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.

You Have to Look Different To Succeed Long Term.

Many times, when I meet with investors I am asked ‘where is the best place to put my money?’  The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.

These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear in every environment.

A true adviser will often tell you things you do not want to hear. Remember if your adviser only provides the product you ask for they are not an adviser but rather a salesperson or broker.

These salespeople are really facilitators. You tell them what you want or what scares you and they provide the product.

The result is, in many cases, a portfolio that is concentrated in the ‘hot’ asset classes of the day.

To succeed in investing being diversified means looking different.

Most investors are narrowly diversified into top performing funds or asset classes of the last five to ten years.  They often feel diversified but aren’t.

It might be gold or annuities or cash or commodities or insurance guarantees or U.S. large cap growth or large cap value or small cap and then even internationals equities. The list is endless as Wall Street continues to generate new ‘product(s)’.

Gambler and speculators are always looking for the next ‘hot’ investment. These speculators are looking to get rich quick. They want to substitute disciplined savings and a prudent portfolio with a get rich quick scheme.

Remember the Wall Street bullies make money when you trade. They need you moving from one asset class to another. This makes the bullies money and costs you big.

To be truly diversified means including asset 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’.

Don’t empower these bullies and be different. Act more like you are managing a pension fund. Pension funds control risk and prudently diversify. That means some of the funds are poorly performing now or in the recent past.

From worst to first many times applies here.

Of course, there are examples of pension funds ‘juicing’ up returns to avoid contributing the necessary funds. This often has disastrous results.

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

Think long term and avoid making emotional decisions during short term volatility.

This is best accomplished with the aid of an investor coach/fiduciary adviser. Not a facilitator bit rather a true adviser.

Does Your Portfolio Care Who The Next President Is?

Well it is finally election day..all the back stabbing and fighting will finally end….RIGHT!!

At the end of this day we will know who will be the leader of the free world. Will it be Hillary Clinton or Donald Trump? Regardless the fighting will continue.

There are those that believe that the markets will go down regardless of whoever is voted our next president.  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 uncertainty, 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 degree of 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 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.

Remember the equity markets around the globe are random and unpredictable.

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 uncertainty 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.

What Is Your Number?

There continues to be predictions about market direction. Particularly if certain events occur. There are those that predict a market ‘crash’. And those that predict that it will continue it’s up move.

Well both are right. At some point the markets will do down. The problem is no one can tell you with any degree of consistency when.

Businessman presenting financial analysis with charts generated by big data displaying international success and dollar signs
Businessman presenting financial analysis with charts generated by big data displaying international success and dollar signs

The Wall Street bullies find new and very inventive ways to keep people trading. These bullies have convinced everyone that gambling and speculating are investing. They can make their pleas to trade very convincing.

But not you. I am so proud of you. You have not lost sight of your long-term goals and time horizons. Investing is hard in times like this. We are investors, not speculators or gamblers.

Remember gambling and speculating with your investment dollars only benefits the bullies and not you.

Short-term volatility is to be expected, and doesn’t mean that the risk part of your portfolio isn’t working. While it goes against all of our human instincts, this is the time to remain disciplined and rebalance.

Each one of my clients has different levels of risk or volatility in their portfolio, from very low risk, to balanced or moderate risk, to aggressive. And somewhere in between. Customized to your goals and desires.

It is very important that you are in a portfolio according to the level of risk you can sustain for your lifetime (or a strategy that slowly reduces risk over time), which will allow you to remain disciplined and ride through the upside and downside volatility, while allowing us to rebalance your portfolio on highs and lows.

Know your risk measurements.

If you know your risk measurements you will know what to expect, and won’t be caught off guard when downside volatility occurs. Greater peace of mind comes from knowing your risk and knowing what to expect in down periods and up periods.

The longer term average returns include both upside and downside volatility. Upside and downside volatility can be reduced but not eliminated in the risk part of the portfolio. Investors that tend to take too much risk, or worse, take too much risk and don’t know how much risk they are taking, tend to panic and lose large sums of money with market timing issues.

IF markets go down (as they always do from time to time), you/we have a plan. We will rebalance the portfolios. Because of the diversification in the portfolios, we have the bonds to rebalance into stocks when stocks are down.

To succeed we must own equities….globally diversify…..rebalance.

What’s Your Long Term Goal?

When investing many people hear their friends or colleagues talking about their investing successes. In many cases this involves investing in high risk ‘penny’ stocks or startups.  Or just the ‘hot’ asset class of the day.

The lure of the high return is compelling to most of us. Some may even have early successes.

We must remember that this is speculating and gambling with your money. When these investments do work out it is the result of luck and not skill.

Over the long term, using this strategy, the investor will be lucky to match the returns of the overall market.

Psychologists Kahneman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to make $80,000, when others were making $90,000.

There will always be “others” with more assets, money, or larger portfolios. We are doomed to disappointment because comparison destroys the joy of having and using what we already have.

Most people would agree to make or have less as long as others were even poorer. Resist the impulse to compare yourself to your “neighbors”.

This includes comparing your portfolio or 401(k) account balance to your colleagues. In some instances you may be better in others worse. The goal of your investments is to attain your long term goal. This would include a strategy and savings discipline.

Developing a prudent strategy and remaining disciplined to it are very difficult, however in the long term will lead to success. No one can predict what asset class or sector will outperform in the future.

Warren Buffet has one strategy which he remains disciplined to. This is the primary reason for his success.

You are speculating if you stock pick, market time or base your investing decisions on track record performance.  Keep in mind speculating is ok, but not with your retirement funds or any funds needed for a long term goal..

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

While it sounds easy these three tasks have proven very difficult for investors to follow. Especially during market extremes.

Because we are emotional beings we need someone to keep us disciplined. To resist panicking during severe downturns. As well as resist joining in on a ‘huge’ upswing in a specific asset class.

Find an investor coach/fiduciary advisor and learn how to invest with more confidence. Your coach will help you ignore the short term volatility and focus on your long term goals.

Free Markets Work…

It seems like every day an investor will ask me about my prediction for the stock market. Well anyone who works with me knows I do not believe anyone can predict the future movement of stocks with any consistency.

I believe no one can tell you whether the next 20% move will be up or down. But the next 100% will be up.

Each day the media focuses on a new prediction. Their audience is continually searching for new predictions. What will happen next? What is the new hot asset class? Where is the best place to put my money?

NASA Sunspot Number Predictions for Solar cycl...
NASA Sunspot Number Predictions for Solar cycle 23 and 24 (Photo credit: Wikipedia)

This is why people continue to watch the talking heads on the business channels. And why shows like Jim Cramer are so popular.

Everyone wants to have the best investments, only making money and avoiding all losses. This futile exercise will only add anxiety to your life.

To repeat…..No one can consistently predict the future.

When someone is right on a prediction it is a matter of luck and not skill or knowledge. Free markets are random and unpredictable.

Free markets left to their own devices set prices better than any individual or committee. They incorporate all of the knowable and predictable information in the present, as well as knowable information about the future.

Only unknowable future news and information can change prices going forward.

Rather than attempting to predict the future use your time and resources to improve your skills, either career or life.

Your investments are best allocated by owning equities, globally diversify and rebalance.

Follow these three simple rules and you will succeed in reaching your long term goals.

The problem really is when a stock picker or broker gets hot. People pour money into them to join the ‘party’. Problem really arises when the hot picker or broker cools off and lose money.

As an example Bill and Hillary Clinton’s son-in-law started a hedge fund less than 2 years ago and has since closed it. Why? Because the fund lost 90%. Hot then Not.

I call this musical brokers.

If you are serious about making your money last and grow with a certain degree of consistency. You need to fire your broker/agent and hire an investor coach/fiduciary advisor.

Your fiduciary advisor will help find the level of risk you are comfortable with and that helps reach your goals.

Your portfolio will be globally diversified. In my case the portfolios also have a small cap and value cap tilt. Regardless of this, a globally diversified portfolio will underperform at times.

This is where many investors stray off course. They then believe the globally diversified portfolio is no longer working. Or some broker shows them an outperforming strategy.

There is no strategy that will always outperform. But switching from one strategy to another will lead to poor results in the long term.

To remain disciplined during underperforming periods work with an investor coach/fiduciary advisor.

Process, consistency and discipline work. Free Markets Work.