Happy Independence Day!!!

Many of us do not realize or forgot what this day represents. It is our Declaration of Independence from the oppression of the British government. Our day of independence from ‘taxation without representation’.

Those who signed this Declaration of Independence essentially signed their own ‘death’ warrant. Without these brave men America might not have become the great free nation that it is.

Freedom was the center post of this day.

We had been relying on the British to protect us and paid dearly for this protection. We realized that we could protect ourselves and realize our own dreams.

Currently, we as a nation are protesting racial inequality. We seem to think the federal government is responsible for fixing this. We rely on the federal government to feed us, provide medical care and other essentials.

We rely on the Wall Street bullies, to tell us what to do with our hard-earned money.

Perhaps this week we should seek our own independence from these bullies. You do not have to risk your life like our fore fathers, but you can become more accountable for your own financial future.

You can protect the future you from the current you.

We continually rely on the federal government, our union leaders, the Wall Street bullies, the media and on and on. Yes, you may have to experience some short term pain when equities decline. The long term benefits, however, far outweigh these painful times.

Stop being a victim and hire fiduciary advisor/investor coach to help you achieve your own independence.

Luck or Skill??

When investors look for actively managed funds they invariably look at past performance and choose the funds with the highest return.  This is typical and the main reason the majority of investors DONOT earn at least the market rate of return.

Several recent studies have proven that the above strategy is flawed.  Actively managed mutual funds with performance greater than the market cannot contend that this performance had anything to do with skill on their part.  No investment skill is evident. 

Have you ever watched a private equity video where the manager is driving a $500,000 car? In most cases this is because the manager makes much more money than their clients. There are numerous examples of private equity managers not beating market returns. And in many cases losing.

The overall evidence suggests that private equity investing is a ‘crapshoot’. 

Of course, there are always examples of private equity firms becoming successful. But in most cases this success is short lived. Primarily because their success is a matter of luck and not skill.

The same can be said for brokers and ‘investment pros’ who claim to be able to time the markets, pick outperforming stocks or select mutual funds that will outperform other mutual funds.  Any prior success can only be attributable to luck not skill.

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

Is It Panic Time….Again??

We are experiencing, among other things, some very tense and violent situations around the world right now. The global coronavirus with the resulting economic crisis. Over the last month, the protests surrounding the George Floyd death. Social injustice has been dominating our conversations rather than the virus. 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.

Proper Expectations!!

There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win in Washington DC?

What will happen tomorrow….next week….next month…..next year……?

Will inflation take hold? Or is deflation around the corner? With $6trillion dollars in stimulus money, will taxes go up? Or should I say how much will taxes go up?

And the list goes on and on…

The talking heads on television and social media need these predictions to keep viewers watching, which in turn increases advertising revenues.  Unfortunately neither television or social media are accountable for their predictions.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

Proper expectations are the key to investing with Peace of Mind.

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.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

Markets Are Random!!!

First, we have been dealing with the coronavirus for nearly 3 months. Which includes a lockdown and the shutdown of our economy. Now we have riots all around the country. With all this upheaval, the equity markets should be crashing…right?

Well as of right now the markets are holding their own. This could change at any moment.

Many investors exited the market because of all the ‘bad’ news. Including an unprecedented crisis.

When investors are looking for the best place to invest their money, they attempt to avoid the pain, the pain of down markets. Given the high volatility of the stock market many investors are avoiding placing their money in equities. They are looking for guarantees, ie, annuities, cash, CDs, bonds, etc.

Many others are seeking ‘experts’ to tell them when to get in and out of the market, which is market timing. Others are looking for the next hot stock or hot asset class. Still others are looking for the hottest fund manager or track record investing.

What all these people are looking for is someone to predict the future.

All this is the result of us looking to avoid risk or loss of principle. All these efforts are sadly wasted because all markets are random and unpredictable.

There are different risks in all assets classes whether it’s stocks or annuities or CDs or cash or bonds or even gold. No matter where you put your money there is risk involved.

If you invest in the stock market, no one can “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.

If there were no down markets, equities would not produce good returns long term.

The cost of capital results in good returns, over time. The stock market is efficient enough that no one can predict the future. By efficient I mean all the knowable information is already in the price of the security. Only new and unknowable information change prices in the future.

Anyone who tells you what will happen in the future is trying to fool you and perhaps fool themselves. The media Is full of financial pornography trying to sell you their product. Each season there is a new prediction. As an investor you must avoid the temptation to believe these hawkers.

To succeed long term you must develop a prudent strategy with the appropriate risk level and remain disciplined.

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

Happy Memorial Day 2020!!

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 this week. So, enjoy!

As we celebrate Memorial Day 2020 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.

Who Has The Answers?

The coronavirus continues to be hotly debated. Everyone is looking for answers. What we are getting are opinions and guesses. Because no one has a definitive answer. The Wisconsin Governor has tried to lock down the entire state for an extended period. Many business owners and citizens want to open the state up.

On one side they believe, for everyone’s safety, we must shut down. On the other they believe the economic effects much more deadly. Where do you stand?

Do you believe the coronavirus will recur on an annual basis? Will there be a vaccine developed? Will the virus evolve each year, like the flu? Must we learn to live with the coronavirus, like the flu?

What we don’t have are answers as to what is the best thing to do. Most of the past predictions have proven to be incorrect. What to do?

This crisis is very dangerous, but we have dangers ever day. I read a statistic that if a person lives their entire life in a major U.S. city. They have a better chance of a violent death, than a soldier in World War 2.

What we have is a number of competing predictions. With no answer.

On the other hand, investing has a number of competing predictions. With an answer. The answer is own equities along with the right amount for high quality short term fixed income, globally diversify and rebalance.

The competing predictions come from the Wall Street bullies. These bullies want you moving your money with any ‘new’ prediction. Avoid this trap.

He Who Trades Less Wins!

Prior to the new fiduciary rule. The Wall Street bully brokerage firm would use their payout structure to their brokers to generate more trading. They would pay a higher fee for the stock portion of a clients portfolio. For example, pay 1% on the stock portion and 0.50% on the fixed income portion.

This would result in their brokers using higher risk portfolios for their clients. Naturally they get paid more for a riskier portfolio. When there was a downturn in the market their clients realized more volatility than was right for their situation.

Just recently the discount brokerage firms announced ‘zero’ cost trading. No commissions to trade your account. WOW..Now you can trade everyday, for no cost.

The questions investors should be asking is,  How are they making money now? When they charged a commission, it was transparent. Now we have no idea.

Or do we? The more you trade the more Wall Street makes.

A broker’s “job” is to get you to buy and sell as much as possible.  That is the primary way he or she gets paid.  This is a huge conflict of interest because what is good for you is bad for the broker.

The Wall Street bully brokerage firms do not make money buying the right stocks at the right time. This is a great misperception by the investing public. They believe the brokerage firms have the right information to ‘beat’ the market.

This is wrong. Because, like you, they cannot predict the future.

These brokerage firms make money when you trade stocks. There is a spread that they earn on every trade plus a commission (yes there continues to be a commission).

For example, the bid is the amount someone is to pay, say $10 and the ask the amount someone is willing to sell, say $12. When you are buying you pay $12 and when you are selling you receive $10. When the trade is completed the brokerage firm earns the $2 difference plus commission.

Therefore, being an active trader in the long run will cause you to lose money.

By employing a scientifically designed strategy and remaining disciplined to that strategy, over the long term you will win.  Remember your portfolio is like a bar of soap, the more you touch it the smaller it gets.

Own equities….globally diversify…….rebalance.

Real Control is More Important Than Perceived Control.

When an adviser bases their recommendations on evidenced based investing. It requires them to build a globally diversified portfolio. To be clear, globally means to invest in equites and fixed income from across the globe.

When dealing with a globally diversified portfolio. There will often be sectors/countries that are doing better than others. Right now, U.S. large cap growth stocks are leading and by a substantial margin.

To be able to attract more investors, many advisers will recommend portfolios heavily loaded with the hot sectors. Unaware investors will assume this adviser is better than the evidence-based adviser.

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 sectors/countries to the best sectors/countries.

In many cases the investor will make a change just before the hot sector cools off and the cold sector begins to heat up. They are in effect buying high and selling low.

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. Which goes against many investors instincts.

When Should You Get Out Of The Equity Markets?

Well the COVID 19 crisis continues. When it will end, I do not know. In my opinion, the coronavirus will not go away. It will recur much like the flu. We will find ways to deal with it in the future, short of shutting down the economy.   This debate will continue.  What will happen is anyone’s guess.

No matter what the current events, investors will be ill-advised to attempt any market timing. That is getting out of the market when the financial media tries to forecast the future. It is very difficult if not impossible to determine when to get out and then determine get back in. Even when someone is able to successfully do this once it is a matter of luck and not skill.  There is no evidence that anyone can consistently time the market.

This however does not stop the Wall Street bullies from marketing the few analysts that got it right. They try to convince the investing public that these same analysts have a special gift and will repeat their incredible performance. If it were true why would the Wall Street bullies have hundreds if not thousands of analysts on staff? These bullies know that in any given year a few of their analysts will get lucky and ‘beat’ the market.

Unfortunately for investors there is no way for them to determine which analysts will be the lucky ones in the future.

As I have said many times in the past you are gambling and speculating with your money if you:

  • Stock pick.
  • Market time.
  • Track record invest.

If your investment portfolio is needed to last your lifetime, gambling and speculating will lead to disappointing results. Of course some will get lucky and hit it big but there is a high likelihood that they will continue gambling until they lose.

Investors who need their money to last a lifetime need to build a prudent portfolio at the appropriate risk level. There are three simple rules of investing:

  • Own equities and fixed income.
  • Globally diversify.
  • Rebalance.

If you follow these simple rules you will be able to take a prudent income with adjustments for inflation. 

Equities are the greatest wealth creation tool on the planet.

You need to ask yourself if the stock market goes down and stays down will the financial system survive? What will your money be worth? There are many unanswered questions and these questions are unanswerable.  No matter what happens to the financial system people will continue to demand products and services.

To reach your long-term financial goals you will need the assistance of an investor coach. Your coach will help you build YOUR portfolio at the appropriate level of risk. When this is accomplished your coach will keep you focused on your long-term goals. They will help you resist the hot asset classes or hot stocks. As well as keep you from panicking and selling when the equity market declines.

Finally, at the risk of being a name dropper I like the quote of Dr. Eugene Fama winner of the Nobel Prize in Economics for 2013.

“Diversification is your buddy.”