Proper Expectations Matter…

Many investors believe that there is someone, some adviser, some investment manager, or some brokerage firm that will have the ‘answer’ to beat the market.

Finding the ‘answer’ will allow them to save less and earn more to achieve their long term financial goals.

The sad truth is there is no substitute for a sound savings strategy combined with building a prudent portfolio which is aligned with you goals and tolerances.

There is no substitute for designing this prudent portfolio and remaining disciplined to that strategy.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight.  If you expect the impossible you will be frustrated, unhappy and fearful.

If you believe your new adviser has the ability, to get into the market and out of the market at the right time. You will be disappointed over the long term.

Remember the Wall Street bullies want you to continue to search for the ‘answer’. These bullies make money on every trade whether you do or not.

The stock market is the greatest wealth creating tool ever created, IF properly used.

Attempts to ‘beat’ the market, have been unsuccessful in the past. Looking at a short term, outperformance will lead to disappointing results, long term.

To reach your long term goals you must own equities….globally diversify….rebalance.

The Client Only Advisor…

There has been a delay in the new fiduciary rule for anyone working with qualified accounts. It originally was set for April 10, 2017 but has been delayed at least until June, 2017.  Many fiduciary pundits are criticizing the move. While many brokerage firms and insurance companies like Merrill Lynch and John Hancock are applauding.

What is the fiduciary standard. How does it affect investors?  Who really cares? Will the fiduciary standard eliminate conflicts of interest?

First I would like to discuss the conventional business models financial advisors/brokers follow:

  • Commission based brokers – these brokers currently follow the suitability standard. This model is not required to recommend or sell the best solution for the client. Their only requirement is the product is suitable. Price or quality, do not enter into the broker’s decision making process.  This model has the potential for the most conflicts of interest. Remember the typical broker is employed by a broker/dealer, wirehouse or insurance company and not you. They are accountable to their employer and will sell what the employer tells them to sell.
  • Fee Based advisor/broker – this business model tries to give the impression that they are on your side. In many cases this is true. However, you do not know when the advisor/broker is wearing the fiduciary cap or the suitability cap. Conflicts of interest are reduced but not forgotten.
  • Fee only advisor – this business model has been receiving substantial amounts of press coverage. This model only accepts fees directly from the client, thereby minimizing conflicts of interest. However, most advisors earn their fees by assets under management. A small portion of fees are earned by charging hourly fees for services rendered. The problem or conflict arises when the advisor does whatever the client asks in order to keep the account. Remember the assets under management fees stop when the client moves their account.  There are also many clients who hear fee only and believe that this advisor if only concerned with fees and not the clients welfare.

The fiduciary debate will continue until a compromise is reached.  It is anyone’s guess where this compromise will land. Will the fiduciary standard become so diluted that it loses all credibility? Financial institutions have resisted the fiduciary standard and will continue to resist, because it may cause sales to drop.  After all they do not want a standard which puts the client first. If this would be the case how would they make money?

This leads us to a ‘new’ model I named the Client Only Advisor. This advisor has developed a prudent process in building a portfolio. This process involves an academically backed strategy, which over time will result in superior results for the client. If the client decides after implementation that this strategy is not for them the advisor will ask where they would like their account transferred. This may sound like ‘my way or the highway’, but it is really introducing discipline to the investment process. This is where a Client Only Advisor adds value. They will prevent the client from buying high and selling low.

The question becomes are commissions always bad? When working on a clients’ financial plan life insurance may be a solution. This is a question I do not have an answer for.

The true value of an advisor is to keep their clients informed and disciplined. They will protect the future you from the current you.

Regardless of the outcome. Investors should seek out the advice of a fiduciary adviser. Make your adviser put your interests first. And make it official.

Free Markets Work…..

This message bears repeating. Again and again.

It is so important for you, as an investor, to know what your investment philosophy is.

The Wall Street bullies want you to believe that the “markets fail” and that someone can tell you the best investments to invest in at all times. They will tell you they know when to get in and out of the market. These bullies want you to listen to their forecasts and move your money accordingly.

What the Wall Street bullies won’t tell you is they have no idea where the market is going or which asset classes will outperform.

Your beliefs have been formed by the financial media hype.  They lead you to believe there is someone who can predict the future.  No one can.

There are two camps to investment philosophy, “markets work” and “markets fail”…

On the “markets work” side, make sure to follow these action steps. If you are in this camp, you will need to:

  • Eliminate speculative investment techniques.
  • Work with a financial professional who believes that markets work.
  • Ignore media hype.
  • Set lifelong financial goals.
  • Prudently diversify.
  • Identify your risk tolerance.

On the “markets fail” side, consider the following.  If you believe that markets fail, then you are morally obligated to:

  • Pursue speculative techniques.
  • Work with the bullies who actively gamble with your money.
  • Stay connected to the internet, magazines, talk shows, news shows, internet shows, and download apps to your cell phone so you can track up-and-down markets.
  • Read every article about stocks and options that you can find, wonder and worry about the market, what might happen next—whatever you do, don’t miss the next hot stock tip.

It is up to you to determine how you want your money invested. Personally I believe “markets work”. I believe your time would be much better spent improving your job skills or learning a new job skill or spending time with family and friends than trying to beat the market.

Remember, there will always be someone who picks the hot stock and gets rich or finds the latest and greatest strategy/asset class etc., the problem for the investor is that this is luck rather than skill. Meaning this feat is unlikely to repeat.

Keep in mind every new ‘hot’ investment idea/strategy/asset class you hear on financial media has a vested interest in you investing all your money. The problem is the seller of these products makes most if not all the profits. Leaving you with a dream and no money.

To succeed long term, you should
own equities…globally diversify…..rebalance.

What Meaning Does Fear Have For You?

Just read a quote on ‘fear’. F.E.A.R. has two meanings, “Forget everything and run” and “Face everything and rise”. It’s your choice. Fear is just one of the emotions holding investors from reaching their goals.

You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.

As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)

greed regret trust loyalty envy

  1. “It doesn’t matter how sophisticated his charts are or how much sense he makes, I just don’t feel comfortable letting him handle my money.”
  2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”
  3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”
  4. “I’d wish I’d known that stock was going up, I would have bought more shares.”
  5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”

Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty

We as people are naturally predisposed toward or against specific investing tactics.

What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view.

It is easy to overweight information that validates our perspective while minimizing any information that goes against what we inherently believe.

The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions.

The recent up and now down markets have many investors on edge, asking….should I get out of the market for good? This is really what the financial institutions want…they make money when money moves.

As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.

Headlines Should Read….

Investors have been at the mercy of the media and the Wall Street bullies. This evil partnership has conspired to convince investors that they have their best interest in mind. Nothing could be further from the truth.

Every day investors (gamblers/speculators) watch and read the media looking for clues about the next great investment idea. It might suggest a new trend is emerging. Or this certain industry will produce ‘great’ results. Or the list goes on and on…..

In every case the media and the bullies have the right answer. If investors were to keep these experts accountable for their prediction.  They would soon realize that predicting the future is really, hard.

If they actually keep track of these predictions. They would soon stop watching the media outlets. This the media and the bullies cannot have.

Below is an excerpt of a recent Dan Solin post.  I find it very revealing. How about you?

Dan Solin’s Newsletter, March 23, 2017

It would be great if the financial media conveyed useful information to investors.  If it did, you’d see headlines like these:

  1. Our advertisers pay us to provide “news” that enriches their bottom line at the expense of yours.
  2. Our “experts” are no more accurate in their predictions than the flip of a coin.
  3. It would be more accurate to call “predictions” by our experts “random guesses.”
  4. We don’t have a clue where the market is headed and neither does anyone else.
  5. When you trade, it’s likely an institution is on the other side.  We don’t like your chances.
  6. It makes no sense to buy individual stocks.
  7. Even if it did, we have no way to identify stocks likely to outperform in the future.
  8. Overweighting your portfolio in gold is dumb, no matter how frightened you are.
  9. If bouncing in and out of the market made sense, professional managers would not have such a terrible track record.
  10. You’d be better off not watching or reading us.

Dan

Please let me know if you ever see one of these headlines. It would be fiduciary kind if day.

On Wisconsin….

Like everyone else or at least most, I filled my bracket for the College Men’s basketball tournament. Every year I try to determine the ‘upsets’ some big some small.

I do not believe anyone has ever picked the perfect bracket. That is, pick the winners of all 64 games. In fact, Warren Buffet promised to give $1 billion to anyone that does. It is a safe bet. You have a much better chance winning the lottery.

Well it is Friday and I already have a miss. Oh well, there goes a $1 billion…..

But what does this have to do with investing. Well every day I am asked by people about the next great stock or strategy. The one that will make them rich overnight.  Of course, this needs to be done with little or no risk, they say.

Often, they will say well this guy did it, why not me?

Let’s look at managers that try to pick stocks they believe will outperform the market. They are no better than those that ‘seed’ the NCAA tournament. Who will win? Like stock pickers these pickers have no idea what the future will bring.

If they could pick the winners all four regions would No. 1 vs No. 4 and No. 2 vs No. 3. Then No. 1 vs No. 2. Then all four No. 1s would go the final four.  And the overall No.1 would win. Confusing, right?

The odds of some manager picking the right stocks is far greater than picking all 64 games right. But the odds remain quite low.

Besides, most people confuse gambling and speculating with investing.

Gambling and speculating involves being right in the short term. This means instant gratification. Perhaps, this is why casinos and Las Vegas are so popular. The lure of getting rich quick is compelling. There is no waiting. You know very quickly whether you won or not. Even though everyone knows most lose. And nearly all lose long term.

Investing is a long term, life long process.

If you need to invest for growth or just keep up with inflation you need a prudent strategy. One tested by time. A strategy based on scientific research and academia.

Investors that rely on this strategy do not worry about short term volatility. Markets go up and markets go down. But the long term trend is up. Since 1926 the S&P 500 has had an average return of nearly 10% per year. During this time there were downturns of 10% of more 89 times.

WOW. If you want to earn a great return you need to deal with downturns. In some instances, the downturns can be severe. However, over the long term you will succeed.

Find a fiduciary adviser/investor coach to help you through this process. Long term you will succeed.

Regardless of this I will continue to fill out an NCAA men’s basketball. Because it doesn’t cost anything AND you never know….

March Madness or ‘Wall Street’ Madness? 2017

This is the same message I sent last year, at this same time. However, I believe the message is so powerful it bears repeating.

 

March madness is upon us. The NCAA college basketball tournament is one of my favorite times of the year. Teams are fighting to get into the tournament and then wondering where and who they will play.

 

This tournament is a great example of what great coaching can accomplish. Each successful coach has a system, a process which they follow with discipline.

 

All the great programs have successful coaches with their own system and process. In fact Nick Saban head football coach of the University of Alabama was interviewed recently. Coach Saban said his success is due in large part to his process. He has a process for everything.

 

Once these coaches have a process they believe in. They must communicate it to their players. They must help their players BELIEVE in their process. Then it is a matter of remaining disciplined to their process.

 

 

When you put the parts together properly you have a winning combination.

 

 

What does this have to do with successful investing? Well to successfully invest for the long term, investors ‘buy in’ to a proven investment philosophy. This philosophy or strategy was developed through extensive academic research. Some was even Nobel prize winning.
The ‘winning’ strategy includes:

  • Modern Portfolio Theory
  • Efficient Market Hypothesis
  • Three Factor Model

 

When you look at each asset class on its own you might believe that some components are far too volatile or risky. However when you properly build your portfolio, it actually reduces risk and improves results. Your portfolio should be built with the proper expected return and expected volatility for YOU.

 

Once the portfolio is built the hard part begins.

 

Like all the successful coaches they must remain disciplined to their process despite short term failures. The difficult part is coaching investors to truly believe in the system even when things are not going well. As the 2008-9 crisis made us realize, to our horror, that equity markets do not always advance. In fact so far in 2016 the equity markets have been disappointing.

 

It takes a coach to help us control our emotions when markets decline.

 

The same can be said for when specific asset classes have strong advances. Many of us would be tempted to over concentrate our assets in the ‘hot’ asset class only to see sharp declines in the near future.

 

The Wall Street bullies are counting on investors to continue trading into and out of the ‘hot’ sectors.

 

This undisciplined approach will inevitably result in poor performance and increased anxiety about the future. Investors, to be successful, must maintain a long term focus and forget the short term volatility.

 

Coaches like Roy Williams of North Carolina or Mike Krzyzewski of Duke or Bill Self of Kansas, etc are successful, because they brings process and discipline to their team(s).

 

You need a coach who will provide an investing process and discipline for you to succeed in reaching your long term financial goals.

 

To succeed you will need to follow three simple rules:

  • Own equities
  • Globally diversify
  • Rebalance

 

Remember NO ONE can predict the future, find an investor coach who follows this philosophy and succeed.

Does Wall Street Have Your Best Interest in Mind?

There has been increased attention paid to the financial brokerage industry with regard to a non-fiduciary mindset on Wall Street.

With this regard, there is movement for anyone working with an individual’s retirement plan to act as a fiduciary. This means the adviser must only recommend what is in the best interest of the client.

This regulation become effective April, 2017. There have been discussions on delaying or eliminating this regulation.

Regardless of the outcome insist that anyone working on your retirement plan agree in writing to act as a fiduciary for you.

Be careful when looking for retirement plan investments. Many investors are continually looking for the answer to one question. “How can I beat the market?” Not only is it a matter of increased return, but bragging right to their friends on how much money their broker makes them. These same braggers neglect to tell when their broker loses their money.

Wall Street is more than happy to accommodate this greed.

It is much like gamblers at a casino, you never hear about the losses only the wins. Investors are continually moving to the hot broker. As I call it musical brokers. A past article in the New York Times brings this out in the open again. This is what most of us suspected.

Not long ago, the Goldman Sachs executive Greg Smith resigned his job by writing a scathing op-ed in the New York Times. In that column, written as an exit letter, he accuses top management of encouraging predatory sales practices that actively hurt customers:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”

While he insists that he’s seen no behavior that’s actually illegal, he explains that:

“People push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

There continues to be other examples of the Wall Street bullies taking advantage of investors of all types. Having a big name does not prevent deceit.

To be a successful investor find a academically proven scientific strategy to investing and remain disciplined to it. Three simple rules will help you succeed. Own equities……globally diversify………rebalance.

One Thing In Common!!

There is only one thing 300+ million Americans have in common. Do you know what that one thing is?

It is the fact that no one can consistently predict the future. Some may get lucky every once in a while. But no one can consistently predict what will happen next.

As people we all want to know what will happen in the future so we can prepare. The financial institutions rely on this and market it. I call them the Wall Street bullies.

When one of a banks or brokerage firm analysts’ ‘bullies’ recommend the right stocks or pick the top or bottom of the stock market. The financial institution will market that fact. This is why they have hundreds of analysts on staff. They know or hope one or two will get hot or lucky.

Unfortunately for investors there is no way to predict who will be the next ‘hot’ analyst or fund manager.

I know that free markets work and the stock market will recover…ok..ok it sounds like a prediction. However I do not know which sectors will do well or when there is a top or bottom.

To succeed in reaching your long term goals you must own equities….globally diversify….rebalance.

It also helps to have an investor coach/fiduciary adviser. Your coach will help you determine the right level of risk for you. Followed by learning how to deal with the inevitable ups and downs of the equity markets.

When Investing for Peace of Mind, Always Consider the Sum of All Outcomes.

During conversations with investors and financial professionals I hear of the hot advisor who beat the market. They made money throughout the ‘great recession’.

They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

During my studies of investing strategies over the last twenty years I have learned trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.  If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers, you would be a fool to ignore the chance of blowing your brains out.

Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

Unless of course, you are willing to gamble and speculate with your savings. Perhaps you wish to substitute a solid saving plan for a get rich quick scheme. Perhaps you do not wish to sacrifice todays sending for a successful retirement.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you, follow a formal strategy.

You should follow a strategy which is backed by academic research. This research should use at least 60 years or more of data to eliminate any chance of bias.

To succeed in reaching your long term financial goals you should, buy equities……globally diversify….rebalance.

In most cases, you require the aid of an investor coach/fiduciary adviser. Your coach will help you protect the future you from the current you.