Real Control is More Important Than Perceived Control.

Brokerage firms create the illusion of “control” by encouraging investors to generate activity – frequent buying and selling. Remember the TV commercials with the talking baby who trades stocks? This brokerage firm is giving the illusion that even a baby can follow simple rules to successful stock picking.

The illusion is that you can pick your own stocks better than professional money managers.

There is a new commercial stating if you want real gains in your portfolio you must make the picks yourself. This Wall Street bully is giving the illusion that you can pick the winners with their help. In the end the only wealth will be created for the firm and not you.

It turns out neither can predictably or consistently pick the “right” stocks. In a similar fashion, gamblers feel more in control of the outcome when they actively pull the arm of a slot machine. Activity is not control. Buying and selling often feels “good” and proactive. In reality, most activity is counterproductive.

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 stocks or funds to the best stocks or funds.

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.

Does Wall Street Have Your Best Interest in Mind?….Not!!!

There has been increased attention paid to the financial brokerage industry with regard to a non-fiduciary mindset on Wall Street. Investors are continually looking for the answer to one question. “How can I beat the market?” Not only is it a matter of increased return, but bragging right to their friends on how much money their broker makes them. These same braggers neglect to tell when their broker loses their money. Wall Street is more than happy to accommodate this greed.

It is much like gamblers at a casino, you never hear about the losses only the wins. Investors are continually moving to the hot broker. As I call it musical brokers. An article in the New York Times in 2012 brings this out in the open. This is what most of us suspected.

A Goldman Sachs executive Greg Smith resigned his job by writing a scathing op-ed in the New York Times. In that column, written as an exit letter, he accuses top management of encouraging predatory sales practices that actively hurt customers:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”

While he insists that he’s seen no behavior that’s actually illegal, he explains that:

“People push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

Recently I learned that 1 out of 25 people or 4% in the U’S. is a sociopath. The definition if a sociopath is a person with a personality disorder manifesting itself in extreme antisocial attitudes and behavior and a lack of conscience.

In contrast the ratio of sociopaths on Wall Street increases to 1 out of 10 or 10%.

This is alarming news for investors relying on Wall Street representatives for investment advice. Is their advice in your best interest or theirs?

To be a successful investor find a academically proven scientific strategy to investing and remain disciplined to it. Three simple rules will help you succeed. Own equities……globally diversify………rebalance.

When Investing for Peace of Mind, Always Consider the Sum of All Outcomes.

During conversations with investors and financial professionals I hear of the hot advisor who beat the market. They made money throughout the ‘great recession’. They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

Many have very impressive credentials. Like degrees from Ivy league  schools or a pedigree of a very successful financier. Somehow investors believe that the necessary skills are hereditary. You need to remember that most successful investors have a relatively short time horizon.

Many because the equity markets are random and unpredictable. Past performance does not equate to future success.

During my studies of investing strategies over the last twenty years I have learned trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.  If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers, you would be a fool to ignore the chance of blowing your brains out.

Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

Keep in mind the promoter of the latest hot “investment” will have very compelling reasons to buy. Many times the phrase ‘new paradigm’ are used. Or this time is different. Most of these schemes involve speculation and gambling and not investing.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you follow a formal strategy.  You should follow a strategy which is backed by academic research. This research should use at least 60 years or more of data to eliminate any chance of bias.

To succeed in reaching your long term financial goals you should, buy equities……globally diversify….rebalance.

Diversification Is Your Buddy

The U.S equity markets are making new all-time highs. Of course at one time the Dow Jones Industrial 30 had an all-time high of 200 then 1000 then 2000 then …….25,000.

 

On the other hand the S&P 500 is a better reflection of the U.S. Large Stocks. It is also making new highs. Many investors see their globally diversified portfolios underperforming the S&P 500 and wonder why they are lagging behind.

 

Some investors are considering moving their money out of the stock market. Because the markets are at all-time highs. The market has to go down because it is at an all-time high.

 

Conversely, many investors want to be concentrated in the S&P500 because it is the best performing.

 

Since no one can predict the future, both are a huge mistake.

 

You must decide if you are a gambler/speculator or an investor. Gamblers believe they can out guess the market and avoid all losses. The gamblers have proven numerous times to be wrong, in the long run. One may get ‘lucky’ but no one can consistently market time.

 

In markets like these diversification is your buddy.

 

Proper diversification spreads risk across various asset classes with varying return characteristics or dissimilar price movement. Simply said: they don’t do the same thing at the same time.

 

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

 

Let’s consider the current situation. The S&P 500 is the best performing asset class in the longest running bull market in the U.S. stock market history.

 

Perhaps a look at the history of the market from 1970 to 2017. The S&P 500 was the best performing asset class once while being the worst performing asset class 14 times in annual performance. It bears repeating no one can consistently predict the equity markets.

 

Because we know that the equity markets are random and unpredictable.

 

To be diversified means including 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’.

 

There will always be something in a truly diversified portfolio that you will not like. This will be true every year.

 

It seems every day I am asked what will the market do today or this week or this year?  Or what stock will do best? Or can you beat the market? Or is now a good time to buy into the market? Or is now a good time to sell?

 

Those of you which are my clients own portfolios which are professionally diversified and rebalanced much like the large pension funds.

 

Over time these portfolios will help you successfully accomplish your investment goals.

 

There will always be someone touting a ‘new’ strategy that will protect or insulate you from the current risks. These Wall Street bullies want you to believe they can predict the future and earn you stock market returns with Treasury bill risk. What you end up with is Treasury bill returns and stock market risk.

 

Find an investor coach/fiduciary adviser who will help you build a prudent portfolio designed for you. And more importantly keep you disciplined during both up and down markets.

 

Process and discipline will lead to a successful outcome.

 

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

Sure Thing or????

On a cool and rainy day I was watching the NFL pregame show. Each week the ‘experts’ pick the winners of specific games. These ‘experts’ are made up of Super Bowls winning players as well as coaches. There ‘experts’ should be able to correctly pick the winners of any game each week.

After all  there are only 16 games to choose from. These ‘experts’ have access to all the statistics. Who is playing, who is hurt, who is playing well and who is not. Past performance is there only criteria. Given the past these ‘experts’ make their predictions.

Well Sunday Terry Bradshaw, Super Bowl winning quarterback for Pittsburgh Steelers back in the 70s. He was also MVP of  Super Bowl(s). These credentials should give him the credibility to pick the winners with ease.

Sunday Terry said that Chicago Bears were a sure winner over the Miami Dolphins. There was no chance that Miami could win this game. Terry gave many reasons the Bears great defense, Miami had some key defenders hurt. The list went on. Again he said Miami had no chance. This was a sure thing.

You can guess what happened. Miami won in overtime 31 to 28.

Investors can learn a lesson here. There is no such thing as a sure thing. The equity markets are random and unpredictable. Just like NFL games. Even if you have all the statistics supporting your position. You cannot pick the direction of the equity markets, nor can you pick the stock winners.

If the NFL ‘experts’ cannot pick the winners out of 16 games each week. What makes you think you can pick the right stocks and the direction of the equity markets.

When you build a prudent globally diversified portfolio a correct prediction is not required. Over the long term you will succeed. There will be, however, times when your diversified portfolio will under perform a specific asset class.

Investors need to remain disciplined and maintain their long term view of the equity markets. Most cannot do this alone.

It will require the help of a fiduciary adviser/investor coach. Your coach will keep you disciplined and remain focused on your long term goals.

Brewers or Packers??

For Wisconsin sports fans yesterday was both good and bad. Well very good and very bad.

First of all congratulations to the Milwaukee Brewers advancing to the National League Championship Series. The first game is in Milwaukee on Friday October 12. Hopefully the great play will continue.

The Green Bay Packers on the other hand, had a very bad day against the Detroit Lions. The Packers offense had nearly twice the amount of yards as Detroit but did not score. The statistics said that the Packers should have handily won. Except for one point they did not score when they had to. Mason Crosby the Packer place kicker missed 4 within range field goals.

Was the blame entirely on Crosby? I don’t believe so. There were many, many reasons for the loss. Many fans are calling for changes. But changes to what? There are a variety of reasons. Most are unforeseen and unpredictable.

There are many lessons for investors. First and foremost, past performance is no indication of future results. The markets are random and unpredictable. Just because a fund manager has done well in the past. Has nothing to do what they will do in the future. Picking the right stock makes you as hero for today. But what about tomorrow?

Even the best have bad days and sometimes bad years. We as investors have no idea if a manager will do well going forward. Will they repeat past performance? The data says this is unlikely.

Trying to pick the stock picking or market timing winners is speculation. And most investors cannot afford to speculate with their financial future. Will some succeed? Of course there are always exceptions, but the odds are not with you.

Instead you should own equities and high quality short term fixed income, globally diversify and rebalance.

The third game of the Brewers NLCS will be Monday October 15 as well as the home game for the Packers against the San Francisco 49ers. Which game will you watch?

Take Your Pick…

Being a die-hard Packer fan has its ups and downs just like any other team. The beginning of this NFL has produced many ups and downs. The experts continue to predict who will win with little success over the long term. Last week a strong favorite Minnesota Vikings lost at home to the Buffalo Bills. This week the Packers beat the same Buffalo Bills in a shut out. Keep in mind the Packers and Vikings

Despite their lack of success the ‘experts’ continue to make predictions. Every week a panel of ‘experts’ pick their favorites to win that week. Last week every ‘expert’ picked the Vikings to win. All wrong. This week they all picked the Packers to win. All right.

The problem we have is we never know when they will be all right and when they will be all wrong. Or will some of the panel be right and some wrong. And who will that be?

Investors face the same challenges. There are predictions every day by many ‘experts’. In this case the panel of ‘experts’ is huge and makes the NFL panel look puny.

Investors are often confused by the predictions. Many of these ‘experts’ have some short term success in picking stocks or timing the market. Investors believe that this success is repeatable. What they do not realize is that the short term success is a matter luck and not skill.

Like the NFL picking the ‘experts’ that are all right is nearly impossible. These investors are really nothing more than speculators and not investors.

Investors that are interesting in creating wealth will be better served by developing a globally diversified portfolio and rebalance on a periodic basis.

Keep in mind that the equity markets are the greatest wealth creation tool on the planet. If you follow a prudent process and remain disciplined.

Free Markets Work!

Each day the media focuses on a new prediction. Each day the media develops a new concern for investors. Their audience is continually searching for new predictions. Their audience is continually looking for stories that have a negative impact on their investments and their lives.

Because the equity markets have continued their upward move. Many ‘experts’ are predicting a downturn, What they don’t tell you is when and how much. Eventually someone will be right.

Unfortunately for investors these predictions are useless and without merit. These investors are looking for someone to predict the future. (If there is someone you CAN predict the future please tell me who will win the NFL Super Bowl. It would save a lot of my time watching the games.)

Will Aaron Rodgers stay healthy enough to continue playing? What will happen to the Packers defense? Who will fix it? What will happen next? What is the new hot asset class? Where is the best place to put my money? Who will be Super Bowl Champ?

Lately the political arena has been a hot bed of concerns. Who will be the next Supreme court justice? How will we handle immigration? This list seems endless. There will always be pontification from both sides.

The question becomes how will any of this affect you directly? Can you really predict how any of these predictions will affect your/our world?

Everyone wants to believe the side they agree with.

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

You can also spend your time with friends and family. Because we cannot predict the future and we cannot control the future.

The past has told us that the markets go up and the markets go down. The next 100% move will be up. But no one can tell how long it will take and when.

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.

Sometimes Diversification Hurts!!

This is my message from 2015. It continues to hold true. Except now the international markets are lagging right now.

My goal is to keep you focused on the long term. You will need your investments to last your life time and beyond. Depending on your goals.

Together we can keep those goals as our focus and ignore short term volatility.

Every week I discuss the advantages of following the three simple rules of investing:

  • Own equities and high quality short term fixed income.
  • Globally diversify.

Very simple indeed until being globally diversified results in performance less than the U.S. Large cap asset class. Because we see large cap stocks every night on the news we compare our results to the DOW and the S&P 500.

As humans we avoid pain and are drawn to pleasure. It is a natural thing. When we see the U.S. large cap earning a great return while small, international and emerging markets are lagging. We wonder why not invest all my money into U.S. Large Cap.

Keep in mind the financial media focuses on the Dow and S&P 500.

On the flip side when small, international or emerging markets are out performing we think nothing of it because we don’t know. Consider this since 2000 the S&P500 has been the best performing asset class three years. And the worst performing asset class for five years. The rest somewhere in between.

Perhaps another small history lesson will help you realize the value of a globally diversified portfolio.

From 1996-2000 the S&P 500 earned a cumulative 132% while Emerging market small value stocks lost -49%.

Naturally at the end of 2000 investors would want to invest all their money into the S&P500 Large Cap stocks(Pleasure) and avoid emerging market small value(Pain).  The next five years, included the tech bubble bursting. As I mention often no one can consistently predict the future.

Let’s see how that worked out for investors. From 2001-2005 the S&P 500 earned a cumulative 3% while Emerging market small value stocks earned cumulative 162%. That didn’t work out well at all.

Naturally, I cannot predict that this will happen again because past performance is no indication of future results.

The point is no one can predict which asset class will outperform and for how long. When someone does make an accurate prediction it is a matter of luck and not skill. When you consider all the analysts on Wall Street all making their own predictions. In any given year someone will be right. The problem is we never know which one is right in advance.

On another point I find it fascinating that investors see crashes of the past as buying opportunities and current or future crashes as risk. It is interesting how the human mind works. OK now I’m rambling.

It is times like these that investors really need an investor coach the most. A coach will help you control your emotions. Right now the emotion is greed. Even though allocating all your investments to U.S. large cap might sound logical it is not.

Your coach along with your investment policy statement should guide you through all market conditions.

Don’t empower the Wall Street bullies and hire an investor coach/fiduciary adviser.

As always I welcome any questions or comments

The Unpredictable NFL!!!

Last night I was at Lambeau watching the Green Bay Packers rally from down 17 to beat their arch rivals the Chicago Bears. The Packers Bears game has proven to be a fierce battle in the NFL’s oldest rivalry.

Regardless of records this game is hard hitting and never s sure thing for either team.

Last night proved to be a game for the ages. An injured Aaron Rodgers broke the hearts of the Chicago Bears, yet again.

After finding my seat I realized I was surrounded by Bears fans. Needless to say it was great fun for them in the first half and much of the 3rd quarter. (I was not enjoying the play of the Packers.)

However, that is when the fun stopped for the Bears fans and Rodgers threw three fourth quarter touchdowns to win by a single point.

Much like the equity markets NFL games are unpredictable and random. No one can consistently tell you which team will win and by how much.

I personally am looking forward to an exciting NFL season. Culminating in a Packer Super Bowl championship, I HOPE!!

Part of that excitement is the unpredictability. If it always went your way would you continue to watch the games? The reward is watching your team overcome all obstacles to win. The challenge is watching your team lose when they shouldn’t have. Or watching your team go thru a losing season.

The equity markets reward us with great returns over time. This should be done without stock picking, market timing or using past records to invest. The challenges are times when the equity markets have a losing period, perhaps even a losing year.

As the games of the NFL the equity markets are random and unpredictable. But if you can deal with the challenges the results can be very rewarding.

An example is watching any pre-game predictions by the ‘experts’. Even if all the ‘experts’ pick one particular team to win there is no assurance that they will in fact win.

Why? Because the games of the NFL are random and unpredictable. No one can predict if a superstar player will have a good game or a bad game.

No one can predict if any superstar player will get hurt and unable to play.

No matter how great a player is they can and do still make mistakes. It’s all part of being human.

This is the real reason investors should stop relying on Wall Street experts to predict which stocks are best or how to get into and out of the market at the right time. Or even look at a money manager’s past record of beating the market and assuming they will continue. These are really forms of speculating and gambling with your money.

In the NFL to build a consistent winner you must pick the right personnel both players and coaches. You have to accept that there will be losses and perhaps even losing seasons.

A system and process must be put into place that you believe in as well as all your personnel. Once in place you must have the discipline to keep your eye on the long term. Setbacks are part of the allure of the NFL. This is why we watch.

The same goes for investing in the equity markets we need to believe in the prudent process. Because there is a scientific, evidence based way to invest. Once you have your prudent process you need a coach to keep you disciplined to your process.

Like the NFL, losses happen and losing seasons happen. Without the risk of loss there is little chance for a rewarding experience long term.

As the great Vince Lombardi said “Perfection is unattainable but its pursuit will lead to excellence.”

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