurrence for more than a few years in a row, it clearly shows you have wonderful management in place that knows what it is doing. The ideal again is to consistently have a CapFlow of less than 33% and avoid any company, like the plague, that has a CapFlow of over 100%, as in such a case management is spending more in capital expenditures than it is bringing in from cash flow from operations. That is a recipe for disaster in my opinion. Just using this ratio alone will narrow your list of potential candidates for investment substantially and will give you an easy-to-use tool for judging management effectiveness. FROIC FROIC = Free Cash Flow Return on Invested Capital FROIC= Free cash flow/ (long-term debt + shareholders equity) FROIC basically tells us how much return in free cash flow a company generates for every one dollar of “Total Capital” it employs. I consider FROIC the primary determining factor in identifying growth companies as one can compare every company on an equal basis using this ratio. The question I ask every company I analyze is: “How much return (in percent) in free cash flow are you going to give us for every dollar of total capital you invest?” A FROIC of 20% or more is considered excellent and the higher the result the better. Since long-term debt is included in the invested capital part of the equation, one can see quite clearly by using this ratio, on just how well or how poorly management is managing its debt. So without further ado here are my results for the CapFlow and FROIC ratios for the components that make up the SPDR S&P 500 ETF : Always remember that the results shown above are just for two ratios and that this is not investment advice, but just the results of the ratios. The system outlined in this article and all that will follow, as part of this series, are just meant to be used as reference material to be included as just “one” part of everyone’s own due diligence. So in other words, don’t make investment decisions based on just these two results, but incorporate them as part of your own due diligence.