A New Paradigm?

Greed is a very powerful motivator. OK so is fear. But greed may be the most dangerous, in my opinion. Right now, many are talking about Bitcoin. I have been told it is a paradigm shift to a new economy. I have been told you will become rich by investing in Bitcoin.

Even though there has been a huge return already realized. I have been told it is only the beginning. I have been told all your money should be ‘invested’ in Bitcoin. I have been told you will be rich if you put all your money in Bitcoin.

After some research I still do not understand what it is and how it works. Is it possible that it could continue its run up? Yes, it is possible. However, putting your money into Bitcoin is pure speculation.

If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit.  Only hot, sexy, and speculative techniques make the cover.  Don’t follow your friends!

Remember the dotcom period of the 1990s? It was also called the new paradigm. The results were not that good. If Nasdaq is considered the technology sector or dotcom. It took 15 years to recover all the losses. While all the other equity markets, including the S&P 500, recovered very quickly.

The most successful businesses have one proven strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country they are all set up the same. They know there may be a better way to run a restaurant but their systems works.

Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he loses more money than most but over the long term he wins. He does not fall for the latest fad.

As an investor you may be tempted to change your investment mix to accommodate current events. This is call market timing and it has been proven not to work. You may get lucky in the short-term but you will eventually fail.

Short term gain…long term pain.

To succeed in investing for the long term you should own equities….globally diversify….rebalance.

The key is to remain disciplined to this strategy.

Predictions..What Are They Good For?

Absolutely Nothing…

Well it’s the time of year for new predictions. The ’experts’ all giving their predictions for 2018 and beyond. You will hear the market will crash…you will hear the S&P 500 will pull back to below 2300 (currently 2750 about a 15 to 20 % decline)…you will hear the bull market will continue indefinitely…you will hear all your money should go into ‘bitcoins’. And on and on…

These predictions like all the others are good for absolutely nothing. Except perhaps for the predictor to sell you their ‘timely’ newsletter(s) to unsuspecting gamblers. These Wall Street bullies do not trade on their own predictions. These bullies make money solely on selling worthless newsletters.

Investors are constantly looking for predictions because they want stock market returns with Treasury bill risk. What they get is Treasury bill return with stock market risk. We are all looking to avoid pain and seek pleasure.

Personally, I work out regularly. It keeps me in shape and focused. There is one saying that sticks with me, ‘No pain….no gain’. Well for investors that allow their emotions to guide their investment decisions and avoid risk during down turns I have a similar saying…

‘Short term gain ….long term pain’.

If you allow the Wall Street bullies to guide your investment decisions you may experience the short-term gains like the avoidance of a downturn or the exhilaration of a hot stock (like bitcoin) or asset class. In the long term you will suffer because your portfolio lacked diversification AND discipline.

Like everything in life someone will get lucky and make a correct prediction.

Of course, past performance is no indication of future results.

Unfortunately, we as investors have no idea whose prediction will be right. The efficient market hypothesis says all the knowable information about a particular investment is already in the price right now.

This is due to the fact that the markets are random and unpredictable.

An added note Dr. Eugene Fama of the University of Chicago wrote the efficient market hypothesis in 1965 and won the Nobel Prize in Economics in 2013. It has stood the test of time.

Many of you may be saying…’Tony you say the same thing week after week and year after year’. Well you would be right, because no matter how many times the same pattern repeats investors make the same mistakes over and over. So my message will be repeated over and over. This is what coaches do.

Coaches work with you to develop a ‘game’ plan or in technical terms the Investment Policy Statement. As with all plans it is a meaningless exercise if you develop your plan and never implement it. Or follow the plan for a while and then when things change for the worse abandon the plans.

This is where your investor coach really exhibits their value to you and your financial future.

Remember the Doc Rivers quote: Average players want to be left alone…good players want to be coached…great players want the truth.

With a solid game plan in place your coach will keep you focused on the long term and remain disciplined.

The opposing team may come up with a ‘trick’ play and score and perhaps win the game. This is due to luck and not skill.  However, with a solid game plan and discipline you will win in the long term.

Stop looking for predictions. Do find an investor coach to guide you to a successful plan.

In Rodgers We Trust!

OK I have been about the Green Bay Packers a bit much. Right? Well I am a diehard fan so …Tough!!

Sunday, I watched the end of the Packers playoff chances with a loss to The Carolina Panthers. The Packer defense continues to a major disappointment year after year.

Events leading up to Sunday’s loss are what I find interesting about past experiences.

As everyone knows Aaron Rodgers is the Packer quarterback. He is considered one of the best quarterbacks in the game today, if not the best.

So when Rodgers talk people listen. A few years ago, the Packers had a very slow start. Aaron came out and said R-E-L-A-X and Packers went on a winning streak winning the division and earning a spot in the playoffs.

Last year the Packers again started very slow. With a record of 4 and 6 Rodgers came out and said we will run the table. The Packers did just that winning the division again and earning another spot in the playoffs.

This year Aaron was injured on October 15 with a broken collar bone. His replacement did not do well. Of course, the weak defense was of no help. This last Sunday Rodgers came back. All Packer fans assumed we would win the rest of our games and earn another spot in the playoffs.

Well that did not happen. The loss all but ended our playoff hopes. Packer fans are shocked Rodgers did not save them again.

But, Tony, what does this have to do with investing? Well, many investors look at a manager’s or market predictor’s past performance and assume they will repeat this stellar performance.

Remember when you look at investment products. There is a disclaimer that states ‘past performance is no indication of future results’.

Using an investment manager’s past performance as a predictor will in most cases lead to disappointment.

Always remember, the equity markets around the world are random and unpredictable.

Rather than looking for the ‘hot’ investment manager or the latest market predictor. You should develop a prudent portfolio and allow the market to reward you with the great long-term reruns they provide.

In most, if not all cases you will need the assistance of an investor coach/fiduciary adviser you keep you disciplined.

To succeed long term in your investing, you must own equities…globally diversify…rebalance.

Stick With The Plan!!

This past Sunday I was watching my beloved Green Bay Packers playing the winless Cleveland Browns in Cleveland. Based on the scenes of the crowd there were a number of Packer fans in attendance.

During most the game the Packers were trailing. In fact, they entered the fourth quarter trailing 21 to 7. It did not look good. But then the Packers scored 20 unanswered points and won in overtime. Keeping the Browns winless.

As I was watching the game I was following the comments on Twitter. There were many fans looking for answers, questioning nearly every play called. Asking for ‘heads to roll’. “Why aren’t throwing the ball longer’ or “why is Hundley still the quarterback?” or “this game is over” “Thompson, McCarthy, Capers all need to be fired.” The list of complaints was endless.

Admittedly I had my doubts. Our slim chance of getting in the playoffs would disappear.

In the fourth quarter comeback Twitter was nearly silent. There remained a large number of doubters. When the game ended. I read some comments like “I never really gave up” or “I always had faith”. WOW!

At the end I realized that the Packer coaching staff had a plan. They adjusted their plan slightly and went on to the win. They had a process and the discipline to follow it. Regardless of the criticisms the Packer organization had a philosophy and followed it.

Keep in mind you will not always be successful short-term. But you will succeed long-term.

Investors should learn from this. Investors need an investment philosophy they believe in. Then they need the discipline to follow it. In most, if not all cases, this will require the assistance of an investor coach/fiduciary adviser.

Investors need to ignore the financial media and the short-term noise of the market and stick to their plan. At times it will be very uncomfortable and scary. The media will try to scare you to move your money. After all Wall Street makes money when you trade in and out.

To be successful in investing you need to own equities and the right amount of high quality short-term fixed income, globally diversify and rebalance.

As I said, this requires the aid of an investor coach/fiduciary adviser.

Extraordinary Results!

While I do not agree with Warren Buffet’s approach to investing for most investors. He is a stock picker. However, what I do believe in is his discipline. He has a process and he sticks to it regardless of short term market noise.

Most investors would not be able to endure the volatility of a Warren Buffet portfolio.

This quote will help many investors realize extraordinary results.

It’s not necessary to do extraordinary things to get extraordinary results. Warren Buffet

Everyday there are new financial products generated by the Wall Street bullies. These products are designed to take advantage of the current situation on Wall Street. The short-term market noise should be ignored by successful investors.

Wall Street needs investors to continue moving money. From one product to another. Without regard to what is in the clients’ best interest.

Every day I read about the next great manager or next great strategy. These ‘greats’ are all the result of taking advantage of the current short-term noise in the equity markets.

Most investors need a process to follow, a game plan so to speak. Something to follow during both ups and downs in the markets.

But most importantly they need discipline. The discipline to follow their plan regardless. Many times, it will not look like the thing. However, over the long-term it will serve them well.

This is where a fiduciary adviser/investor coach adds value, or earns their fees if you will. During market extremes, both up and down, provides discipline to help avoid any major mistakes.

To succeed long-term own equities…globally diversify…rebalance.

What Makes A Great Investor?

Average players want to be left alone. Good players want to be coached. Great players want to be told the truth. – Doc Rivers.

Now I am not a fan of the NBA. But this quote by coach Doc Rivers struck me. What a message. This really can relate to investors as well as, many of life’s endeavors. The average want to be left alone because they fear the unknown. They fear loss, being taken advantage of and they have ‘too much to lose’.

The average seek answers to unanswerable questions. What is the best investment? Where is the best place to put my money? Will I have enough money to retire on? Will I outlive my savings?

Good investors want advice. They want to be coached. Unfortunately, the Wall Street bullies have convinced the good investors that predicting the future is right. They have been convinced that someone can get them into and out of the equity markets at the right time. They have been led to believe that someone can pick the right stocks.

Their goal is to earn stock market returns with treasury bill risk. What they get is Treasury bill returns with stock market risk.

Great investors have open minds. They seek the truth, not the propaganda the financial media spews, each and every day. They understand that Wall Street might not have their best interest in mind.

They believe that investing is a long term process. They believe that market timing, stock picking and track record investing do not work.

These great investors seek the truth. This includes Nobel Prize winning research such as, Modern Portfolio Theory and Efficient Market Hypothesis. It also includes the three-factor analysis.

Great investors not only seek coaches they also seek the truth.

Work with a fiduciary adviser/investor coach to become ‘great’.

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.