Advisors are screening using multiple criteria, and they can add any of 4,000 different financial elements on any stock for evaluation. Others are looking at shifts in fundamental economic data--or embedding interesting charts in their blogs. DRW Financial--a fee- only planning firm in Chattanooga, TN--is a former bond trader who has extensive experience using a Bloomberg terminal. Today, he uses his portfolio management experience to create stock and bond portfolios for clients, eschewing what he considers the high fees and lack of transparency he finds in actively- managed mutual funds. At his young firm, he can't afford to pay $2,000 a month for a Bloomberg terminal. "I'm logged into YCharts all day long," he says, referring to the cloud-based screening, economic data and charting tool that is 20% owned by Morningstar. (www.ycharts.com) "They have thousands of line items of data on every stock, and there's an easy export to Excel," Wattenbarger continues, "so you can do your own sorting and calculating to your own model. Everything is very graphical and intuitive."

1. Page
April 2014 Inside Information
Edited/Published exclusively for leading financial professionals - www.bobveres.com
VOLUME 24, NUMBER 4 APRIL 2014
D
avid Wattenbarger, of
DRW Financial--a fee-
only planning firm in
Chattanooga, TN--is a former
bond trader who has extensive
experience using a Bloomberg
terminal. Today, he uses his
portfolio management experience
to create stock and bond portfolios
for clients, eschewing what he
considers the high fees and lack of
transparency he finds in actively-
managed mutual funds. At his
young firm, he can't afford to pay
$2,000 a month for a Bloomberg
terminal, which worried him
initially until he found a $199 a
month service that he considers to
be even better.
"I'm logged into YCharts all
day long," he says, referring to the
cloud-based screening, economic
data and charting tool that is
Graphical Data Interface
Synopsis: A new screening and graphing tool called
YCharts offers a vastly simplified way to evaluate stocks. It
may be an even better client communication resource.
Takeaways: Advisors are screening using multiple criteria,
and they can add any of 4,000 different financial elements
on any stock for evaluation. Others are looking at shifts in
fundamental economic data--or embedding interesting charts
in their blogs.
20% owned by Morningstar.
(www.ycharts.com) "They have
thousands of line items of data on
every stock, and there's an easy
export to Excel," Wattenbarger
about it in the financial planning
world. The company was started by
Shawn Carpenter, who previously
worked in the revenue intelligence
group at Google. "Our project was
creating charts about what people
were searching for on Google,
showing us where the billions of
queries were coming in," he says.
"At the time, it was really hard to
get macro-trend information, and
company-specific data. I realized
that there was an opportunity for
somebody to build a database that
would bring company and industry
information together in one place,
along with the macro trends that
affect the global economy."
As the name implies,
YCharts will create a graph of just
about anything--including 4,000
financial metrics pulled in real
time from the SEC filings on all the
publicly-traded companies, plus
more economic indicators than
I could possibly list here, from
the yield on AAA-rated corporate
bonds to the Zinc index. To make
a point for a story in my Client
Articles service, I charted the rising
growth of U.S. GDP compared
with the growth of the S&P 500, to
see if share prices really do track
the broader movements of the
YCharts will create a
graph of just about
anything--including 4,000
financial metrics pulled
in real time from
SEC filings.
continues, "so you can do your
own sorting and calculating to
your own model. Everything is
very graphical and intuitive."
YCharts has been around
since June 2009, but you're only
now starting to hear the buzz

2. Page
Inside Information April 2014
2
economy. (The chart provided
below.) Another article on
America's shrinking current
account deficit produced the
next chart, and for this article
you're reading, I went back
in and charted the historical
changes in the yield spread
between 10-year and 2-year
Treasuries (next page), to see
whether the yield curve is
paying you more or less than
normal to take more interest
rate risk.
The charts are limited
only by your imagination. You
can graph the unemployment
rate against new home
sales, the yield on 10-year
Treasuries, the inflation rate
and the S&P 500 PE10 ratio--
simultaneously.
The YCharts
screening tool, meanwhile,
accommodates just about any
selection criteria. Playing
around with the system for
about ten minutes, imagining
that I was looking for a stock
to short (NOT something I do
in my own portfolio), I was
able to find an interesting
situation where the DR
Horton company (market
cap: $6.9 billion) had paid
out a total of $60.2 million in
dividends over the last 12 months
despite having free cash flow over
that time period of negative $644
million. The company's book
value per share was $12.97, but it
was trading at a share price almost
twice as high ($21.45), perhaps
because shareholders think they'll
keep receiving that unsustainable
dividend. (Maybe the company
could recast itself as a nontraded
REIT.)
Looking down the list, I
also wondered if RGC Resources
could continue paying out $4.65
million in dividends when its free
cash flow was negative? Would its
share price ($19.33) come closer to
the book value per share ($10.73)
if the dividend were eliminated?
Then I screened for price
to tangible book value per share,
and sorted on highest to lowest
free cash flow. This brought me
to Citigroup, which may be at the
bottom of everybody's buy list
since its banking operation failed
the Fed's latest stress test. But the
firm is generating free cash flow
of $57.41 billion a year, price:

3. Page
April 2014 Inside Information
3
$50.30, book value per share:
$65.23. PE10: 5.84.
Graphing Citigroup's stock
price (see right) shows a pretty
wild ride for investors, but the
gradual recovery in earnings per
share (orange line) suggests that
the company might be undervalued
by those of us who remember its
kinds of information," says
Carpenter. "With the charts, you
can very quickly figure out how
companies are growing, how
volatile their earnings are, how
sensitive their various valuation
metrics are. The visual nature
of it," he says, "is something that
people naturally gravitate to."
"and then I limited the search to
industries that provide essential
products and services. Then we
started taking a deeper look at the
quality of the companies."
Since then Rench has added
"shareholder yield" to the search
function. "Shareholder yield takes
the dividend yield and adds share
Screening and explaining
Since the service doesn't
(yet) screen for mutual funds,
its power users in the planning
world are creating stock
portfolios for clients. Jimmy
Rench, of The Relevance
Group in Denton, TX, first
started using YCharts to
screen for dividend-paying
stocks for his clients (see
sidebar). But with the
wealth of available data, he
keeps adding increasingly
sophisticated selection
screens. "The dividend yield
was the first criteria," he says,
central role in the 2008 crisis.
In all, I spent about 15
minutes on these (admittedly
unprofessional) screens, but in
the last four months I've spent
more time, as you'll see shortly,
digging for appropriate charts
for my Client Articles service.
There's no way to estimate how
much a full-time analyst could
learn about individual stocks by
performing multiple YCharts
screens.
"It's very time-consuming
for people to pull out a lot of
financial statements and try
to compare a lot of different
companies based on different

4. Page
Inside Information April 2014
4
buybacks and debt reduction,
because all three of those
increase the equity to a current
shareholder," Rench explains.
"For example, with AT&T right
now, the dividend yield is about
5%, but the shareholder yield is
almost 13%."
Rench added a screen using
this data. "When you see a
company's shareholder yield that
is less than its dividend yield,
that is immediately a red flag," he
says. "That means they're either
issuing more shares--which is
diluting your equity--or it means
you probably need to look and see
how much debt they're taking on."
Add it all together, and
Rench now starts with a screen
that identifies companies with a
high and growing dividend yield,
screens for the shareholder yield,
then evaluates the list of survivors
for a low price to free cash flow
metric over the trailing 12 months.
Once he has a workable watch
list, he'll screen for PE ratios,
sales ratio, free trailing cash flow
per share, earnings per share and
shareholder yield.
"They have something else
which is kind of neat, where you
can just add in a bunch of different
financial columns," says Rench.
"You can examine different data
points in the context of that screen
that you've run, right there in
additional columns on the right."
Meanwhile, Wattenbarger
has begun using YCharts as a
trading tool. "If I find a stock that
I like that is trading at $21," he
says, "and I think that, based on
its financials, a good price would
be $19, I can set an alert that tells
me when the stock reaches $19,"
he says. "It's cleaner than me
putting a buy order out there to my
custodian at $19, because the price
might drop to $19 because the
company has declared bankruptcy
or something. I can look at the
numbers and reports before I make
the trade."
The service also serves
as a client communication and
due diligence apparatus. "If I'm
talking to a client about a stock,
and he says, why do you like
this stock, or don't like it?--I can
download the report and email it,"
says Wattenbarger. "Whenever
From Funds to Stocks
While I was writing the YCharts article, I discovered what appears
to be a hidden trend in the planning marketplace: a growing number of
advisors are replacing mutual funds with individual stocks in their client
portfolios.
Why? Jimmy Rench, of The Relevance Group in Denton, TX (see
accompanying article) did some soul-searching after the 2008-9 stock
market crash, which led him to reconsider what his clients truly wanted
from their investment portfolios. "My main clientele is retirees or soon-
to-be retired people," he says. "They have their kids educated and paid for,
so their next hurdle is retirement. The one thing our clients need, being
retirees, is income. And that is not going to change, no matter what the
markets do."
The problem, of course, is that the retirement date may or may not
coincide with a favorable investment climate. "You don't get to choose
what market environment you retire into," Rench says.
Looking for a way to stabilize his clients' portfolio experience in
volatile markets, Rench looked at and rejected bonds and CDs (not nearly
enough return in this market) and annuities ("I've never been able to un-
derstand their expenses"), and eventually his eye lingered on dividend-
paying stocks. What impressed him, as he back-tested through the last two
severe market downturns, was that dividend investors enjoyed a signifi-
cantly less bumpy market experi-
ence than those who were investing
for growth. "The share prices had
gone down, but earnings had con-
tinued to be fairly consistent, and
dividends continued to go up," says
Rench. "And the yields you could
get on some pretty nice blue chip
companies in March of 2009 were
amazing.
"I was able to get a 3.5%
yield on Procter & Gamble," Rench
continues. "The company had a
pretty consistent earnings stream,
and they had been growing their
dividends for 58 straight years at
an average of 9% a year. I'm think-
ing: that beats anything on the fixed
income side I can see out there, es-
pecially the fact that the dividend
should continue to increase."
Better yet, the due diligence
on the actual investments he was

5. Page
April 2014 Inside Information
5
recommending was clearer and eas-
ier to explain than the investments
Rench had been using in client port-
folios before the downturn. "I can
show clients a big blue chip com-
pany's earnings and free cash flow,
and the metrics of what is going on
in that company," he says. "That's
a whole lot easier than trying to fig-
ure out what various mutual fund
managers are thinking and their
attitudes, and what they're invest-
ing in, and whether they're going to
continue to do that."
Rench's broad criteria is
large companies diversified across
ten different industry sectors, and
all of them must provide essential
products and services. "We know
we're going to have to pay the utility
bill, buy our prescriptions, buy gas
for our cars and use companies like
Apple and Microsoft and Intel to
communicate and get work done,"
he says. "I have 26 stocks in the en-
tire portfolio right now, and I don't
want to go over 30," he adds, "be-
their earnings per share has been
pretty consistently going up. At
any given time, the market may not
want to pay for those earnings, but
if you owned the company yourself,
and the earnings are going up, you
wouldn't want to sell it."
Plus, most of the companies
Rench's clients own are increasing
their dividends at a steady pace.
"It's part of their corporate culture,"
he says. "We showed clients that if
you had invested $100,000 in Proct-
er & Gamble back in January 2000,
the worst possible time, when your
principal immediately went down
27%, and down again 20% during
the financial crisis, if you looked
at the dividend income, it stair-
stepped up every single year during
the worst decade in the history of
the U.S. market. And their income
rose as well. (See chart below.)
"I was looking at a review
of one of the first clients we put
into this model," Rench continues,
"and since March of 2010, his in-
come has increased at about 10% a
year. If he had to start pulling in-
come right now, it would give him
a 4.25% yield. And that should in-
crease every year regardless of what
the market is doing."
Rench says that the shift
from funds to stocks, and the fo-
cus shift from share prices to total
shares and dividend income, was
the best thing he ever did from a
client communication standpoint.
"When you talk about an invest-
ment with a retired client, the defi-
nition of success is income that is
going to grow at the rate of inflation
or better, on a relatively consistent
basis," he says. "In a very uncertain
world, and uncertain market envi-
ronment--especially when you have
clients who sit and watch Fox News
all day long--it is very comforting to
be able to show them that even as
stock prices are going down, their
number of shares and the income
they're generating from them is still
going up."
cause I know I can't look a cli-
ent in the eye and say: I can keep
track of more than that. Plus,
based on the back-testing we've
done, that gives us enough diver-
sification."
Today, Rench tells cli-
ents that they can stop looking
at their principal every quarter
and focus instead on the growing
number of shares in their portfo-
lio--realizing that every share is
an income-producing unit. "No
matter how volatile the prices
are going to be," he says, "when
dividends are reinvested, they're
getting proportionately more
shares during the downturns. On
that same chart I can show that

6. Page
Inside Information April 2014
6
I buy a stock, I'll take that same
report and stick it in the electronic
file on my desktop, in case I ever
get asked by a regulator: why did
you pick that stock on that day?"
He also blogs through his
website. "YCharts makes it simple
to export a given chart or set of
data to HTML, so you can embed it
in your blog," Wattenbarger says.
"Back in June, I showed a chart on
my blog of the VIX vs. the S&P
500, showing how sometimes
inflation, and they, too, suggested
that the CPI is not about to take off
like a rocket. "We tell them we're
going to keep watching these
things, and we have the ability to
do that," Rench says. "When the
facts on the ground change, we'll
let them know and we may change
our stance. But at this point, it is
just not going on."
Brian Boughner, a former
bank portfolio manager, who
recently founded Parallel
list," and then pull different metrics
and balance sheet information into
Excel. "We'll rank companies by
earnings per share, dividends and
payout ratio," he explains, "and I
don't need to update the metrics; it
just updates automatically."
In his big picture analyses,
Boughner will start by comparing
the S&P 500 to its PE ratio, trying
to identify multiple expansion.
He'll look at investor sentiment,
on the theory that when people
start to reach unusual levels of
bullishness (or bearishness), it
can be a contrarian indicator.
Then, using the radar list, he'll
examine the relative strength
of the different stocks that he's
following. "That gives us an idea
of money flows," Boughner says.
"Where is demand? Where is
money flowing into? That's where
the prices are getting bid up."
Then Boughner will do the
same analysis with 88 different
ETFsthateitherrepresentacountry
or a region. "If we see something
that hasn't been doing well," he
says, "but over the last few months
we're seeing a rate of change turn,
where money is flowing in, those
are the areas we want to look at
possibly purchasing. On the other
hand," he adds, "if something has
been outperforming, and then it
starts to move down our rankings,
we may want to consider moving
out of it."
Adding capabilities--and analyses
Will YCharts ever bring in
mutual fund data for its screening
tools? Carpenter points out that
Morningstar--a big investor, as
With YCharts, you can take a market data point
like price, and add on a fundamental data point
like historic dividend yields or price to cash flow,
and look at a number of different things
all on one chart.
when volatility spikes, the market
rises, and sometimes it falls."
Like Wattenbarger, Rench
also uses YCharts as a client
communication tool. "One of the
questions we hear a lot is about
inflation, because the government
has been printing all this money,
and various news sources just
get people scared to death," he
says. "So I created a chart which
shows the money supply, and sure
enough since 2008, M2 has just
skyrocketed. But then," Rench
adds, "I was able to show them
the other part of the equation,
where the money multiplier and
the velocity of money are actually
lower today than they have been in
20 years."
Next, Rench graphed
factory capacity utilization and
employment, two other drivers of
Financial Advisors in Greenville,
SC, runs two different stock
portfolio models for his clients: an
all-cap appreciation strategy and
an equity-income strategy. "We've
found that most people will fall
into one of the two areas, either
wanting growth or needing some
income," he says, adding that he'll
round out client portfolios with
funds, ETFs and individual bonds
to fill in the asset classes.
"YCharts is unique," says
Boughner, "in that you can take a
market data point like price, and
add on a fundamental data point
like historic dividend yields, or
price to cash flow, or price to
earnings, and look at a number of
different things all on one chart."
The initial goal is to create a
workable number of stocks to look
at--what Boughner calls a "radar

7. Page
April 2014 Inside Information
7
noted earlier--already provides
the industry standard mutual fund
screening tools. But, interestingly,
he doesn't rule out the possibility
of making Morningstar's data more
graphical. Meanwhile, the firm is
adding to the number of different
metrics it collects and calculates
on individual companies,
having hired graduates from the
University of Chicago and some
former Goldman Sachs and hedge
fund analysts.
"We're about a tenth of
the way through our roadmap,"
Carpenter says with a laugh. "At
the end of the day, you're going to
have a really large terminal that is
very simple to use, and the users
are going to be able to do deep
research on any asset class or any
instrument very rapidly, and do it
all in a visual way."
And in some cases, they can
rely on others to do this for them.
One of Carpenter's early hires
was a 25-year veteran of the Wall
Street Journal, who has recruited
20 writers to create articles that
analyze companies and industries
for the site--and, of course, they
use charts in those articles.
Others have apparently
noticed. "If you go to Yahoo!
Finance, TheStreet.com, Time
Magazine or Tech Crunch," says
Carpenter, "you'll see that they're
using our chart creator tools. They
can compare things like Amazon's
profit margins and revenue growth
rates vs. all the major box store
retailers--and do it very quickly."
YCharts has positioned itself
as a reasonably-priced alternative
to the Bloomberg terminal on
the high end, and free services
like Yahoo! Finance on the low
end. "Our service is much more
powerful than what is available
for free," says Carpenter. "When
we talk to users, we're finding
that they can really cut down on
their operational expenses if they
don't have to deal manually with
reports."
As you can see from the
sidebar, I think there may be a
trend among certain advisors who
are replacing mutual funds with
stocks in client portfolios. And
I think that as people begin to
find easy ways to screen through
virtually every number on every
publicly-traded company's cash
flow statement and filing, more
advisors are going to do, easily
and quickly, what many fund
managers do in a laborious way.
Mainstream advisors who
will never give up mutual funds
will still have to evaluate legacy
stock positions brought in by their
clients--which YCharts makes
easy and even fun.
In addition, I suspect that
advisors might find YCharts to
be a terrific client communication
tool--a rare bargain at (platinum
membership) $199 a month. Those
of you who subscribe to my Client
Articles service are going to start
seeing these charts with greater
frequency--and may decide to
start creating a few yourself.