Happy Thanksgiving …….2017!!!

As we approach the Thanksgiving holiday and the Christmas holiday, we must realize there is much to be thankful for.

The Men and Women Who Sacrifice and Fight for Us.

Friends and Family.

OK the Packers are in a slump, a bad slump, but still.

More importantly, we continue to live in the greatest country in the world despite how you feel about the political climate.

There is no political party that can change the fact that the free markets work and will overcome. People will continue to believe that hard work, discipline and prudent risk taking will lead to success.

Remember, during times like these there are increasing amounts of opportunity for all who are willing to look.

We continue to live in a free country one in which YOU determine how much success you desire. You are accountable for the level of success you will realize.

Regardless of the political climate the free markets and free enterprise will overcome.

Be thankful for this freedom, there are many in the world who are envious of the United States of America.

As always, do not empower the Wall Street bullies, to succeed in reaching your long term financial goals you should:

Own equities….globally diversify…..rebalance

Remember returns come from the markets not from a manager.

Be thankful for all you have.

It’s In The Stars!!

The mutual fund industry, ie, the Wall Street bullies, continues to generate new stock picking stars each year. These stars generate great returns that make the investor cringe in jealousy. ‘Why can’t I find these stars? Why doesn’t my broker find these stars for me?

These ‘investors’ are on an endless journey to find the stars before they become stars. This has been proven to be a fruitless search. Of course, some get lucky. But most end up disappointed.

Keep in mind most big brokerage firms have hundreds if not thousands of analysts picking stocks. Firms like Fidelity will hire a large number of analysts knowing that each year some will succeed. The firm then promotes the stars and entices investors to buy their stars.

In fact, the industry has a ranking system, through Morningstar you can determine the stars of the past. The best performers receive 5 stars the poorest 1 star.

Each year there are new 5 stars and new 1 stars. Unfortunately for investors the 5 stars seldom repeat. And this years’ 1 star could become next years’ 5 star. There is no reliable way to determine which will be the 5 star of the future.

In fact, in a recent Wall Street Journal story it was proved that relying on 5 star funds would result in disappointing performance relative to the overall market. Morningstar of course, tried to defend their system but to no avail. There is no predictive ability in the Morningstar methods.

We must always remember. The equity markets are random and unpredictable. Any attempt to beat the equity markets with predictions will lead to disappointing results. Unless of course, you are one of the lucky ones.

When you are relying on luck and predictions you are actually speculating and not investing.

Speculating is fine, don’t get me wrong. As long as you realize you are speculating. Many believe they do not need to save and prudently invest. They can and will be one of the lucky ones and hit it big.

When you have a long-term goal, like retirement. You should be prudently investing and not speculating. The stakes are far too high. Your future and your families’ future, depends on it.

You must protect the future you from the current you. You need to fire your broker/agent and hire an investor coach/fiduciary adviser.

There is Risk in Everything We Do!

Many saving for retirement or any long term financial goal consider risk a real four letter word right now. More specifically equity risk is to be avoided at all cost. We all want to avoid pain. The last decade has been more volatile than usual. Or has it?

Risk and the chance of experiencing negative returns in a portfolio of equities is a very real likelihood.  In fact, the longer you hold your portfolio, the more likely you are to experience some years of negative returns.  But holding longer also increases the probability that your compound annual returns will be positive.

I don’t know if the next 20% move will be UP or DOWN. What I do know is the next 100% move will be up.

When we invest for the long term we must accept risk. If we try to avoid equity risk, it is replaced with inflation risk or purchasing power risk.

Remember the real return of any investment whether it is equities, bonds, annuities, CDs, money market funds is the total return minus the rate of inflation.

For example, with a money market return of 0.2% minus inflation rate of 3.5% equals a negative return of -3.3%. This means that every year you hold your money in money market funds your purchasing power decreases 3.3%.  Compounding returns work in reverse as well.

To keep pace with inflation you need to be invested in equities. We must learn to live with the risk, we must remain disciplined and do not allow the Wall Street bullies to make us trade and speculate with our money.

There are ways to control the amount of risk you carry in your portfolio. Younger investors will likely take on higher levels of risk during the accumulation phase. While retirees might be more comfortable with reduced risk during the spending phase.

Regardless, it is important to understand the risk you are carrying. You should understand the best-case scenario and the worst-case scenario. The equity markets are random and unpredictable. There will be periods when the equity markets are down. Sometimes dramatically, like 2008.

If you understand the amount of risk in your portfolio. You will not allow short term volatility to cloud your judgement. You will not panic during the inevitable down markets.

You will understand that great returns are the result of discipline and understanding.

This is a process that requires the assistance of a fiduciary adviser/investor coach.

We must own equities…..globally diversify…..rebalance.

Your Philosophy Matters!!

As many of you may know I am a huge Green Bay Packer fan. Well the pack is going thru some tough times. Many of the Packer stars have been injured. Offensive line, cornerback, linebacker, safety, defensive line….But most notably the Packers have lost Aaron Rodgers possibly for the rest of the season.

They will regroup and Coach McCarthy will emphasize getting back to their plan. What makes them a great team needs to be reinforced to the players and staff. It requires discipline in both the good times as well as the bad times.

Many fans are calling for the signing of an emergency quarterback. The names Kaepernick (never), Romo, even Favre have been mentioned. What fans seem to forget is it takes time for any player to learn the current system.

There are different philosophies around the NFL. The Packers administration has their own philosophy. They as a group stick to this philosophy regardless of what the fans and the media say. When they deviate from this philosophy they probably should be replaced.

In my opinion when you change philosophies mid-stream you are giving up on what you believe. When this happens, there is no plan. You are making emotional decisions without a clear goal.

Remember when you believe in nothing you will fall for anything.

A change in philosophy would require a change in administration. That would mean Ted Thomson goes, Mark Murphy goes, followed by Mike McCarthy.

For now, we will follow the current administration and live with their decisions. Like it or not.

Investors have two main philosophies to choose from. One is that free markets work, and the other free markets fail.

If you believe the free market fail:

  • The market fails to price goods and services efficiently.
    It is possible for some individuals to identify in advance which prices are inaccurate.
  • Underpriced or overvalued markets can be forecasted or predicted.
  • Managers seek to increase returns and avoid losses by taking advantage of stock or market mispricing.
  • People with this view use traditional investment approaches.

If you believe the free markets work:

  • Free Market is best determinant of market prices based on Supply and Demand.
  • All available information is factored into the current price.
  • Only new and unknowable information and events change pricing.
  • The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
  • People with this view would utilize free market investment strategies

In my opinion, investors would be better served by following the free markets work philosophy.

Like the Packers we need to ignore the media hype and focus on their long-term goals.

Also like the Packers they need to understand what the process is and believe in it. Remember investors do not have to know everything about investing to succeed but they do need to know the right things.

To succeed long term in investing find an investor coach/fiduciary adviser that you believe in and learn whatever you can.

Then you must own equities…globally diversify…rebalance. And repeat until you die.

Should You Get Out of the Equity Markets or Is It Get In?

During conversations with investors I continue to hear apprehension when the subject of stocks is discussed. This apprehension or fear is completely understandable. We hear nothing but bad news from the media with the continuing battles in Washington DC.

It seems everyone is attacking everyone. When did Americans become so sensitive?

Through all this bad news the equity markets are posting solid returns. Will there be down markets in the future? Absolutely, there is no doubt. However, no one can tell you when and which countries and/or sectors will be involved.

The equity markets around the world are random and unpredictable.

This is undeniable. However, the equity markets remain the greatest wealth creator in the world, if properly used. This does NOT mean picking the right stocks or market timing, getting in and out of the market at the right time. Neither of these activities, (promoted by the Wall Street bullies), are in your best interest. These activities benefit the Wall Street bullies and will not improve your returns.

The market returns are there for the taking, they are waiting for you to take advantage.

Listening and taking the advice of the Wall Street bullies is not in your best interest.  These bullies include shows like Hannity or Limbaugh or OReilly (fired) who tell you how horrible everything is and try to instill fear.

Worrying about the direction of the equity markets does you no good. Actually, worrying in general will do you no good.

If you have developed a prudent portfolio and remain disciplined, you will succeed long term. This will require the help of an investor coach who will keep you from letting your emotions take control.

Remember the Equity Markets are forward looking:

  • Expectations about the future are in today’s price.
  • Market returns are not strongly correlated with macroeconomic variables such as GDP
  • Markets can provide positive returns even during periods of poor economic performance.
  • Timing markets is difficult.

A study was done looking a past recessions and stock returns. The conclusion there is no correlation between recessions and stock returns.

To succeed in reaching your long term financial goals you need to own equities, as scary as this may seem, globally diversify, no one can tell you which countries and/or sectors will outperform and rebalance, buy low sell high.

If you these simple rules you will stop gambling and speculating with your investments and improve your results with less anxiety about the future. If you are younger growth must be your goal, a retiree your goal is to keep pace with inflation. Owning equities in your portfolio is a great solution to accomplish both.

Focus on Market Returns!

Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar Study, the average investor has failed significantly to achieve market returns. While the S&P 500 has earned 7.68%

the last 20 years ending 2016  the average mutual fund investor has earned 4.79% during this same period.

 

This is a stunning failure. Research shows the average actively managed mutual fund underperforms the market by two to three percent per year. Accepting this fact, the investor’s job of allocating assets is greatly simplified.

 

The investor only needs to allocate his/her assets into various asset categories to achieve market returns and remain disciplined over long periods of time.

 

This is easier said than done and most often requires the aid of a coach. By focusing on market returns, there is no stock picking at all. No forecast, no prediction. There is no gambling on beating the market. You just own every single stock in that asset category. That’s what we talk about when we refer to market rates of return.

 

Remember it’s not about picking the “best funds” rather it’s about maintaining a disciplined approach.

 

Investing success requires owning

equities….globally diversify…..rebalance.

 

The Wall Street bullies continue to lure investors with the ‘hot’ managers sterling performance. These investors then buy and in most cases are disappointed with the results.

 

We investors have been convinced that someone out there can beat the market. They have been convinced that someone can help them avoid losses and only participate in the gains.

 

These investors are looking for stock market returns with Treasury bill risk. What the Dalbar study shows us is that they end up with Treasury bill returns and stock market risk.

 

Stop the madness. Although it has been proven people are more motivated by the pain of losing than they are with the pleasure of gains. We need to focus on market returns and avoid listening to short term noise. Without downturns there would be no or lower returns.

 

The markets reward the taking of risk. Accept this and allow your investor coach to guide you through the turbulence.

 

Always remember the markets are random and unpredictable.

Predicting The Future Is Hard!

There has never been a shortage of predictions in any field. Let alone the financial markets. If you google investments. There are approximately 382,000,000 results.

There is no shortage of Wall Street bullies offering their prediction of the future. Unfortunately, most, if not all of these predictions do not come true. Mostly because predicting the future is really, really, hard.

No individual, committee, or money management company can ever hope to know “everything” about investing.

All the facts, data, statistics and information about stocks and the market are infinite.  They are also ever changing.  The free market system itself is the only mechanism known to effectively incorporate this into a pricing system.

The good news is, if you know the guiding principles of successful investing and work with a coach, you don’t have to know everything just the right things.

One of those things is be successful in investing you need to own equities….globally diversify…rebalance.

As investors we need to ignore all the ‘noise’ the bullies try to sell us. We need to realize these predictions are nothing more than enticements for us to move our money. They will enrich themselves and not you.

Yes, your best interests are secondary to their goals.

Of course, if you wish to speculate then listen away. But investors need a prudent process and discipline.

This is best accomplished with the assistance of an investor coach/fiduciary adviser.

 

Prayers for Las Vegas!!

Sunday night October 1, 2017 in Las Vegas, Nevada the worst mass shooting in American history took place. Over 50 people shot and over 200 injured. The gunman was killed by police. His alleged accomplice has been apprehended.

Details as to why this happened are not yet known. Was it an act of domestic terrorism? Or international terrorism? The speculations are all over the place. We may never know the answers to all questions.

This is not the time to discuss financial futures. This is not the time to talk politics. This is not the time to place blame on anyone.

This is a time for our country to mourn. This is a time to heal. This is also a time for hope. Because we live in the greatest country in the world. We will recover.

There has been far too much hate from all Americans. Some when criticizing others for hating use hate in response.

When did disagreeing with someone automatically make you a ‘racist’ or ‘sexist’ or ‘inhumane’ or on and on? When did a debate mean ‘hate’ if you disagreed?

The shooter, in my opinion, was a sick person full of hate that consumed him.

Sadly, these events are unavoidable, as much as we want to avoid them. There will always be sick people.

Right now, my prayers are with the victims, their families and friends and whose who have and will help.

If It Bleeds It Leads!!

Watching the NFL, as many of us do.  Go Pack Go!! There is continued attention to the players “protests”. The media has been focused on the “protesters”.  Not on the people who continue to support the U.S.. Like all of us when we see an accident we have to look.

When I personally see an accident, I am looking but also focused on traffic.

The nightly news, daily stock market shows, and cable news focus on variability to get your attention.  They bombard you with the equivalent of “noise”. Short-run data and statistics that are useless.

Keep in mind, with regards to the media. “If it bleeds it leads.”

Paying attention to the short-term market fluctuations and newspaper headlines will completely disintegrate your peace of mind and ultimately your portfolio.

The reason many prefer investing in real estate is there are no noticeable short-term fluctuations in price.  You cannot look up the value of your real estate property on a daily basis. You treat it like a long-term investment, which it is.

In reality, real estate prices are correlated or just as volatile as small cap value stocks, over the long-term.

Unfortunately, for investors, we live in a digital world. Information is readily available. You can look up the value of your stock portfolio at any time during the day.  This ability only adds to our daily anxiety and stress levels.

The stock market should be treated much like real estate, by ignoring short term volatility and the daily news reports.

By following a prudent process and strategy with your investments you will succeed in the long run. Stop trying to control something you cannot control.

To succeed in investing for the long run you must own equities….globally diversify…..rebalance.

Investors Think Long Term….Speculators Think Short Term!!

There continues to be more and more media attention that the ‘buy and hold’ strategy is dead. That Modern Portfolio Theory no longer works. This is another attempt by the Wall Street bullies to keep your money on the move.

There are an increasingly amount of ‘experts’ extolling the underperformance of international and small equities for the near future. These ‘experts’ have an obvious conflict of interest as they recommend their own solution.

These ‘experts’ are using 2014-2016 and into 2017 as a sales gimmick. You will hear ‘look I would not have as much small stocks’ or ‘international stocks will underperform for some time to come’. Or both.

Many of us have short memories. In the late 1990’s U.S. Large Cap Growth  stocks including tech stocks were out performing nearly all other assets classes. Like Large Value, small stocks, international stocks.

Most ‘investors’ or should I say speculators had portfolios concentrated in U.S. large cap growth stocks. Specifically, tech stocks or ‘dot’ com stocks.

It was said that it was a new paradigm. Things had changed, permanently, they said. Small stocks, value stocks and international stocks were no longer relevant, they said. Fed chairman Ben Bernanke had the famous quote ‘irrational exuberance’. This only slowed the market for a short time.

Then in 2000 the tech bubble burst. U.S. Large cap growth stocks were crushed.

Warren Buffet who had lagged the tech stock market badly during the 1990’s was back.

A globally diversified portfolio saved many investors. While the speculators were left picking up the pieces.

Investors think long term while speculators think month to month.

True investors are much better served using a free market strategy and utilizing Modern Portfolio Theory and ‘buy and hold’. This strategy, over the long term will lead to success.

It should be emphasized that ‘buy and hold’ should really be ‘buy and rebalance’.  ‘Buy and hold’ might signify set and forget and we must rebalance back to our target allocation periodically. This entails buying low and selling high, automatically.

When we rebalance we sell asset classes that have done well and buy asset classes that have done poorly, short term. Buy low, sell high. This is done periodically and eliminates the need to forecast the future.

When we control risk in our portfolio we can look to our future with confidence. The ‘all-in’ attitude will lead to disappointment over the long term.

To be successful, investors, no matter how large, would be far better off using a free market strategy with Modern Portfolio Theory as part of the process. Modern Portfolio Theory is actually part of a larger strategy called Free Market Portfolio Theory.

Remember no strategy always looks like the right thing to do. We must continue to believe the free markets do work.  Most importantly we must believe in our strategy and remain disciplined.

We must own equities….. globally diversify ……. rebalance.