There Will Always Be Uncertainty In The Equity Markets!!

We are experiencing, among other things, some very tense and violent situations around the world right now. The situation in Ukraine, including the downed airliner, the Israel and Gaza battle. As well as our own battles within our country. There is uncertainty all around us.

But OMG what should I do with my investments? Or is this a good time to invest? This are typical reactions to a short term down swing in the markets. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term.

Please remember a fact from Frederick C Taylor.  From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return.

It is also important to remember that

There ain’t no such thing as a free lunch

(alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing.

We read or listen to the financial media telling us why a downturn is occurring. I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct.  Again I do not know the answer.

I do know that downturns are inevitable. They happen.

Dealing with these downturns is part of the reason the long term returns are so attractive.

For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:

  • Pick stocks
  • Market time
  • Track record invest.

During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent.

Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:

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

Keep in mind no one can predict the future with any degree of consistency.

My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term.

Selling or panicking during a downturn will result in  “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach/fiduciary adviser your financial goals are attainable.

You Don’t Have to “Beat the Market” to Be a Highly Successful Investor.

We have been taught from a very young age that we can ‘beat’ the market. In fact, there are stock picking contests in school. Remember the contest? You are given a hypothetical portfolio and told to invest to win. These contests were for a relatively short period of time, a semester.

The ‘winner’ was given a prize. This instilled in all students that you can ‘beat’ the market. The real lesson is that investing in this way is nothing more than speculating and gambling with your money.

These contests are often sponsored by a local stock broker. Their motivation is obvious, get them young and turn them into lifelong speculators and gamblers.

If true investing was taught in school, it would require a much longer ‘teaching’ moment. True investing takes time and discipline.

Although successful stock picking is possible it is not true investing. ‘Beating’ the market is possible but highly unlikely. And most people will be disappointed.

Market returns are enough. Almost every major equity and stock market has consistently outperformed inflation and all the hyperactively trading professional money managers trying to outdo the market.

Most investors aren’t aware they have another option. Chances are you will beat all your friends and the vast majority of managers with the market returns from index funds and structured market portfolios. There is evidence proving this statement.

To become a true investor, you must own equities with short term high quality fixed income, globally diversify and rebalance.

To guide you, seek the help of an investor coach/fiduciary adviser.

Happy Thanksgiving …….2018!!!

As we approach the Thanksgiving holiday and the Christmas holiday, we must realize there is much to be thankful for.

The Men and Women Who Sacrifice and Fight for Us.

Friends and Family.

OK the Packers are in a slump, a bad slump(AGAIN!), but still.

More importantly, we continue to live in the greatest country in the world despite how you feel about the political climate.

There is no political party that can change the fact that the free markets work and will overcome. People will continue to believe that hard work, discipline and prudent risk taking will lead to success.

Remember, during times like these there are increasing amounts of opportunity for all who are willing to look.

We continue to live in a free country one in which YOU determine how much success you desire. You are accountable for the level of success you will realize.

Regardless of the political climate the free markets and free enterprise will overcome.

Be thankful for this freedom, there are many in the world who are envious of the United States of America.

As always, do not empower the Wall Street bullies, to succeed in reaching your long term financial goals you should:

Own equities….globally diversify…..rebalance

Remember returns come from the markets not from a manager.

Be thankful for all you have.

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.