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.”

Emotional Decisions….

This message was written 5 years ago. It bears repeating now. Many of us are making emotional decisions based on our ‘facts’.

We all believe that we make important decisions based on fact. Our research, typically, is quite limited. We ask our friends, neighbors, co-workers, family or a trusted adviser their opinion. If it aligns with what we believe our decision is made.

Many times, we make decisions based on current events. These short-term based decisions are very emotional and are not evidence based.

You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.

As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)

greed regret trust loyalty envy

1. “It doesn’t matter how sophisticated his charts are     or how much sense he makes, I just don’t feel comfortable letting him handle my money.”

2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”

3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”

4. “I’d wish I’d known that stock was going up, I would have bought more shares.”

5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”

Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty

We as people are naturally predisposed toward or against specific investing tactics. What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view.

It is easy to overweight information that validates our perspective while minimizing any information that goes against what we inherently believe.

The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions.

The recent up and now down markets have many investors on edge, asking….should I get out of the market for good? This is really, what the financial institutions want…they make money when money moves.

Because we make emotional decisions with our investments. We need the help and guidance of an investor coach/fiduciary adviser.

Together you and your coach will develop a customized plan for YOU. Then going forward your coach will keep you disciplined to your plan.

This is where a true adviser really, earns their fees.

As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.

More Predictions..

The coronavirus crisis continues to paralyze our lives and cripple our economy. As always with every crisis comes predictions….lots of predictions. Now its from sports…when will the NBA start? When will MLB season start? When will the NFL season start? Will there be fans allowed in the stadiums? If so will fans show Up?

When will the restrictions end or begin to be relaxed? When will our economy open up? How will this affect the stock market?

The predictions will continue to grow. In fact, you can have an opinion on any subject and find some facts to validate your opinion.

What we must remember is that predicting the future is really hard. The future is random and unpredictable.

Especially when it comes to investing and the equity markets. There is no one capable of predicting what will happen next. We will continue the hear of someone who made a prediction and was correct. Which by the law of averages, someone will be correct.

Unfortunately, the Wall Street bullies will prance someone if front of you that made a correct prediction. They will then try to convince you that his current predictions will also be correct.

This is the game they play. This is how the Wall Street bullies convince investors to trade in and out. By this stock or that stock, because……

As investors we need a prudent plan and remain disciplined to that plan regardless of any short-term volatility.

As with the current COVID 19 crisis we need to ignore much of what the media tells us. What and how will the crisis end? And and it will end. I have no idea. Will everyone eventually be infected with some form of the virus?  I do not know.

I do know that eventually our lives will go back to something resembling normal. Maybe the new normal.

Slow Down A Little….

As the ‘stay at home’ order continues I am noticing some changes. During my very limited travel, I am noticing people are slowing down. While driving they are no longer is such a rush. Of course, there are exceptions, but for the most part people are slowing down, becoming more patient.

If there is anything good coming out of this its that people are slowing down. Life is slowing down. We are becoming more patient with everyday life. While this may be due to boredom, I believe we are realizing life does not always have to be at full speed plus.

Technology has really, sped things up in our lives. Everything seems to be instantaneous. Perhaps this crisis will slow us down a little. We might realize that we do not need to know everything at all times.

Eventually this crisis will end, and the rebuilding of our economy will begin.

We can learn a lesson in our investing lives. Many of us have used technology to be continuously connected to the markets. Reacting to short term volatility with emotion and not logic. Many of us have become gamblers/speculators without even realizing it. We want instantaneous results.

Real investing involves developing a prudent portfolio and sticking to your plan. Regardless of short-term volatility. Patience and slowing down need to rule our financial lives.

In the meantime, stay home and stay safe!! This crisis will end before you know it! Hopefully we will learn our lesson. Slow Down!

This Time Is Different…

“This time is different”. Famed investor Sir John Templeton 1912-2008 is quoted as saying these words are the most expensive in the English language.

Of course, we know that every time is different. The variables are never the same. The reasons are never the same. What Sir Templeton was referring to is that there is always a recovery. That does not change. That is not different.

Eventually the coronavirus will run its course. When, no one knows. But when it ends the recovery will begin. Capitalism will begin its work. Some businesses will disappear while others will emerge. While some see disaster others will see opportunity.

Another quote from Sir John Templeton and there are many, is “Do Not Panic”. Do not sell out of your equity positions. Unless of course, you are a gambler/speculator then that is what you do. If you are an investor you will not panic.

In fact, you will rebalance to your target allocation. In this case it will mean selling fixed income and buying equities. You are automatically buying low and selling high.

Discipline Wins!

Crashes Of The Past Seen As Buying Opportunities…

As I sit at home, I have PLENTY of time to reflect. I listen to many investors right now and most want to sell out and wait for things to settle down. When the coronavirus crisis ends, I will get back in. But if history tells us anything is that this is market timing. And market timing does not work. You need to know when to get out and when to get back in.

Many tell me that it is different this time. My question is why do we call crashes of the past as buying opportunities and current/future crashes as risk?

Successful investing to many investors is finding the right portfolio that will experience no losses.

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

Unfortunately, the true enemy of every investor lies within.

The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to. This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt.

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

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

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

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

You need to fire your broker/agent and hire an investor coach/fiduciary adviser.

With help of your investor coach you will build a prudent portfolio at the right amount of risk for you. Your coach will then work with you to remain disciplined during both down markets as well as markets are surging up.

Don’t empower the Wall Street bullies but rather follow an academically researched strategy with the help of an investor coach/ fiduciary adviser.

What To Do?

WOW! What was once an equity market doing nothing but go up. Are now doing nothing but go down.

In my opinion, this situation is different than the 2008-9 crisis. In that the 2008-9 crisis was due to a complete financial system breakdown. Today the volatility is due to the coronavirus or COVID 19. This is a very serious situation. However, I believe it will resolve itself. When, I do not know.

What I do know it that now is NOT the time to panic. Selling now will do nothing but lock in your losses.

What I did learn during this current crisis is that I can live without sports on TV. The opinion of sports stars means nothing to me. The opinion of famous stars means nothing to me.

What does mean something to me is that we must be able to control our emotions to be successful investors.

Today’s message will be short because you have other things to consider. Like, will I have enough toilet paper? Stay Safe and believe the future will improve.

Almost forgot. Happy St Patrick’s Day!!!

From One Crisis to Another..

Well last week the market decline was caused by the coronavirus. Now this week the market decline is caused by the oil price war between the Middle East and Russia.

As always, we have a prudent process when developing your portfolios along with evidence-based design. Our goal is to remain disciplined to our long-term goal. No need to panic now.

Below is a sensible approach to dealing with the coronavirus by Dr. Vicki Rackner MD.

Fear about COVID 19 is spreading like wildfire.  What risk does this new virus really pose to you and your family?  Here are some thoughts from Vicki Rackner MD, FACS.

While we mourn the handful of US citizens who have died from COVID 19, please consider this: the CDC estimates that between October 1st, 2019 and February 29th, 2020, there have been between 20,000 and 52,000 deaths in the US from the flu.  https://www.cdc.gov/flu/about/burden/preliminary-in-season-estimates.htm

The good news is that a simple program of awareness, prevention and common sense can decrease your risk of succumbing to a viral illness in the months to come.

  • Wash your hands frequent—including before eating and after handling money 
  • Avoid touching your eyes, nose and mouth
  • Avoid people who are coughing and sneezing
  • Optimize the health of your immune system by getting a full night’s sleep, eating well and exercising regularly
  • Cover your coughs and sneezes
  • Stay home if you are sick
  • Stay informed by visiting reliable sources of ongoing updates as we learn more about COVID 19.

Manage your stresses–including the stresses associated with market volatility. It’s natural to make impulsive, emotional choices when the stock market looks and feels like a scary roller coaster ride.  Instead, give us a call.  When it comes to investing, we believe, “First, do no harm.” 

The coronavirus crisis as well as the oil price war will resolve themselves soon. So, remain disciplined and ignore the short-term volatility.