Editor's Note

by Charles Rotblut, CFA

Charles Rotblut will speak at the 2015 AAII Investor Conference this fall; go to for more details.

Editor's Note Splash image

I want to personally invite you to this year’s AAII Investor Conference. It will be held on November 10–12 in Las Vegas at the brand new Cosmopolitan resort. We have a great list of speakers, including Joel Greenblatt, Sam Stovall and Ken Fisher. Details about the conference can be found here.

One trend that is occurring in the mutual fund and exchange-traded fund (ETF) industry is the introduction of alternative funds. These funds follow strategies designed to produce returns that differ from those of stocks or bonds. While traditional fund managers focus on producing alpha (the excess return attributable to their security selection skills), many alternative fund managers focus on helping investors reduce beta (volatility). You might be more familiar with this style of investing under a different moniker: hedge funds.

It’s not just hedge fund strategies that can help you reduce portfolio risk. Less esoteric investments, such as real estate investment trusts (REITs) and commodities also play a role. The idea is to find investments that do not move in lockstep with stocks or traditional bonds and add them to your portfolio. In technical jargon, you are looking for securities with reduced correlations to stocks and bonds.

As with any investment, it is important to understand the role alternative assets play in a portfolio strategy before you buy them. This is why I asked Phil DeMuth to participate in a Q&A on the subject. Phil co-authored “The Little Book of Alternative Investments” (John Wiley & Sons, 2011). Phil provides guidelines for investing in a wide variety of asset classes, as you can see on page 7.

Retired Investor is back in this issue, although I should warn that you that the topic is somber. I address the adverse effect aging has on a person’s cognitive skills. You may not like the statistics, but you should pay attention to the strategies presented. The column appears on page 12.

Christine Fahlund recently passed along an idea that was new to me: practice retirement while working a full-time job. Rather than stop working at age 62, Fahlund suggests, workers may want to keep their jobs, stop saving for retirement, and start to fulfill their retirement dreams early. Fahlund explains her logic on page 13.

Falling bond yields have brightened the spotlight on dividend-paying stocks. Though dividends can help boost portfolio income, they are not without risks. Rod Greenshields of Russell Investments expounds on this and discusses why total return is more important on page 15.

Any dividend strategy is doomed if a company lacks effective methods for creating cash flow. Wayne Thorp shows how to analyze how well, or poorly, a company converts its resources into cash flow on page 18.

A new study found that most top mutual fund managers have trailed their benchmarks over a three-year period at some point. See the study and find out why its author, Aaron Reynolds of Robert W. Baird & Co., suggests thinking twice before selling an underperforming mutual fund on page 23.

As some of you may know, Jackson Hewitt Tax Service recently filed for bankruptcy. Though disappointing, this did raise an interesting question: What are the tax consequences for an investor when a company goes bankrupt? The IRS has some information on its website, but the wording is rather murky. For clear answers, I called John Kareken, a senior analyst for Capital Changes at Wolters Kluwer Financial Services. Guidance on handling a bankruptcy situation can be found in the Investor Professor column on page 28.

Those of you who trade actively will be interested in this issue’s featured stock screen, Increasing Earnings. Kevin Matras, a former colleague of mine, strongly believes that earnings momentum drives stock prices higher and recently published a book with several of his preferred stock screens. You can see one of his strategies, and a list of stocks it recently found, on page 29.

Finally, AAII Chairman James Cloonan provides his latest update for the Model Shadow Stock Portfolio. He sold two stocks and bought two new ones. You can see the changes and the latest performance data on page 33.

Wishing you prosperity,
Charles Rotblut, CFA
Editor, AAII Journal

Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at


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