Investors Think Long Term….Speculators Think Short Term!!

There continues to be more and more media attention that the ‘buy and hold’ strategy is dead. That Modern Portfolio Theory no longer works. This is another attempt by the Wall Street bullies to keep your money on the move.

There are an increasingly amount of ‘experts’ extolling the underperformance of international and small equities for the near future. These ‘experts’ have an obvious conflict of interest as they recommend their own solution.

These ‘experts’ are using 2014-2016 and into 2017 as a sales gimmick. You will hear ‘look I would not have as much small stocks’ or ‘international stocks will underperform for some time to come’. Or both.

Many of us have short memories. In the late 1990’s U.S. Large Cap Growth  stocks including tech stocks were out performing nearly all other assets classes. Like Large Value, small stocks, international stocks.

Most ‘investors’ or should I say speculators had portfolios concentrated in U.S. large cap growth stocks. Specifically, tech stocks or ‘dot’ com stocks.

It was said that it was a new paradigm. Things had changed, permanently, they said. Small stocks, value stocks and international stocks were no longer relevant, they said. Fed chairman Ben Bernanke had the famous quote ‘irrational exuberance’. This only slowed the market for a short time.

Then in 2000 the tech bubble burst. U.S. Large cap growth stocks were crushed.

Warren Buffet who had lagged the tech stock market badly during the 1990’s was back.

A globally diversified portfolio saved many investors. While the speculators were left picking up the pieces.

Investors think long term while speculators think month to month.

True investors are much better served using a free market strategy and utilizing Modern Portfolio Theory and ‘buy and hold’. This strategy, over the long term will lead to success.

It should be emphasized that ‘buy and hold’ should really be ‘buy and rebalance’.  ‘Buy and hold’ might signify set and forget and we must rebalance back to our target allocation periodically. This entails buying low and selling high, automatically.

When we rebalance we sell asset classes that have done well and buy asset classes that have done poorly, short term. Buy low, sell high. This is done periodically and eliminates the need to forecast the future.

When we control risk in our portfolio we can look to our future with confidence. The ‘all-in’ attitude will lead to disappointment over the long term.

To be successful, investors, no matter how large, would be far better off using a free market strategy with Modern Portfolio Theory as part of the process. Modern Portfolio Theory is actually part of a larger strategy called Free Market Portfolio Theory.

Remember no strategy always looks like the right thing to do. We must continue to believe the free markets do work.  Most importantly we must believe in our strategy and remain disciplined.

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

Where Is The Herd Going Now?

We continue to experience civil unrest here in the United States. The intolerances displayed are hateful. During these turbulent times there will be ‘experts’ telling you what is the best place for your money.

It could be gold, annuities, real estate or even a pyramid scheme…….. Whenever there is fear in the air someone has the answer for your investments.  This is a very dangerous time to be speculating.

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 most successful businesses have one 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 losses more money than most but over the long term he wins. He does not fall for the latest fad.

U.S. stocks continue to outperform, well, all other asset classes. The large U.S. stock more specifically is the number one asset class for 2017.

Many clients are looking at their globally diversified portfolios and asking themselves. Why if the U.S. Large stock is doing so well is my portfolio lagging behind? If I just invested all my money in the S&P 500 I would be beating my portfolio.

Why am I paying my adviser/coach to earn a poorer performance than the S&P500?

As investors, we have very short memories. In the late 1990s U.S. Large Cap Growth stocks were outperforming all other asset classes. Four straight years this was the case.

Then the bursting of the tech stock bubble devastated the investors with concentrated portfolios in U.S. Large Cap Growth.

I am not saying this will repeat.

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

To succeed in investing for the long term you should own equities….globally diversify….rebalance.  The key is to remain disciplined to this strategy.

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.

Actively Trading To Nowhere!!

Through many discussions with investors I have learned that when things go against them they want to take control.

Stock pickers and day-traders who are actively trading their investments have perceived control over their portfolio. Similarly, people who jump in or out of the market during up or down swings also mistake their activity for control.

In reality, the more activity and trading you generate in a portfolio, the more out of control the portfolio becomes. When an investor trades in their portfolio trying to time the market or find the “best” investment they are doing nothing but add costs and decrease return.

Actively trading your account by picking individual stocks or market timing or picking funds based on past performance is exactly what the Wall Street bullies want you to do.

Stop empowering Wall Street.

Remember, no one can predict the future, no matter how convincing someone is in the media they are only guessing.  In most cases the predictions are never broadcast by the same ‘experts’.

The “best” strategy is to have a prudent process and discipline in place   Stop trying to study the market to find bargains, statistics prove that it cannot be consistently done. You might get lucky in the short term but long term your results will suffer.

With the case of market timing, getting in and out of the market at the right time requires being right when you get out of the market AND be right when you re-enter the market. This again will result in lower returns.

To succeed long term and reach your financial goals you should
own equities…globally diversify …rebalance.

The problem investors have is that they do not know what long term really means.

Is it 1 year or 2 years or 5 years or ten years? I guess everyone has their own definition. What long term means to me is your entire life.  At some point, you will retire and stop accumulating funds. You will begin spending funds. Many believe that when you retire all your savings should be ‘safe’.

What these investors forget about is inflation. What seems like enough money today. May not be enough in 10 years or 20 years.

Let the free markets work for you. Remember since 1926 the S&P 500 has averaged 9.87% return.

Keep in mind this is not an arithmetic mean average but rather the compound average return. You can learn more by going to http://www.investopedia.com/articles/08/annualized-returns.asp

During that time, there has been down turns of 10% or more 89 times. So, if you want to earn the great returns the equity markets have to offer. You need to be patient. It helps to have a coach to help you through the ‘bad’ times.

Sure Thing….NOT!!

After watching Super Bowl LI I felt shocked as the game progressed. The ending was unexpected given the events of the first three quarters. All I can say is WOW….

Altanta was ahead 28 to 3 and was dominating. Anyone watching would have said an Atlanta win was a sure thing. The owner of the Falcons Arthur Blank was down on the field with 10 minutes to play. A championship was assured. His Atlanta Falcons would win the Super Bowl and be awarded the Lombardi Trophy. Being a Packer fan I had to mention our old coach Vince Lombardi.

Then Tom Brady and the Patriot defense took the game over. With one minute to play the score was tied 28 all. Atlanta had one last chance to win in regulation. The Patriot defense held and there was overtime. In overtime New England won the toss marched down the field to score a touchdown and win the Super Bowl.

What was once a sure thing for the Falcons turned into a devastating loss.

What does this mean to investors?

Many times, investors watch the markets and see an asset class(es) or individual stock or investment product charging ahead or even dropping ‘like a rock’. And think I need to put all my money into that….or sell everything I own in that….

It is a ‘sure’ thing. Can’t lose. It’s the new paradigm. Traditional investments are dead this is the new thing.

There are thousands of examples of just this kind of thinking.

Then something happens. The fourth quarter begins and everything falls apart. What was once a sure thing, is now dead in the water. No one wants to touch it. Losses keep mounting and investors have all their money in one thing.

Devastation ensues. Investors panic and decide to never invest again.

The problem is they were never investing in the first place. They were gambling and speculating with their investment money.

Investors need to realize that there is no such thing as a sure thing. Anything can and will happen. Many times, unexpectedly.

To succeed investing long term you need to own equities and high quality short term fixed income…globally diversify…rebalance.

Follow these three rules with the help of an investor coach/fiduciary adviser and success will be yours.

The Equity Markets Are Unpredictable…Really!!

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. As an example, many investors missed the latest market advance because the ‘experts’ said the market would decline if Trump were elected. This of course did not happen.

The equity markets will have down periods and these ’experts’ will blame somebody or something.

Others investors 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 principal. 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(s). 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.

Emotions Override Statistics…

When you read a daily financial publication like the Wall Street Journal you find an enormous amount of facts. These facts can lead to vastly different conclusions. I wager that each day, with the exception of 2008-9, I can find 5 reasons the market will go up and 5 reasons it will go down. All of these ‘facts’ occur in the same day.

You can justify almost any imprudent investment decision with “facts.”  Information is filtered by our emotions to create “fact” that support our decisions or beliefs. Without outside guidance, it is impossible to tell when and how this happens. Truth is the field of investing is elusive.

Remember the Wall Street bullies make money when we, the public, move money from one investment to another. Your broker has a vested interest in moving your money. They make more commission each time you move. The banking system loves to feed the fear.

If you are really interested in earning a good return on your investment dollars stop empowering the Wall Street bullies. Develop a sound, prudent portfolio, based on YOUR risk tolerance level and remain disciplined to that strategy. Jumping from one investment to another will cost you money and make tons of money for Wall Street.

As I have mentioned a number of times, NO ONE can predict the future. When you ask your broker what is the best stock for now? Or, when should I get in and out of the market? Or, who is the best fund manager(s)?  You are essentially asking them to predict the future.

A globally diversified portfolio eliminates the need to predict and allows you to relax and be assured you are properly invested to reach your long term goals. One of the main attributes investors need as well as advisers is discipline.

Many investors make the mistake of being in stocks or out of stocks. There is no in between for these ‘investors’. The truth is the answer is somewhere in between.

When a new investor in their 20s begins, their portfolio is 95% equities and 5% fixed income. As we age our portfolio needs to take on less risk. For example, for someone in their 50s and 60s a portfolio of 60% equities and 40% fixed income might be appropriate. For someone in their 70s 50% equities and 50% fixed income or even 40% equities and 60% fixed income might work.

To be specific your fixed income allocation should be high quality short duration. This adds stability to your portfolio.

The real answer is to maintain your purchasing power and provide reasonable growth you need equities in your portfolio. The level of risk you maintain is up to you and your spending habits.

Equities are one of the greatest wealth creation tools available, if properly used. To reach you long term financial goals own equities…..globally diversify….rebalance.

Nobody Knows Anything….in Advance!

As we begin 2017 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.

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 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.

Should Your Investment Research be Based on Academia or the Wall Street Bullies?

There were numerous predictions depending on the outcome of the presidential election. What will happen to stocks now that Donald Trump has won?  No one really knows. This election has been one of the most contentious if not the most contentious election in our history.

So far, the stock market has had a very positive response to his election. Will this continue? I really have no idea. And no one knows with any degree of certainty.

More than at any time in our history….we need strong leadership.

That said, we must stop listening to the Wall Street bullies regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? The Wall Street bullies don’t really care. All they care about is that you trade. Most investors don’t know what to do.

As an example, one of the predictions about what to do and when. Jim Cramer says buy. But his track record is very poor. Maybe we just do the opposite of anything Jim Cramer recommends. Then again Jim Cramer might get lucky this time and be right. No one knows for sure, not even Jim Cramer.

Remember the main reason for his TV success is his entertainment value. Following his investment advice will lead to poor results.

All that you know for sure 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.

Rather than looking for the next great trade or asset class, invest in a portfolio based on Nobel Prize winning research. Instead of researching investments, your time will be much more efficiently spent on improving your job skills, or learn a new skill set leading to a new career, or even better, spending time with the important people in your life.

Perhaps you should look at your investments with a goal in mind rather than short term performance results.

Taking a long term view of your portfolio will reduce and perhaps even eliminate your anxiety.  Remember a disciplined saving strategy will outperform all trading strategies, long term.

Take control of your investments don’t empower the Wall Street bullies.

Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance.

Are You In Control of Your Portfolio??

Through many discussions with investors I have learned that when things go against them they want to take control.

Stock pickers and day-traders who are actively trading their investments have perceived control over their portfolio. Similarly, people who jump in or out of the market during up or down swings also mistake their activity for control.

In reality, the more activity and trading you generate in a portfolio, the more out of control the portfolio becomes. When an investor trades in their portfolio trying to time the market or find the “best” investment they are doing nothing but add costs and decrease return.

Actively trading your account by picking individual stocks or market timing or picking funds based on past performance is exactly what the Wall Street bullies want you to do.

Stop empowering Wall Street.

Remember, no one can predict the future, no matter how convincing someone is in the media they are only guessing.  In most cases the predictions are never broadcast by the same ‘experts’.

The “best” strategy is to have a prudent process and discipline in place   Stop trying to study the market to find bargains, statistics prove that it cannot be consistently done. You might get lucky in the short term but long term your results will suffer.

With the case of market timing, getting in and out of the market at the right time requires being right when you get out of the market AND be right when you re-enter the market. This again will result in lower returns.

Recently I worked with a prospect’s retirement plan. During our discussion, I learned that during the 3rd quarter they exited stocks and  bought fixed income. I learned it was the result of all the media hype on the presidential election.

Many in the media predicted that if Donald Trump were elected the markets in the U.S. as well as the rest of the world would react very negatively.

There was uncertainty in the equity markets and they reacted by running to safety, ie, fixed income. Safety in fixed income is not real safety but that is for another discussion.

This is a classic case of market timing. And market timing has been proven over time to hurt investor performance. And the losses can be significant.

Remember the Wall Street bullies make their money when you trade in and out of stocks. This may seem like control but you are actually ‘out of control’.

To succeed long term and reach your financial goals you should
own equities…globally diversify …rebalance.