Grow Your Portfolio the Intelligent Way

Reflections on ‘41’

As I write this week’s issue, there’s literally a funeral taking place at the Washington National Cathedral. The event is, of course, to remember and celebrate the life of President George Herbert Walker Bush. Bush, or “41” as he came to be known, died Friday at the age of 94.

Since the news of Mr. Bush’s passing was announced, there has been a flood of commentary from both political friend and foe about the former commander in chief, a man who was clearly dedicated to serving the United States and her citizens the best way he knew how. That commentary has been overwhelmingly complimentary of the man, not only for his achievements in life, but also for the grace, class and kindness by which he lived.

I’ve read and heard multiple remembrances of “41” from those who worked with him in government, and from those who battled him in both the Republican and Democratic political parties. It is interesting that nearly every comment about Mr. Bush has been that he was a man dedicated to country, as well as a man of humility, sincerity, integrity, compassion and just plain old-fashioned decency. That’s not something that can be said for very many professional politicians.

These are the qualities we all should aspire to, yet they are qualities that often allude us, because they’re qualities that are tough to live by. Yet, they are qualities that make the world a better place.

Perhaps most impressive to me about the life of “41” is the tremendous scope of his achievements. At age 18, Mr. Bush joined the U.S. Navy during World War II. Soon after, he became the youngest American naval aviator. By age 20, he had already flown some 58 combat missions.

In my early 20s, I was living a care-free life by comparison, studying Aristotle, Plato and Kant inside the sheltered ivory towers at UCLA by day, and working out in preparation for bodybuilding competitions in the evenings. That’s not a very important life by comparison.

After the war, Mr. Bush got his education at Yale University, married future First Lady Barbara and moved to Texas to make his own fortune in the oil business. Later, the future president went into politics, and after an unsuccessful run for a Senate seat, he was elected to the U.S. House of Representatives in 1966 and served two terms.

Mr. Bush then ran again for the U.S. Senate, but again he was defeated. Yet not giving up on the notion of a political career, Mr. Bush later was appointed ambassador to the United Nations by President Nixon. A series of other top appointments came next, including chairman of the Republican National Committee, envoy to China and director of the CIA.

Leading up to the 1980 presidential election, Mr. Bush ran for the nomination of the Republican Party, but of course, we know the victor there was Ronald Reagan. Yet when Reagan needed a running mate, well, there was Mr. Bush, the perfect sidekick with the stellar resume.

Eight years later, the sidekick became the star, as George H.W. Bush became the 41st President of the United States.

In office, “41” made some good decisions and some bad decisions. The degree of goodness and badness of those decisions depends largely on your political philosophy. I know how I feel about many of those decisions, but today isn’t the day for such critical reflections. Besides, history will adjudicate the Bush presidency far better than any one writer is capable of doing.

I will, however, leave you with a reflection of my own regarding “41.” It was January 1991, and President Bush was my commanding officer. I was just a low-ranking Army Specialist at the time, and I was about to graduate from the Army’s prestigious Airborne School.

I still remember our company commander telling us that after we made our final jumps, we would have to wait to find out where we would be sent next, as all future assignments had been suspended due to the commencement of Operation Desert Storm.

For a kid in his 20s who just a year or so before was reading philosophy, working out all day and hanging out in Venice Beach, the prospect of being sent to the Persian Gulf to fight Saddam Hussein’s army was both terrifying and exhilarating. Yet due to the immense operational success of Operation Desert Storm, allied coalition forces had conquered the enemy in lightning-fast fashion. After just 42 days, President Bush declared a cease-fire on February 28, 1991.

It was a combination of proper planning, a defined and focused objective, and the exercising of restraint in not pushing further to engage in regime change that kept so many Americans from having to experience the horrors of war in 1991. And though circumstances in that troubled region would change markedly in the decade ahead, his decision to avoid more bloodshed at that juncture in history was one that had a life-changing influence on so many — including yours truly.

Finally, I am not one who naturally venerates politicians. It’s just not my nature. I am, however, someone who venerates achievement, integrity, reason and goodness — all of which are qualities embodied in “41.”

So, Mr. President, thank you for the life you lived, and the example you set for Americans. I wish you Godspeed.

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ETF Talk: This Fund Tracks Fundamental Small-Cap Value

The Invesco S&P SmallCap 600 Pure Value ETF tracks a fundamentally weighted index of U.S.-listed small-cap value companies. RZV provides a unique take on small- and micro-cap value exposure, focusing on value stocks. However, its various size and sector bets heighten market risk.

As a result, investors interested in its high-beta play on small-cap value stocks also should factor in higher transaction costs due to a modest daily volume (the number of total shares traded in a given day for one stock) and sizeable spreads.

Even so, RZV replicates its index efficiently by only charging its shareholders a modest fee. The fund invests at least 90% of its total assets in securities that comprise the Index, which measures the performance of small-cap equities that exhibit strong value characteristics in the S&P SmallCap 600 Index.

The fund has struggled a bit so far in 2018, down 6.27% through Nov. 30, after rising just 1.24% in 2017. RZV’s performance has lagged since it soared 33.95% in 2016. The variation in its performance shows the fund’s volatility, and the need for investors to be comfortable with such wide swings.

Chart Courtesy of StockCharts.com

RZV’s value is measured by the following risk factors: book value-to-price ratio, earnings-to-price ratio and sales-to-price ratio. The fund and the Index are rebalanced annually.

The top RZV sectors include consumer cyclical, industrials, technology, financial services and energy. Among the fund’s top 10 holdings, 15.45% are in Office Depot (NASDAQ: ODP), Renewable Energy Group, Inc. (NASDAQ: REGI), GameStop Corp. Class A (NYSE: GME), Shoe Carnival, Inc. (NASDAQ: SCVL), Barnes & Noble, Inc. (NYSE: BKS), ScanSource, Inc. (NASDAQ: SCSC), Green Plains Inc. (NASDAQ: GPRE), OFG Bancorp (NYSE: OFG), Seneca Foods Corporation Class A (NASDAQ: SENEA) and Veritiv Corp. (NYSE: VRTV).

RZV currently has $163.35 million in net assets and an average 0.43% spread, which is the difference between the bid and asking prices of a security. The fund also has an expense ratio of 0.35%, so it is relatively cheap to hold in comparison to other exchange-traded funds.

In short, this ETF offers a distinct model for investors looking to add small-cap stocks to their portfolio. It focuses on securities that display strong value characteristics and uses an efficient index. However, due to the relative volatility of small-cap stocks, investors should, as always, perform their own due diligence to decide whether or not this fund is suitable for their portfolios.

I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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The One Frequency to Tune in This Holiday Season

There has been a lot of name-calling on the calendar of late.

There was “Black Friday,” which was followed shortly after by “Cyber Monday.” Then it was all about “Giving Tuesday.”

No doubt we consumers have been bombarded by retailers and charitable organizations for our attention, and our dollars, over the past few weeks, and that bombardment isn’t likely to cease anytime soon. Now, I know many people who just tune this bombardment out. Fair enough.

Most of us have too much to do this holiday season just handling our own business, family and social commitments to pay close attention to much else. And while I certainly understand the need to “tune out” all the seasonal noise, there is one frequency that I make sure I keep my mental receiver tuned to, and it is the frequency that reminds me how truly lucky I am in life.

Hey, I was born and raised in America in the 20th century. That alone is something to feel supremely lucky about. Then, I also had the luck of being born into the care, protection and guidance of a two-parent household. I had the benefit of a strong father who taught me the importance of physical and mental confidence. I had a mother who taught me the love of learning and who pushed me to do well academically. She was a Latina “Tiger Mom,” if you will.

So, does this make me lucky? You’re damn right it does.

Unfortunately, the luck on the parental front that I and so many of us enjoy isn’t shared by everyone. In fact, the sad reality is that there are way too many kids in this country suffering from not-so-fortunate parental circumstances.

Nationwide, there are an estimated 700,000 children who suffer from various kinds of abuse each year (physical, psychological and sexual). Think about that for a moment. Many of these children also find themselves worrying about where their next meal will come from, or if they need to hide from a violent parent. These unlucky kids mostly need to focus on survival. As such, they have little or no time to experience the simple joys of being a child.

Fortunately, there are those who have devoted themselves to righting the ship of unfortunate childhood circumstances by putting a little luck back into the lives of those who, through no fault of their own, are in need. I am referring here to the dedicated souls who work at the Texas-based charity Upbring.

Upbring is a faith-inspired nonprofit organization working to break the cycle of child abuse by empowering children, families and communities. Upbring partners with federal, state and local government agencies, community groups, small businesses, large corporations and dedicated individuals to deliver services that produce measurable progress toward what they call the “five key markers” of every child’s well-being. Those markers are: safety, life skills, education, health and vocation.

I happen to know some of the staff at Upbring, and I personally can vouch for the commitment, conscientiousness and dedication they bring to their work. That work includes helping some 30,000 families each year with its life-changing programs, including foster care, adoption, education, children’s centers and community services.

Now, readers of this publication know I like to go a few onion-skin layers deeper when it comes to analyzing issues, and that’s another reason why I like Upbring. The organization is committed to delivering innovative programs and services that address the root causes of child abuse and neglect. Because you see, it’s only by getting to the root causes that you can affect real change.

Whether we are talking about a societal problem such as child abuse, or our own personal psychological, emotional or philosophical issues, getting to the root by digging through deep woods is what’s required for true and lasting improvements.

To help us help Upbring do just that, the organization has teamed up with some of the world’s largest retailers so that we easily can help make an immediate impact on the lives of children and families who need extra support. The Upbring Marketplace is an online site where you can go to purchase items most needed by Upbring to help kids in their charge with the essentials they lack.

From Huggies to cookies, and from pajamas to plush toys, all you have to do is point, click and purchase a few items that go to this worthy cause. I bought plush toys for the kids, because when I was a kid, I knew the power of the plush toy (hey, I still do).

So, among the noise of this holiday season, I implore you to tune in the frequency that reminds us all how lucky we are. Doing so will likely prompt you to pause and to consider the fate of those who aren’t quite so lucky. That reflection will, I hope, prompt you to help Upbring carry out its vital mission.

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A Presidential Quote of Optimism

“I do not mistrust the future; I do not fear what is ahead. For our problems are large, but our heart is larger.”

— George H.W. Bush

This week, it’s only fitting that this week’s quote of supreme optimism comes to us from “41.” Who better deserves the spotlight on this national day of mourning? Thank you, Mr. President, all our hearts are larger for your existence.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods

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