Where Will The Stock Market Go Next?

Based on the inherent fear and uncertainty, many investors feel the need to get some kind of prediction about what’s going to happen in the future. After all, if someone could just tell us what is going to happen with inflation, long-term interest rates, share prices, overseas markets, etc., there would be nothing to fear.

Along these lines, it is easy to be convinced that someone else really does have the information, power, and insight to forecast the future. You could become an innocent victim of wish fulfillment. It would be so much easier if someone really had the answers; it is easy to lose sight of the simple fact that is is just not possible to predict the future.

This explains why people are clamoring around investing programs broadcast regularly on CNBC, eagerly subscribing to Money magazine and voraciously perusing the internet in search of the next hot stock tip.

Believing that someone out there, whether it’s you, or the broker, or some money manager who’s on the cover of a magazine, can actually predict and forecast the future and pick all of the best stocks and post massive returns, is not the folly of weak minds. It is most often the folly of the most brilliant minds.

The Greeks called this phenomenon hubris. This is exaggerated pride or self confidence. People who have very high intellect often feel they can beat all kinds of games. They feel they can beat Vegas odds. They feel like they can pick the winner of the Super Bowl. They feel like they can consistently pick the best stocks.

Because man has used his intellect to reveal so much of the universe, and science has accomplished so much, it is easy to believe that if intellect can accomplish all of these things, then surely it should be able to be used to do something as simple as picking the best stocks.

The greatest fallacy in the investing industry is that this superior performance is a factor of skill and not luck.

This is not something that only weal minds or people who aren’t intelligent fall into. It’s easy to fall into these traps when they’re so pervasively put out there by the financial community, the media, and the public at large.

The Good News: You don’t have to have an accurate prediction about the future to be a successful investor.

Own Equities….Globally Diversify….Rebalance

Past Performance Means Little!!

Recently I was discussing the advantages of leaving the brokerage business and starting a registered investment advisor business with a colleague. He said the main advantage was he did not have to use institutional money. He proclaimed he had developed a stock picking model.

This model had earned over the last 10 years an average return of 19%. WOW that is very impressive. Until I asked if this was live or did he have clients that realized these returns.

His answer, was no. This was the return software generated when he used different criteria. In other words, he optimized the portfolio based on past data.

It is very easy to build a portfolio of the best stocks and earn outstanding returns based on past performance. Unfortunately, for him and his clients’ past performance is no indication of future results.  Yesterday’s hot stocks could be tomorrows dogs.

He does not realize that he is gambling and speculating with his clients’ money. He can justify each trade with some signal or trend change or some other indicator.

Unfortunately for this trader his hypothetical success will be met with long term failure. Successful investing is NOT gambling and speculating. Successful investing involves following a prudent process and remaining disciplined to that process.

OK I am going to say this with the risk of repeating myself. There are three simple rules to successful investing:

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

Each of these rules sound very simple and should be very easy to follow. Until one of your friends or someone you know tells you something that scares into panicking and selling. Or even convinces you that the next hot stock or asset class will make you rich.

Successful investing is just that investing which means long term. One of the reasons the equity markets provide an excellent return long term is the volatility both up and down. We need to live with the downturns in order to experience the upturns.

Stock picking and market timing may be more fun to talk about because it is exciting, especially when you win. But like a gambler, market timers and stock pickers get a high off their trading.

It’s ok to gamble and speculate with fun money but not money designated for a long term goal, like retirement. If you really want to gamble and speculate go to Las Vegas, at least you will have more fun when you lose.

To successfully investor you need to fire your broker/agent and hire an investor coach/fiduciary adviser.

All In!!

Since I am on vacation this week. Sunny Arizona! I decided to send a message I sent three years ago. As I have mentioned many times my message week after week remains the same. In essence, we nor anyone else can predict the future.  Enjoy!

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. Although I will not answer until after March 11.

When Harvard Talks People Listen!

Everyone would have to agree that Harvard University is one of the best in the U.S.. Of course, many will argue the point. We must to agree that some of the brightest attend and graduate from Harvard. Again, there are exceptions.

As an investor if someone from Harvard gave you a recommendation. You would gladly accept it and invest your money. Right?

Well you might want to reconsider this strategy. The Harvard Endowment fund released their performance results for 2017. They came in at a “disappointing” 8.1%. Disappointing because the S&P 500 reported a total return over double this amount for 2017.

When you read the explanations, you might become confused. Or as I said HUH???

Those that remember the EF Hutton commercial ‘when EF Hutton talks people listen’. Well when Harvard talks people listen. However, the results will often be disappointing.

In fact, the Harvard alumni have asked the Endowment fund changed to using index funds.

Now I will not recommend everyone put 100% of their investment money in the S&P 500. There is a need to consider risk when developing a portfolio. The S&P 500 on its own can be quite volatile.

However when investors

  • Own equities with high quality short-term fixed income
  • Globally diversify
  • Rebalance

Over the long term they will realize the great returns the equity markets have to offer.

Stop trying to find the holy grail of investing. Unless that means working with an investor coach/fiduciary adviser to develop the right portfolio for you.

Your coach will help you build the right portfolio and keep you disciplined to your strategy.

There Will Always Be Uncertainty In The Equity Markets!!

We are experiencing, among other things, a long anticipated ‘correction’ in the equity markets. Experts predicted a correction but not one could tell us when. There is uncertainty all around us.

One question we might want to ask ourselves: Why do we see downturns of the past as buying opportunities and current downturns as risk?

  • But OMG what should I do with my investments?
  • Or is this a good time to invest?


These 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. But I believe 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 focus on the pleasant things of life. 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.

What Should I Do Now?

Back in January 2016 I wrote the following. What do you think?

We are experiencing some very turbulent times in the global economic environment. And we also are experiencing a sharp downturn

Wall Street prognosticators are trying to do is strike fear into the investing public. These Wall Street bullies are looking for an increase in trading. These bullies want you to move your money from one asset class to another. Remember they make money on every transaction, whether you make money or not.

Wall Street has a product for every situation. And they know the investing public is constantly searching for the next big ‘thing’.

Investors’ real goal is stock market returns with Treasury bill risk.

This is unattainable. Remember, where there is no risk there is no reward. This is true in all other areas of our lives, not just the stock market.

What we must remember is that stock market or equity risk is only part of the problem. Inflation risk is the most destructive to your savings over the long term. It is constant and unrelentingly eating away at your purchasing power.

Owning equities or stocks may be the best way to combat inflation risk.

The most successful investors of all time have one strategy, a strategy that does not always look great, but over time leads to success. These successful investors are not always looking for the next great strategy. At times they will look like they do not know what they are doing.  These successful investors know risk is unavoidable.

It has been proven time and again that market timing DOES NOT work. Not only must you be right getting out of the market, you must also be right about getting back in. Research has proven that this is NOT done consistently.

I find it curious that investors see past ‘crashes’ as buying opportunities while current or future ‘crashes’ are seen as risk.

A fun fact is that since 1925 the S&P 500 has averaged approximately 9.75%. During this time there have downturns of 10% or more 89 times. That’s approximately one per year. (Our current (2016) downturn has recently reached the 10% threshold.)

So if you want to keep control of your money and earn good market returns you must live with downturns. Because with downside volatility there is the upside volatility.

There are ways to control your risk while earning good market returns, long term.

Investing for a long term goal such as retirement requires patience, a prudent strategy and discipline. This, in most cases, requires the assistance of a good coach. A good coach will guide you in following these three simple investing rules.

Own equities….globally diversify…..rebalance.

If you panic and sell you are locking in any losses you have. This is a huge mistake. Or you can look at our current downturn as a buying opportunity.

To succeed in reaching your long term financial goals you don’t need to know everything about investing, but you do need to know the right things.

Long Term Investment Success!!

Investors are continually asking what is the main determinant of long term investment success?

Wall Street and the financial media would like you to believe that.

  • Timing when to get in and out of the market
  • Picking the right stocks and bonds to own.
  • Using track record investing to find the next hot manager, will help you succeed in investing.

This is wrong! All the above factors actually negatively impact your portfolio in the long run. Any time you spend on the above activities is time wasted.

Allocating your assets based on your acceptable level of risk is the main determinant of investing success.

Your time should be spent on your most valuable asset, your career. Either improve the skills in your current career or learn new ones.

More importantly time spend with your family and friends is much more valuable than time spent trying to beat the market.

In most cases the reason we look to beat the market is our emotions. When the market has down turns, we become nervous and scared. When there are markets upturns we become greedy and jealous.

During prolonged up markets Warren Buffet said it best FOMO. Free of missing out.

We believe that when the market is going down it will always go down. Conversely, when the market is going up, we believe it will always go up.

The real problem is most investors are looking for stock market returns and Treasury bill risk. What they end up with is Treasury bill returns, (if they are lucky) and stock market risk.

Most investors miss out on market returns because they lack discipline. This is the main determinant of long term investment success.

This is where a true adviser can help. If your adviser allows you to panic during downturns or concentrate in the latest hot market. Any price you pay them is too much.

Fire your broker/agent and hire an investor coach/fiduciary adviser.

To be successful in reaching your long term goals you must own equities…globally diversify…..rebalance.

A New Paradigm?

Greed is a very powerful motivator. OK so is fear. But greed may be the most dangerous, in my opinion. Right now, many are talking about Bitcoin. I have been told it is a paradigm shift to a new economy. I have been told you will become rich by investing in Bitcoin.

Even though there has been a huge return already realized. I have been told it is only the beginning. I have been told all your money should be ‘invested’ in Bitcoin. I have been told you will be rich if you put all your money in Bitcoin.

After some research I still do not understand what it is and how it works. Is it possible that it could continue its run up? Yes, it is possible. However, putting your money into Bitcoin is pure speculation.

If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit.  Only hot, sexy, and speculative techniques make the cover.  Don’t follow your friends!

Remember the dotcom period of the 1990s? It was also called the new paradigm. The results were not that good. If Nasdaq is considered the technology sector or dotcom. It took 15 years to recover all the losses. While all the other equity markets, including the S&P 500, recovered very quickly.

The most successful businesses have one proven strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country they are all set up the same. They know there may be a better way to run a restaurant but their systems works.

Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he loses more money than most but over the long term he wins. He does not fall for the latest fad.

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

Short term gain…long term pain.

To succeed in investing for the long term you should own equities….globally diversify….rebalance.

The key is to remain disciplined to this strategy.

Predictions..What Are They Good For?

Absolutely Nothing…

Well it’s the time of year for new predictions. The ’experts’ all giving their predictions for 2018 and beyond. You will hear the market will crash…you will hear the S&P 500 will pull back to below 2300 (currently 2750 about a 15 to 20 % decline)…you will hear the bull market will continue indefinitely…you will hear all your money should go into ‘bitcoins’. And on and on…

These predictions like all the others are good for absolutely nothing. Except perhaps for the predictor to sell you their ‘timely’ newsletter(s) to unsuspecting gamblers. These Wall Street bullies do not trade on their own predictions. These bullies make money solely on selling worthless newsletters.

Investors are constantly looking for predictions because they want stock market returns with Treasury bill risk. What they get is Treasury bill return with stock market risk. We are all looking to avoid pain and seek pleasure.

Personally, I work out regularly. It keeps me in shape and focused. There is one saying that sticks with me, ‘No pain….no gain’. Well for investors that allow their emotions to guide their investment decisions and avoid risk during down turns I have a similar saying…

‘Short term gain ….long term pain’.

If you allow the Wall Street bullies to guide your investment decisions you may experience the short-term gains like the avoidance of a downturn or the exhilaration of a hot stock (like bitcoin) or asset class. In the long term you will suffer because your portfolio lacked diversification AND discipline.

Like everything in life someone will get lucky and make a correct prediction.

Of course, past performance is no indication of future results.

Unfortunately, we as investors have no idea whose prediction will be right. The efficient market hypothesis says all the knowable information about a particular investment is already in the price right now.

This is due to the fact that the markets are random and unpredictable.

An added note Dr. Eugene Fama of the University of Chicago wrote the efficient market hypothesis in 1965 and won the Nobel Prize in Economics in 2013. It has stood the test of time.

Many of you may be saying…’Tony you say the same thing week after week and year after year’. Well you would be right, because no matter how many times the same pattern repeats investors make the same mistakes over and over. So my message will be repeated over and over. This is what coaches do.

Coaches work with you to develop a ‘game’ plan or in technical terms the Investment Policy Statement. As with all plans it is a meaningless exercise if you develop your plan and never implement it. Or follow the plan for a while and then when things change for the worse abandon the plans.

This is where your investor coach really exhibits their value to you and your financial future.

Remember the Doc Rivers quote: Average players want to be left alone…good players want to be coached…great players want the truth.

With a solid game plan in place your coach will keep you focused on the long term and remain disciplined.

The opposing team may come up with a ‘trick’ play and score and perhaps win the game. This is due to luck and not skill.  However, with a solid game plan and discipline you will win in the long term.

Stop looking for predictions. Do find an investor coach to guide you to a successful plan.

In Rodgers We Trust!

OK I have been about the Green Bay Packers a bit much. Right? Well I am a diehard fan so …Tough!!

Sunday, I watched the end of the Packers playoff chances with a loss to The Carolina Panthers. The Packer defense continues to a major disappointment year after year.

Events leading up to Sunday’s loss are what I find interesting about past experiences.

As everyone knows Aaron Rodgers is the Packer quarterback. He is considered one of the best quarterbacks in the game today, if not the best.

So when Rodgers talk people listen. A few years ago, the Packers had a very slow start. Aaron came out and said R-E-L-A-X and Packers went on a winning streak winning the division and earning a spot in the playoffs.

Last year the Packers again started very slow. With a record of 4 and 6 Rodgers came out and said we will run the table. The Packers did just that winning the division again and earning another spot in the playoffs.

This year Aaron was injured on October 15 with a broken collar bone. His replacement did not do well. Of course, the weak defense was of no help. This last Sunday Rodgers came back. All Packer fans assumed we would win the rest of our games and earn another spot in the playoffs.

Well that did not happen. The loss all but ended our playoff hopes. Packer fans are shocked Rodgers did not save them again.

But, Tony, what does this have to do with investing? Well, many investors look at a manager’s or market predictor’s past performance and assume they will repeat this stellar performance.

Remember when you look at investment products. There is a disclaimer that states ‘past performance is no indication of future results’.

Using an investment manager’s past performance as a predictor will in most cases lead to disappointment.

Always remember, the equity markets around the world are random and unpredictable.

Rather than looking for the ‘hot’ investment manager or the latest market predictor. You should develop a prudent portfolio and allow the market to reward you with the great long-term reruns they provide.

In most, if not all cases you will need the assistance of an investor coach/fiduciary adviser you keep you disciplined.

To succeed long term in your investing, you must own equities…globally diversify…rebalance.