The Buckingham Report

With October again proving to be a scary month for equities, we can’t help but wonder if the calendar is worth considering when making investment decisions. Interestingly, October historically has been the second worst month of the year, trailing only September for this dubious distinction, but we know that there were major downturns during the Halloween month in 1987, 1989, 1997 and 2002. Happily, those traumatic periods did serve as great buying opportunities for long-term-oriented investors, so we have always had mixed emotions about October.

We do not invest for the short term. We hold our stocks for more than six years on average as we know that taxes (at ordinary income rates), commissions and other trading costs (bid-ask spread differentials) can take a big bite out of our returns, and the longer we hold the less risky equities become. Still, we do know that we are now just a couple of weeks away from the seasonally favorable November – April time period. Subscribers to The Prudent Speculator will hear more about this in our November newsletter, but the topic was a subject of conversation at the recently-completed San Francisco Money Show.

For many years, I have taken part in these annual gatherings of individual investors put on by InterShow in locations like Orlando, Las Vegas, San Francisco and Washington DC. At these events, I usually conduct a couple of educational workshops and take part in panel discussions with fellow newsletter writers and investment managers.

This year, I had the pleasure of sitting on a panel hosted by InterShow Chairman Charles Githler and titled, “Money Manager Strategies for Bull & Bear Markets.” In the course of the discussion, Charles and I got to talking about the Money Show Indicator. Given that InterShow has for more than a decade held an event in San Francisco in the Fall and Las Vegas in the Spring of each year, the conventional wisdom among many of those on the Money Show circuit has been that big bucks might be made and big losses might be avoided by buying at the former show and selling the following year at the latter show – i.e. Buy San Francisco, Sell Las Vegas.

Of course, to my knowledge, no one has ever bothered to determine if the Money Show Indicator has any merit, so I took it upon myself to check it out. With the help of InterShow, I obtained the dates of each show dating all the way back to 1993. In the first chart, I present the performance of three benchmark indexes, the Wilshire 5000, the S&P 500 and the Dow Jones Industrial Average, as well as our own TPS Portfolio (Al Frank’s actual real-money model portfolio as detailed in The Prudent Speculator), starting at the conclusion of the San Francisco show each year and ending the following year at the beginning of the Las Vegas show. In the second chart, the dates are reversed, showing the performances of the three indexes and Al’s TPS Portfolio from the start of the Las Vegas show until the end of the San Francisco show.

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Now, we must be aware that under the Money Show Indicator, the time out of the market is four months on average, compared to the 8.2 months on average that we would be in the market, meaning that we would want to annualize the returns to have a true apples to apples comparison. Nevertheless, simple arithmetic (doubling the Out of Market returns) suggests that there is validity to the Buy San Francisco, Sell Las Vegas indicator. Of course, we would assert that the data more importantly support our oft-stated argument that equities are the place to be, regardless of the time of year!

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The information contained herein is believed to be reliable. However, such information has not been verified by us and we do not make any representations as to its accuracy or completeness. Neither the information, nor any opinion expressed, shall be construed to be or constitute an offer to sell or a solicitation of an offer to buy any securities. Opinions expressed are those of John Buckingham, which are subject to change and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Future Performance. Past performance is no guarantee of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels.

Portfolios. The Prudent Speculator, our monthly investment advisory newsletter, reports performance results for four portfolios. All four portfolios adhere to the investment principles and philosophies as put forth by Al Frank Asset Management, Inc. (“AFAMI”) and in The Prudent Speculator . There is no difference in the selection methodology among the portfolios, but each portfolio is unique, meaning that different undervalued stocks were selected over time.

The portfolios may contain securities that are no longer recommended and therefore would not be part of a prospective client’s account. All portfolios were selected in real-time with each purchase and sale announced in the newsletter and/or on our three-times-a-week Hotline messages. The current composition of each portfolio can be found by logging on to the subscription portion of our website at alfrank.com. The Prudent Speculator Portfolio is leveraged and real and if a client or subscriber does not use leverage, the client or subscriber’s total returns could be materially different.

Historical Performance. The Prudent Speculator Portfolio has been in existence since 3/10/77 and has been active throughout numerous market environments.

Performance Calculations. TPS Portfolio: Performance results calculated by actual total return, including effects of margin leverage, margin interest charges and trading costs but not advisory costs. For Equity Composite Investment Performance of our managed account clients, please refer to AFAMI Managed Account Investment Performance under the Managed Account section of our website at alfrank.com. AFAMI adheres to the same investment principles and philosophies in managing accounts, long-term growth of capital by owning a diversified portfolio of securities that are undervalued and holding them for their long-term potential appreciation.

Comparison to Performance Indicators. S&P 500 Index is Standard & Poor's broad-based market index representing a sample of leading companies in leading industries. Long-term S&P 500 Index is performance with dividends reinvested since 3/10/77 and does not include the effects of trading costs. Short-Term S&P 500 Index performance returns are price-related only, with the effects of dividend reinvestment and advisory and trading costs not included. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Performance returns are price-related only, with the effects of dividend reinvestment and advisory and trading costs not included. The DJIA, the Dow Jones Industrial Average, represents U.S. listed equities excluding transportation and utility stocks, generally comprised of thirty very large and well-known blue-chip stocks selected at the discretion of The Wall Street Journal editors. Performance returns are price-related only, with the effects of dividend reinvestment and advisory and trading costs not included.

Previous Recommendations. Previous, successful recommendations may not be indicative of the results for all past recommendations. Certain previous recommendations have not resulted in profit, and in fact have resulted in losses. Of the 1,259 stocks recommended in The Prudent Speculator since 3/10/77 through 08/31/05, 70.53% were sold or otherwise closed out at a profit or are presently in a profit position if not closed out. The average holding period for each of our recommendations has been 6.58 years and they have shown an average annualized rate of return of +20.75%, not including dividend reinvestment, advisory and trading costs or leverage. A complete list of all past recommendations is posted on our website at alfrank.com. Each investment decision you make should be determined with reference to the specific information available for such investment, and not based upon the success of past recommendations.

About Al Frank Asset Management

Al Frank Asset Management, Inc. is committed to assisting our customers build wealth. We are a leading resource for value-based investor information in the financial community, where we combine our simple, proven philosophy of buying under valued securities for their long-term appreciation with our experience, hard work, and intensive research to give you actionable investment information that can be used on a daily basis.