When Times Are Bad We Believe They Will Always Be Bad!..NOT!

As
investors we know or should know that the reason stocks have historically
returned more than fixed income over the long-term is because stock holders
endure the volatility of the market. Without the volatility that goes
hand-in-hand with stock ownership, the risk premiums associated with stocks
would diminish, and so would the attendant wealth. Mark Matson

I wrote this message in the first quarter of 2018. And I
believe it remains relevant. Please take time and read it now.

We enjoyed a great return year in 2017, in fact January
2018 looked pretty great.  Many of us now
believed that the markets will continue going up. Of course, there are always
those predicting impending doom.

As an investor coach now is the time that I really earn my
fees. Each week I discuss building a prudent portfolio at a risk level that YOU
are comfortable with. We discuss that we need to know the expected return and
the expected volatility. This information will give us the tools to build the
right balance of return and risk.

However, I also mention the most difficult task of an investor
coach is keeping clients from making emotional decisions. The task sounds easy,
remain disciplined. However, when we
are bombarded with dire predictions of doom many cannot resist panicking and
selling when markets correct.

This in fact is a great opportunity to buy at a discount
price. I believe Warren Buffet said it best when he told of his investment
philosophy ‘when they’re crying I’m buying when they’re yelling I’m selling.’

Some historical statistics might help with this. Since 1928
the S&P 500 has returned 9.8% on average. During this time there has been 89
drops of 10% or more compared to 23 drops of 20% or more.

Since 1946 it has taken the market 111 days on average to
rise to its pre-crash levels. Of course, we must add that past performance is
no indication of future results. However, I believe that since we have over six
decades and more, of data we can assume that after all market downturns,
regardless of how severe, the markets recover and go on to greater heights.

Now is not the time to panic and sell and seek safety, now
is the time to implement one of our three simple rules which is rebalance.

At the end of 2017 when the equity markets flourished and
fixed income lagged, we sold equities back to our original allocation and
bought fixed income to our goal allocation.  We repeat this at the beginning of 2019. Buy
low and sell high. We will again rebalance at the scheduled time.

If the down turn continues, we will sell fixed income and
buy equities. Again, buy low and sell high. When we have a prudent process and
the discipline to follow it we will succeed long term.

This is where the services of an investor coach become
invaluable. Because with the right process and discipline you will reach your
long-term financial goals.

Which Way Will It Go?

You will hear many ‘guesses’ and they are guesses. No matter what their credentials are or what their track record. Any predictions are simple guesses.

As we begin 2019 there are many questions about the future. The future of the equity markets, the future of the political arena and many other questions. Questions that cannot be answered with any degree of certainty.

I have so far heard we will be a recession within, a year, the markets be choppy for the entire year, the equity markets will soar with the S&P500 advancing 15% (Remember the 1990s when 15% would be scoffed at)

With this wide array of predictions someone will be right. The problem is for the investor there is no way of knowing who will be right.

As to investors predictions are abundant but accountability is rare.

John Bogle, inventor of the index fund and past chairman of Vanguard Investments was speaking at an advisor conference. Now 80 years young, Mr. Bogle, shared the best investing advice he ever got while a young man working as a runner for a brokerage firm, a fellow runner, about the same age as Bogle is now told him the secret ‘Nobody knows anything’.

During his interview Mr. Bogle warned attendees that “we give too much credence to past returns; past is not prologue,” saying instead “it’s the source of the returns” that is more important. He then quoted Samuel Taylor Coleridge that history is like “a lantern on the stern, which shines only on the waves behind us.”

Discussing investing opportunities, Bogle pooh-poohed private equity, saying that there are “a lot of sellers, but not many buyers.” He still believes that “performance chasing” is one of the most deadly of investing sins, that “I grow more concerned about target-date funds every day,” is skeptical about 130/30 funds–“it’s not that easy”–and on exchange traded funds, “my skepticism is increasing,” saying that his reading of the data shows that “ETF investors do badly relative to mutual fund investors.” The problem is not the product but the investor. They need a coach to guide them through the maze of financial media and hype.

Basically what Mr. Bogle is saying is that stock picking, market timing and performance chasing do not work.

Developing a customized portfolio, with regard to your comfortable risk level. Using a scientific approach and remaining disciplined will maximize your opportunity for a successful outcome. My clients understand this and will succeed in the long run.

We must remain diligent and stay focused. Own equities…… diversify…..rebalance.

You Need An Investor ‘Coach’!!!

Each week I talk with investors about their investments and how to reach their investment goals. The conversations nearly always focus around three things:

  • Stock picking…What are the best stocks for right now? What stocks should be sold right now?
  • Market timing…Is now a good time to invest in equities?  Or better yet is this the BEST time to invest in equities? What asset classes/sectors/countries are good or bad for investing right now?
  • Track record investing…This investment manager had a superior return over the last month, year or five years. Should we concentrate our investments with this manager?

Unfortunately, each one of these is a sign that the investor is gambling and speculating with their investment money. We are emotional beings and we are easily swayed by the Wall Street bullies continual media blitz. This blitz is make sure that we continue gambling and speculating with our investment dollars.

Right now, investors are looking for someone who will market time for them. “If the market is going down shouldn’t we get out of the market?” Is a popular question right now. This is market timing and will result in disappointing results over the long term.

Below is a quote by Mark Matson which I believe best describes the dilemma investors face every day.

“What an investor must eventually come to, before they’re willing to accept the free market, is this realization: I am spiritually, intellectually, and emotionally incapable of managing my own behavior and my portfolio. This is a big pill for many people to swallow. Most people realize that, if left to their own devices, they eventually slip back into speculating and gambling with their portfolios. Ironically, by admitting our own humanity and frailty, we can gain new-found strength and accept a better investing solution.” – Mark Matson’s Main Street Money ‪#‎MSMmonday

Many investors want to be in ‘control’ of their investments. Unfortunately, this ‘control’ means using the three signs of gambling and speculating described above. This can be very destructive to your portfolio as well as your confidence in the equity markets.

Sadly, most investors are looking for the ‘holy grail’ of investing which does not exist. The Wall Street bullies continue to send the message that they can predict the future. Despite the bullies very poor track record on predicting the future, investors continue to seek their predictions.

Investors continue to seek stock market returns with Treasury bill risk and what they receive is Treasury bill returns and stock market risk.

Stop empowering the Wall Street bullies and find an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio based on your risk level. Once this portfolio is built your coach will educate you and keep you disciplined to your plan.

As my friend Brad Nagel says ‘You manage your life and let your adviser manage your portfolio.’

Your adviser should protect the future you from the current you.

There Will Always Be Uncertainty In The Equity Markets!!

We are experiencing, among other things, some very tense and violent situations around the world right now. The situation in Ukraine, including the downed airliner, the Israel and Gaza battle. As well as our own battles within our country. There is uncertainty all around us. But OMG what should I do with my investments? Or is this a good time to invest? This are typical reactions to a short term down swing in the markets. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term. Please remember a fact from Frederick C Taylor.  From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return. It is also important to remember that

There ain’t no such thing as a free lunch

(alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing. We read or listen to the financial media telling us why a downturn is occurring. I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct.  Again I do not know the answer. I do know that downturns are inevitable. They happen.

Dealing with these downturns is part of the reason the long term returns are so attractive.

For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:
  • Pick stocks
  • Market time
  • Track record invest.
During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent. Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:
  • Own equities and fixed income.
  • Globally diversify
  • Rebalance
Keep in mind no one can predict the future with any degree of consistency. My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term. Selling or panicking during a downturn will result in  “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach/fiduciary adviser your financial goals are attainable.

You Don’t Have to “Beat the Market” to Be a Highly Successful Investor.

We have been taught from a very young age that we can ‘beat’ the market. In fact, there are stock picking contests in school. Remember the contest? You are given a hypothetical portfolio and told to invest to win. These contests were for a relatively short period of time, a semester.

The ‘winner’ was given a prize. This instilled in all students that you can ‘beat’ the market. The real lesson is that investing in this way is nothing more than speculating and gambling with your money.

These contests are often sponsored by a local stock broker. Their motivation is obvious, get them young and turn them into lifelong speculators and gamblers.

If true investing was taught in school, it would require a much longer ‘teaching’ moment. True investing takes time and discipline.

Although successful stock picking is possible it is not true investing. ‘Beating’ the market is possible but highly unlikely. And most people will be disappointed.

Market returns are enough. Almost every major equity and stock market has consistently outperformed inflation and all the hyperactively trading professional money managers trying to outdo the market.

Most investors aren’t aware they have another option. Chances are you will beat all your friends and the vast majority of managers with the market returns from index funds and structured market portfolios. There is evidence proving this statement.

To become a true investor, you must own equities with short term high quality fixed income, globally diversify and rebalance.

To guide you, seek the help of an investor coach/fiduciary adviser.

the True Enemy of Every Investor…

This subject remains an investor problem. Despite repeating the same message over and over. 

 

Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior. 

 

Unfortunately, the true enemy of every investor lies within. 

 

The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to.  

 

This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt. 

 

After studying the collective behavior of thousands of real world investors over the past decade, several truths have made themselves clear. It is my belief that many, if not most financial product sponsors are aware of this dilemma, 

 

but either don’t care that the investor is harmed by it, 

 

or are ignorant of the damage that they unknowingly perpetrate on the American investor.  

 

Most, if not all of us, need help and guidance during times of market stress. These stressful times are inevitable and need to be dealt with without panic. 

 

This guidance is best found with an investor coach/fiduciary adviser. Your coach will help you protect the future you from the current you. 

 

As individuals, investors have a tendency to believe that when times are good, they will always be good. And when times are bad, they will always be bad.  

 

To take full advantage of the great returns available from the equity markets we deal with the negative volatility. Many believe there is someone who can avoid the negative times and only participate in the good times. This is unsustainable consistently. 

 

I call this market timing and it is gambling and speculating. Which, as I mentioned, we need to avoid. 

 

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

Happy Thanksgiving …….2018!!!

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(AGAIN!), 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.

Real Control is More Important Than Perceived Control.

Brokerage firms create the illusion of “control” by encouraging investors to generate activity – frequent buying and selling. Remember the TV commercials with the talking baby who trades stocks? This brokerage firm is giving the illusion that even a baby can follow simple rules to successful stock picking.

The illusion is that you can pick your own stocks better than professional money managers.

There is a new commercial stating if you want real gains in your portfolio you must make the picks yourself. This Wall Street bully is giving the illusion that you can pick the winners with their help. In the end the only wealth will be created for the firm and not you.

It turns out neither can predictably or consistently pick the “right” stocks. In a similar fashion, gamblers feel more in control of the outcome when they actively pull the arm of a slot machine. Activity is not control. Buying and selling often feels “good” and proactive. In reality, most activity is counterproductive.

Many of us get frustrated with their advisor because they are not always making them money. Many of us expect our advisor to be moving our money from poorer performing stocks or funds to the best stocks or funds.

When the market is in a downturn, like we are experiencing right now, investors want their advisers to do ‘something’.  We need to control our emotions during downturns.

Remember, crashes of the past are seen as buying opportunities while current and future crashes are seen as risk. When experiencing a ‘crash’ keep your focus on the long term and ignore short term volatility.

The best advisors follow a prudent strategy and keep their clients and themselves from making an emotional change to their portfolio when the economy or whatever is going against them.

A prudent process and discipline to that process will guide you to a successful outcome in the long term.

To succeed in reaching our long term financial goals we must own equities…globally diversify….rebalance. Remember sometimes rebalancing means buying poor performing asset classes and selling better performing asset classes.

Does Wall Street Have Your Best Interest in Mind?….Not!!!

There has been increased attention paid to the financial brokerage industry with regard to a non-fiduciary mindset on Wall Street. 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. An article in the New York Times in 2012 brings this out in the open. This is what most of us suspected.

A 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.”

Recently I learned that 1 out of 25 people or 4% in the U’S. is a sociopath. The definition if a sociopath is a person with a personality disorder manifesting itself in extreme antisocial attitudes and behavior and a lack of conscience.

In contrast the ratio of sociopaths on Wall Street increases to 1 out of 10 or 10%.

This is alarming news for investors relying on Wall Street representatives for investment advice. Is their advice in your best interest or theirs?

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.

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.

Many have very impressive credentials. Like degrees from Ivy league  schools or a pedigree of a very successful financier. Somehow investors believe that the necessary skills are hereditary. You need to remember that most successful investors have a relatively short time horizon.

Many because the equity markets are random and unpredictable. Past performance does not equate to future success.

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.

Keep in mind the promoter of the latest hot “investment” will have very compelling reasons to buy. Many times the phrase ‘new paradigm’ are used. Or this time is different. Most of these schemes involve speculation and gambling and not investing.

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.