Do You Know The Right Things About Investing?

Local weather forecasts have been lacking in accuracy as of
late. This last weekend the forecast called for 8 to 12 inches. Thankfully we
only receive 3 inches with extremely high winds and severe drifting. With this
inaccuracy people continue to watch the forecast. A flip of the coin might work
just as well. Right now I am extremely tired of moving snow. Not sure where to
move it when we get more!!

Many individuals in the investing public also continue to watch for forecasts. Sometimes they might be right. But for the most part the flip of the coin might do just as good of a job.

Like anything to formulate a forecast you would need all the facts.

No individual, committee, or money management company can ever hope to know “everything” about investing.  All of the facts, data, statistics and information about stocks and the market are infinite. 

They are also ever changing.  The free market system itself is the only mechanism known to effectively incorporate this into a pricing system. 

The good news is, if you know the guiding principles of successful investing and work with a coach, you don’t have to know everything.

You just need to know the right things. There will be times when you do not do well. However, over the long term, if you remain disciplined you will succeed. And reach your goals.

No one can consistently predict the weather or the equity markets. Although I wish the groundhog is right and we have an early spring. We’ll see.

Along with discipline you will need a proven process. This process includes own equities with the right amount of high quality short duration fixed income.….globally diversify…..rebalance.

Treasury Bill Risk with Stock Market Returns!!

Investors are continually asking what is the main determinant of 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.

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

It seems odd that crashes of the past are seen as buying opportunities. While current and future crashes are seen as risk.

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. Fear 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 recently became evident when a large number of investors got out of the market around Christmas time. And subsequently missed the January and first half of February rally.

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.

Does Market Timing Work?

Many investors are wondering what to do with their investments. Although many have a prudent portfolio, globally diversified with the right amount of risk for them. Over the long term they will succeed. However, during short term volatile environments these portfolios may underperform.

Many investors seem to believe that there is someone out there able to correctly time the market. That is, get out at the right times and get in at the right times. Unfortunately, that someone does not exist. At least not consistently.

Below is a link to an article providing proof that market timing does not beat dollar cost averaging. Even if the market timer got it perfectly right each and every time. Which is we all know impossible to consistently do.

https://www.marketwatch.com/story/this-is-the-last-article-youll-ever-need-to-read-on-market-timing-analyst-claims-2019-02-06?link=sfmw_fb&fbclid=IwAR1Fqhgqix6y2EL0pDgb7VF0aKrUPmgAdAMdb9B85UObEJh6nfYFyu2NVYU

(Hope the link works)

We must all decide if we want to be investors for the long term or gamblers for the short term.

If your goal is a secure retirement. I recommend deciding to be an investor with a long-term focus. You could be successful by being a gambler. However, your risks are extremely high that you will not succeed.

To succeed long term you must own equities with the correct amount of high quality short term fixed income…globally diversify…rebalance.

In most cases this will require retaining the assistance of an investor coach/fiduciary adviser.

Evidence Based Investing…

At this time of year experts are predicting what the equity markets will do for the coming year. We are continually looking for answers.

  • What will the future bring?
  • Where will the markets go in 2019?
  • Where is the best place for my investments?
  • How can I earn stock market returns with Treasury bill risk?

These are really all unanswerable questions. No one can predict the future with any consistency. However, we as humans continue to search. Many of us read our astrology message each day. Hoping we can learn what will happen to us each day. Even here there are times when these readings appear right but again there is no consistency. When these readings are right it is a matter coincidence rather than some psychic ability of the writer.

Investors continually look to someone on Wall Street or anywhere for that matter to tell them how and where to invest. This search continues regardless of the poor track record of these predictors. For example the prestigious magazine ‘The Economist’ made the following prediction at the beginning of 2013. The magazine noted that while investors were optimistic, the coming year was unlikely to be one to remember.

As 2013 came to a close the equity markets had a stellar year.

Regardless of these and other inaccurate predictions, investors continue to search for answers and continue to read and absorb these and other publications. Many investors tell me that the stock market is too risky for them. This is true when your strategy is to listen to the ‘expert’ forecasts and basing you investment allocation of those predictions. When you base your investment strategy based on a forecast of the future you are gambling and speculating with your money.

The real problem is when one of these ‘forecaster’ is right, which is statistically inevitable. These predictors will market this fact extensively.  What investors don’t seem to realize is that there is no correlation between past performance and future results. Like I said some of these forecasters will be right but there is no reliable way to know which one(s) will be right going forward.

Dr. Eugene Fama of the University of Chicago won the Nobel Prize in Economics in 2013

for his work on efficient markets. Dr. Fama essentially proved that all knowable information is already in the price of the security. There is no reliable way to predict how the markets will perform going forward.

Throughout my career in financial services I have also continued to search for the ‘answer’ with some success followed by poor results. I finally remembered by finance courses in both college and graduate school. In my studies I learned that there is an academic and scientific method to investing that has proven to be successful in the long term. The issue is that these methods do not eliminate risk but rather work to control it.

Investors would be more successful with less anxiety if they worked with an investor coach. An investor coach will teach you among other things where returns really come from. HINT: it does not come from the hot stock picker or market timer or the manager with the best track record.

Trying to adjust your strategy based on current conditions will result in poor and disappointing results.

When you have a prudent process and the discipline which an investor coach will provide, success will be yours WITHOUT the need for an accurate forecast.

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.