Markets are Random …..Get Over It!!

I just read an article that many Americans are afraid of stocks. They are afraid they will lose all their money. Many expect to earn stock market returns with treasury bill risk.

Many investors I talk with each day have different reasons for not investing in the equity markets. Including ‘the market is at an all-time high of 21,000 that is too high’.  Or ‘I am about to retire and I cannot afford to take a loss in the equity markets’.

These investors believe equity risk is their greatest risk. In fact, it is inflation risk that is their relentless enemy. They need to at least maintain the purchasing power of their money. This is best accomplished with equities.

Then there are those that believe there is someone out there who can and does know when to get in and out of the market to maximize return and avoid all losses.

After two decades of research I can tell you this person does not exist.  You will find someone who makes a correct prediction. The problem is there is no evidence that their predictions will be correct going forward.

For example, the market crashed when there was a terrorist attack just three years ago. Over the last two months there has been terrorist attacks in the United Kingdom and the markets barely moved.

Like I said random and unpredictable.

You cannot consistently predict market movements based on past events. There rarely is any cause and effect that repeats.

If you invest in stock markets no one can predict “save” you from the down periods—NO ONE.  If markets were not random and unpredictable, they wouldn’t offer higher expected returns.

Markets randomly and unpredictably go up and down.

Perhaps we should have faith in the free markets and allow them to work. And worry about something fun like ‘will it rain this weekend?’ Or ‘Will my boat start?’ Or ‘ how will I clean up the huge tree that this weekend storm took down? Or ‘Why can’t the Brewers win a close game?’

As we age our situation gradually changes from growing our money to taking an income stream that keeps up with inflation. To succeed in this, we must reduce the level of risk in our portfolio as we grow older.

We will succeed in our investing when we own equities, globally diversify and rebalance.

That if we fire our broker/agent and hire an investor coach/fiduciary adviser.

As Always..”Diversification Is Your Buddy!”

Given the recent outstanding returns for U.S. large stocks, many investors are considering moving all their money into this hot asset class. Thereby avoiding U.S. small stocks, international stocks and emerging market stocks, including fixed income.


Since no one can predict the future, this is a huge mistake.


You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong in the long run.


Casinos were not built because the public ‘wins’. There were built because the owners know gamblers lose long term.


Part of the issue is that gamblers need to brag to their friends about how well they did. They naturally forget the losses.


In markets like these diversification is your buddy.


Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement.


Simply said: they don’t do the same thing at the same time. Most investors are narrowly diversified into top performing funds or classes of the last five to ten years.


They often feel diversified but aren’t. To be diversified means including classes or types of funds in your portfolio that did poorly over the last five to ten years. If you do this, your portfolio will look and perform very differently from your neighbors’ or friends’.


Those of you which are my clients, own portfolios which are professionally diversified and rebalanced much like some large pension funds.


Since most investors will be retired a long time. They need to invest for the long term which can be 20 to 30 to 40 to even 50 years. Many investors have a hard time thinking is such long terms.

Even if you look at a 10 year period a diversified portfolio will in most cases prevail.


Over time these portfolios will help you successfully accomplish your investment and retirement goals.


To succeed in investing you must own equities….globally diversify…..rebalance.


Please email or message any questions or comments and I will personally respond appropriately.

Memorial Day 2017!!!!

For regular readers of my messages you will recognize this message from past years. I am repeating it for two reasons. One, it is a great message and two, I am a bit lazy (AGAIN) this week. So, enjoy!

As we celebrate Memorial Day 2017 let us not forget those who fought and died for us and those who continue to fight for us. To protect our freedom.

You will never know how much it cost the present generation to preserve your freedom! I hope you will make good use of it!! – John Adams

This week will be a short message. Please remember and honor those who fought and continue the fight for our ability to seek the American dream. Every one of us has the ability to seek the American dream, however it involves sacrifice. There are no short cuts to prosperity.

The free markets are part of the reason our veterans fought. It does not involve speculation but rather prudent investing. The American dream is not a get rich scheme. It requires sacrifice, hard work and planning.

As John Adams said above “I hope you make good use of it!!”

Honor our veterans, past and present, by making good use of it.

Investing Takes Time….

It takes not just linear time, ticking minute after minute, day after day, and year after year – but emotional time and maturity.

Think of time in these terms:  Time = Things I must experience, things I must endure.

For every investor, there will be times of great pain and self doubt.  These times will create fear, anxiety and stress.

We continue to ask, ‘am I doing the right thing?’ ‘is this advice in my best interest or in the best interest of the adviser and their company?’ ‘Should I be in the stock market or out of it?’ The questions are never ending.

Many investors during a market down turn will change advisers. They will find an adviser who did better during the downturn and move to them. I call this, musical brokers.

We attempt to compare our portfolio strategy with a neighbor or friend. Unfortunately, our focus is on short term results. The results from month to month are really, meaningless to a true investor.

Gamblers/speculators are focused on short term results. Their focus is on immediate results. If the results are not favorable they will seek to adjust their strategy. Many will say ‘it just isn’t my day’. They continue to search for the ‘hot thing’. They continue to seek out the way to make a ‘killing’.

Please keep in mind successful investors focus on the horizon. There is no quick, easy way out of the pain of down markets.  They must be faced and endured to earn financial and emotional success.

Many are not really looking to invest but rather are looking for action. These are the traits of gamblers/speculators.

There is no long term, substitute for a disciplined strategy process with investing.  Anything else would be speculating.

Process is the most important component of any investment strategy. Investors must choose an investing process and stick with it.

In my experience – it is impossible to eliminate emotions from the investing process. Because everyone is human. The trick is to harness them in empowering ways.

You must own equities…globally diversify…rebalance.

Should I Stay or Should I Go?

There continues to be conflict in the U.S. political arena. Trump haters versus Trump lovers. Our country remains divided on many important issues.

There is concerns about North Korea and their insistence on nuclear testing. This is a dangerous time.

But unfortunately, somewhere in the world there is a dangerous time.

Then where does Russia fit it in?

Is the media helping or hurting?

There are those that believe that the markets will go down as a result and we should exit the market. At least until things calm down.

Since there are over six billion people on this planet. There is always conflict somewhere. And there always will.

During these times of crisis we have a tendency to make emotional decisions. Decisions that are NOT in our own best interests.

Ideally, we should all just time the market cycles and only buy when the market is low and sell when the market is high. Unfortunately, few, if any investors are able to do this with any consistency.

We tend to make our investment decisions based on recent past events and how we feel about those events.

If the market has done well lately, we wish, we are comfortable buying stocks. If the market has done poorly, however, we avoid them. Unfortunately, this is the exact opposite of what we should do if our goal is to maximize our long term return.

Once we feel “comfortable” with the market, we have usually already passed up large potential gains. The stock market is forward looking and usually starts trending upwards between 6 to 9 months ahead of the economy actually recovering from a down cycle.

There is an unholy alliance between the media and the large financial institutions to convince the investing public to continue trading by spreading fear and panic.

Many investors mistakenly believe that the big brokerage firms make money by trading in and out of the ‘right’ investments

The large financial institutions make money when YOU trade in and out, making money on every trade.

You should own equities…globally diversify…rebalance and believe that America and the capital markets will recover and prosper. We as a country have been thru much worse and we recovered and became stronger.

The problem is no one can consistently predict what will happen and when.

During times of crisis should we cut and run or should we stand and fight? Historically the fighters are the ones that profit and prosper. Those that cut and run grasp unto their ‘guarantees’ and wonder why they are always behind.

To best deal with the inevitable ‘bad’ times fire your broker/agent and hire an investor coach/fiduciary adviser.

You Don’t Know What You Don’t Know….

There is one common thread within Wall Street, no matter what happens there is always opportunity for Wall Street to make money.  They will feed the fear by offering products which provide safety and guarantees.

This safety and the guarantees come at a very high price to the investor.

In the long run the costs to the investor are high as well as the revenues to Wall Street. Higher costs to the investor directly affect performance in a negative way.

All that you know is what the brokerage community or financial press wants you to know.  They have trained you to accept their version of reality – over the span of your entire life.

There is a complete body of investing knowledge developed in the halls of academia.  Most people do not even know that it exists.  This is the real wisdom you need to create wealth and abundance.

Remember market risk is not your greatest risk it is inflation risk. As an example if inflation averages just 5% your cost of living doubles every 14 years.

If you are 65 today with a $2000 per month income, with no increases, your spendable income in 14 years will be $1000. In other words your $2000 monthly income will buy one half of the goods/services it buys today.

Volatility is uncomfortable, at least the negative volatility but it is something you will have to live with to keep up with inflation and grow your wealth.

An opposing strategy of the Wall Street bullies is to convince investors they can predict the future. These bullies convince investors they can pick the ‘right’ stocks or strategy to ‘beat’ the market.

This ability allows the investor to save less and earn more on their investment dollars. Unfortunately, over the long run, this has proven to be unsuccessful for most investors.

However, it is a good selling point for aggressive financial salespeople.

These are two examples of how the bullies can find a product to sooth fear and feed greed.

Avoid falling into either Wall Street trap. Fire your broker/agent and hire an investor coach/fiduciary adviser.

To succeed with investing for the long term you must own equities…..globally diversify……rebalance.

Who/What Is The Right Pick?

Well the 2017 NFL draft is complete. The media attention has been tremendous.

The ‘experts’ have come out with their evaluations of each teams’ picks. They grade each team. Of course, each ‘expert’ has a different grade for each team.

One ‘expert’ gave the Green Bay Packers an A+ another a B+ because of ‘blah’  ‘blah’ ‘blah’…..  What these ‘experts’ don’t tell you is that they have no idea which player will excel and which will flounder or disappoint.

Some players might flourish under a certain system or coach and then fail under another. I believe if the talent is there it comes down to situations and coaching.

The drafting teams really have no way of quantifying character. Will the player be coachable? Will he fit in with his teammates? Can he handle all the pressure involved in the NFL?

As I said the only true test is how the draft pick performs on the field. Will he help us win?

Some teams traded future picks to move ’up’ in the draft to pick the ‘right’ player. This is much like trying to pick the next ‘hot’ stock and next ‘hot’ asset class.

Other teams like the Packers, Ted Thompson, Cherishes each draft pick. These managers believe in diversification. They know that trading and draft picking do not work over the long term. They know that you cannot predict a players’ success based on his past performance.

Some picks will work out great and some will be ‘busts’. There is no way of predicting which it is.

Like investing the successful teams build each year with diversified picks. They do not look for the ‘one’ guy to bring them to the promised land. The Super Bowl.

Predicting the next great player is like listening to The Jim Cramer Show. Each day Jim gives his ‘hot’ picks. He also gives his prediction of the future, ie, which way will the market go over the short term. His record, if you check, is quite poor.

Here’s a fun fact. The producer of the Jim Cramer Show is the same producer of the Jerry Springer Show. Remember the Springer show with its wild out bursts? It was purely for entertainment. Much like the Cramer show. The producer was interviewed and said that most of the ideas for Cramer’s show came from the Springer show.

As an investor, you need to ask yourself. Do you want to predict the next ‘hot’ stock or next ‘hot’ asset class? Or do you want to develop a diversified portfolio with consistent success?

As with the NFL. The next step to success is coaching. With the guidance of an investor coach/fiduciary adviser you will have the necessary discipline for long term investing success.

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.