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Forbes Announcement

Friday, September 09, 2016

Robert K. Doyle, CPA, PFS


August 2016

Dear Clients and Friends,

Doyle Wealth Management is pleased to announce our selection as a distinguished member of Forbes Magazine's list of America's Top 200 Wealth Advisors for 2016. (For the official release, please click here).

This prestigious ranking, developed by SHOOK Research, is based on qualitative and quantitative data evaluating thousands of America's top wealth advisors. Criteria includes industry experience, credentials, investing process, service model, client retention, assets under management, and compliance to regulatory standards.

Unlike many other lists and rankings, SHOOK is not a "robo-ranker." They are the only rating firm that interviews advisors via telephone as well as in-person, at the advisor's location. Neither SHOOK nor Forbes receives a fee in exchange for rankings. this list is vetted to identify what SHOOK considers "role models in the field - advisors that are leading the way in offering best practices and providing a high-quality experience for clients." Drawing from over 11,000 nominees from Registered Investment Advisory firms as well as broker/dealers and banks, Doyle Wealth Management was one of only 12 advisors from Florida, and the only advisor from St. Petersburg to be selected.

All of us at Doyle Wealth Management are proud to have been included in this exclusive list. Most importantly however, we are privileged and humbled to be entrusted to provide objective, experienced service to our clients. We hope you will share this exciting news with your friends and family as your referral is our most treasured complement.


Robert K. Doyle, CPA, PFS


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Equity Earnings Recession? No Worries.

Thursday, July 21, 2016

Michael J. Chren, CFA

Chief Investment Officer

"In the short run, the market is a voting machine. In the long run it's a weighing machine." - Warren Buffett

Rule #1: Don't fight the Fed.

Rule #2: Never forget Rule #1.

It appears that the Federal Reserve has succeeded. Low absolute interest rates around the world have created a stampede into risk assets, including US equities. Despite widespread fears over possible impending economic recession and a host of additional global concerns, the 7+ year-long bull market in US stocks (remarkable the 2nd longest on record) continues to advance. In the face of another quarter in which profits for the S&P 500 Index are poised to fall once again (extending a streak of declines set to match the longest earnings retreat on record) (1), stocks recently powered ahead to record high levels. The risk-on TINA (2) market appears to make more and more sense to least for now.

What is pushing stocks higher? Over the long run, only three factors ultimately determine stock prices: profits (earnings or cash flows), interest rates and sentiment. The Fed has done their part with interest rates (note that 10-year US Treasury benchmark yield recently hit an all-time low), adding tremendous support to stocks [Figure 1]. Market participants have chipped in helping overall sentiment, pushing bullishness to very positive levels. What about corporate profits?

Figure 1 (3)

The US earnings recession accompanying the current move higher in stocks has been a long one by any standard. S&P 500 companies have posted negative profit growth for 6 straight quarters, a stretch that has been exceeded only once since 1936 (the 7-quarter slump of 2007 - 2009) But while the lack of profit growth explains why the Index has displayed higher levels of volatility, the less-heralded shallowness of the earnings decline is critical to understanding the market's overall resilience.

Measured by depth, net profits are down only 18% from their recent 2014 peak, a retreat that is less than half the size of the last three declines and well short of declines during the worst recessionary periods. Additionally, the current decline pales in comparison to the 18% average profit decline in recessions since 1936 (4). That goes a long way to explaining why we can readily recognize the recession in corporate profits but not a corresponding retreat in the overall economy. 

Having said that, both future revenue and earnings growth estimates continue to be revised lower [Figure 2]. As a result, valuations have expanded dramatically as the anticipated re-acceleration of profit growth is pushed further into the future. Call it "profit confidence" but investor faith that earnings will rebound has pushed price-to-earnings multiples to over 25 times reported profit using standard GAAP accounting. Consequently, the S&P 500 Index now trades at a higher multiple than it has 90% of the time in the past 80 years (the average ratio over that time period is ~17 times) [Figure 3].

Figure 2

Figure 3

So far, the Federal Reserve has been investors' best friend (see Rules #1 and #2, above) but at these valuation levels, the market anticipates a significant re-acceleration of profit growth and that will be required to justify aggressive investor expectations. In addition, despite what (so far) appears to be an isolated "one and done" increase in the Fed Funds rate plus tremendous success in calming the markets' nervousness over expectations of future hikes, the Fed continues to lurk on the sidelines. 

Is this concern discounted in today's stock prices? Does it really matter? Of course, we don't know for sure but if history is any guide, we can tilt the odds of future out-performance in our favor by keeping history in mind: only one recession in the last 100 years+ has not been accompanied by some form of tightening of the Fed Funds rate. (5)

In the interim, uncertainty surrounding higher rates, the upcoming election and post-Brexit fallout appear to be overwhelmed by the anticipated positive effects of improved employment, low levels of inflation, near-record low interest rates, a weaker US dollar, slowly rising commodity prices and stabilizing corporate profits. All-in-all, economic growth appears to be steady and stable. Factoring in recent economic data releases as well as current profit trends, earnings estimates should begin to move higher, helping justify current valuations.

In essence, stocks are now essentially muddling through, waiting for an inflection to occur in earnings. But given current valuations and the rising risk of a resumption of the Federal Reserve rate hike cycle, caution is warranted. More specifically, we believe heightened focus on client capital preservation is a top priority and are striving to achieve this objective by: 1, lowering overall risk levels in portfolios through a reduction in exposure to above average equity volatility, 2, paring asymmetric (unattractive) risk/reward profiles in fixed income holdings and 3, allocating un-invested capital to cash (when possible). 

Our fundamental research-driven, long-term opportunistic investment process is grounded in a strategically disciplined and patient approach. Timing and price are ALWAYS important, even more so during periods of quasi-irrational behavior. Of course, we will make mistakes (as all investors do) but we recognize that controlling the risk associated with those mistakes is absolute critical to long-term out-performance. When the markets present a limited number of new attractive investments, we are not afraid to sit on our assets.

  1. S&P Dow Jones, Bloomberg
  2. *There Is No Alternative*
  3. Evercore ISI
  4. Bloomberg
  5. MKM PartnersResearch



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Portfolio Turnover: The Silent Killer (Of Investment Returns)

Thursday, October 15, 2015

Michael J. Chren, CFA

Chief Investment Officer

When it comes to investing for the long run, it is always better to make a few good investments and then sit on your assets.

In practical terms, turnover in an investment portfolio or fund is loosely defined as the percentage of a portfolio's or fund's holdings that have changed over the past year. To be sure, the vast majority of investment advisors, mutual fund managers and hedge funds love to trade their clients' portfolios. In fact, amazingly, the median mutual fund turnover rate now stands at over 80%!

A turnover rate this high usually means that a manager is engaging in a considerable amount of buying and selling of securities. There are numerous reasons for this, including reactionary response, inherent conflicts of itnerest and most notably, manager overconfidence. Unfortunately, research has shown that high turnover investment strategies almost always lead to long-term under-performance. Higher turnover rates usually coincide with short-term investment horizons, higher commission levels and considerable tax consequences. 

Turnover is important for several reasons:

  •  On average, performance tends to deteriorate as funds' turnover rates increase,
  •  It can be an indication of an investment manager's true strategy, more specifically buy-and-hold versus trading on short-term market fluctuations,
  • Funds with higher turnover (implying more trading activity) incur greater brokerage fees associated with implementation of their trades,
  • Funds with higher turnover tend to generate more capital gains than low turnover funds because high-turnover funds are constantly realizing the gains, 
  • A material change in a fund's general turnover pattern can indicate changing perception of market conditions, sector rotation, potential market timing, a new management style or a change in the fund's investment objective. (1) 

Studies have shown that high-turnover funds and portfolios tend to have higher-than-average fees and lower-than-average performance - certainly a sub-optimal combination. In fact, approximately 90% of the highest turnover expense mutual funds under-perform their respective benchmark and peer group over a given 10 year period or, even worse, close their doors (2). Simply put, on average the more you pay the more you under-perform. These studies reveal that investors should seek out and invest with managers that employ long-term vision, those whose turnover rates are no more than 33% (3).

At Doyle Wealth Management we seek to invest in attractive stocks that we believe will out-perform over the long run...stocks that we will rarely have to sell (in fact, we hope, never!). The typical target investment horizon for each and every stock we invest in is 3 to 5 years. In fact, our 5-year annualized turnover rate is an impressive 14% , ranking us in the top 14% of all equity fund managers (4). 

As an investor, you should seek out an advisor that pursues a long-term, low turnover investment will increase your chances of out-performing while reducing your tax bill. This double whammy will help you sleep better at night and lead to better returns in the long run.

1. (c)2015 Morningstar

2. MarottaOnMoney

3. Roger Lowenstien, SmartMoney Magazine

4.(c)2015 Morningstar, Doyle Wealth Management, Inc. Composite Data   

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