Celebrate Uncertainty!!!

Many investors lament the downs of the market.  They feel that the randomness is cause for complaint and pain.

Everyone wants to know now what the future holds. What will happen? What is the best investment when the predictions come true? How can I avoid any losses?

After all, Warren Buffet’s number one rule is ‘never lose money’ and rule number two is ‘see rule number one’. To expand on this Mr. Buffet would not sell during downturns because that would mean losing money.

How can I do this if I don’t know the future?  The Wall Street bullies are counting on investors desire to ‘beat the market’ and avoid all losses.

Many of these experts try to convince investors that they can ‘beat the market’. That they will guide them to success without the risk of loss.

In reality, the unpredictable ups and downs of the market are part and parcel of its superior long-term rate of return.  Volatility is the only reason the market offers a risk premium. 

Celebrate the uncertainty.  It contains the seeds of growth and wealth creation.

To reach your long term goals you must own equities….globally diversify….rebalance.

What Is A Crash? Part II

In discussions with clients and prospects I hear talk of another eminent crash. This is typically the result of listening to an insurance salesperson selling their product of the day. Their pitch goes something like this. Quoting some Wall Street prognosticator, the market is at an all time high and it is ready for a crash. These Wall Street bullies will tell you to move your money to an annuity so it will be safe from the inevitable crash. They will tell you that you need to act now…before midnight. 

Another approach by these bullies might be to exit the market and wait for the crash then buy at the low or on the way up. This is another example of playing on your emotions. These bullies know that investors are fearful that another crash like the 2008 crisis is right around the corner. This is market timing and been proven to be unsuccessful in nearly all cases. Past performance or track records have zero correlation with future results.

In other words, no analyst(s) is (are) able to consistently predict the future market direction.

One suggestion is to ask this advisor for an audited performance record using the Global Investment Performance Standard (GIPS).

This of course does not stop the Wall Street bullies from marketing their past successes.

Remember there are two groups of people predicting equity market directions,

those who don’t know where the market is going and those who don’t know they don’t know where the market is going.

This brings back the original question …What is a crash or a down market or a bear market? Investors continue to fear the unknown. With the 2008 crash fresh on our minds, is another crash around the corner? No one can answer this question with any certainty. But this does not prevent the bullies from making predictions. At some point another crash will occur.

Unfortunately, no one can predict when it will occur.

The definition of a crash depends on you the individual it might be 10% down or 20% down or 40% down like 2008.  Remember the first quarter 2009 the S&P 500 was down an additional 24% yet the year end performance was a positive 23%.

The 2008 crisis has been seen as the worst market performance since the 1929 crash although some might say that the 1973-74 crash was just as bad.

The point is there have been bad markets in the past and there will be bad markets in the future. If you are properly diversified at YOUR level of risk your recovery could be quicker than most might think.

There is a trait of human beings that says when times are good they will always be good and when times are bad they will always be bad.

Of course, past performance is no indication of future results. But I believe if you follow the three simple rules of investing:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

You can be confident that your portfolio will perform well in all market conditions. This will require the assistance of an investor coach to not only develop the proper portfolio for you but keep you disciplined in both up AND down markets.

Diversification Is Your Buddy!!!

The new financial media has convinced investors that there is someone out there that can predict the future.

They have convinced investors that there is someone who can get out of the market at the right time. And then get back in at the right time. There are occasions when someone gets it right. But there is no one to predict who that someone will be in advance.

They also have convinced investors that there is someone who can consistently pick the right stocks for gains. What investors don’t realize is that this is a matter of luck and not skill.

They want to avoid the stock market losses at all costs.

Since no one can predict the future, this is 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.

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’.

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.

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

Proper Expectations!!

There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win in Washington DC?

What will happen tomorrow….next week….next month…..next year……?

Will the stock market crash? When should I get out to avoid losses?

Should I buy gold and when?

Will inflation take hold? Or is deflation around the corner?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

Proper expectations are the key to investing with Peace of Mind.

Do not expect to predict or forecast stock prices and movements.

Do not expect to pick winning stocks and beat the market. In the long-term stock picking will lose.

Do expect to achieve close-to-market returns over time and to see daily, weekly and yearly volatility. Reduce your costs, use diversification, and sit tight. If you expect the impossible you will be frustrated, unhappy and fearful.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

Should Your Investment Decisions Be Based On Academia or Wall Street Predictions?

As we approach the 2020 presidential elections. There are predictions popping up as to who will win. And how will it affect the equity markets? .

No one really knows.  Let’s pray that the American public makes the right choice. And the right choice is available.

More than at any time in our history….we need strong leadership.

That said, we must stop listening to Wall Street regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? Wall Street doesn’t really care. All they care about is that you trade. Most investors don’t know what to do.

All that you know is what the brokerage community or financial press wants you to know. They have trained you to accept their version of reality – over the span of your entire life.

There is a complete body of investing knowledge developed in the halls of academia.

Most people do not even know that it exists. This is the real wisdom you need to learn in order to create wealth and abundance.

Rather than looking for the next great trade or asset class, invest in a portfolio based on Nobel Prize winning research. Instead of researching investments, your time will be much more efficiently spent on improving your job skills, or learn a new skill set leading to a new career, or even better, spending time with the important people in your life.

Perhaps you should look at your investments with a goal in mind rather than short term performance results.

Taking a long term view of your portfolio will reduce and perhaps even eliminate your anxiety.  Remember a disciplined investing strategy will outperform all trading strategies, long term.  Stop looking at your investments through the short term eye of a gambler.

Take control of your investments…don’t empower Wall Street.

Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance. Although simple these rules have proven very difficult for investors to follow. In most cases it requires the help of an investor coach/fiduciary adviser.

Time To Buy Or Sell??

The stock markets around the world have been extremely volatile.

Huge moves down (which we are currently experiencing), followed by moves up followed by moves down again and then up again. This volatility has investors on edge and looking for safety. And who can blame them. In most cases we are talking about their life savings.

The media has reasons for each move up or down. Many of these reasons fit an agenda for the media outlet. The media understands that many investors are focused on the short-term.

These ‘investors’ are focused on short-term results without regard to the long-term potential.  All investors need to keep in mind that they will hopefully be retired for a long time. Therefore, the short-term volatility is really meaningless to them. Or at least it should be.

This is where the guidance of an investor coach/fiduciary brings the most benefit to investors.

By coaching their clients about how the equity markets actually work. For example, there is solid evidence that over the long-term equity markets are one of the greatest wealth creation tools on the planet.

With this knowledge and the discipline to stay the course investors can realize these great returns.

“DISCIPLINE is the soul of an army. It makes small numbers formidable; procures SUCCESS to the weak, and esteem to all.” -George Washington

You don’t have to know everything about the equity markets but you do need to know the right things.

Although I don’t agree with most of Warren Buffet’s methods. That is, he believes in picking stocks.

What I do agree with is that he has a process and discipline.

Most if not all investors do not have the emotional strength to remain disciplined during equity market extremes. Both up and down.

There is also a quote by the same Warren Buffet that might help some here. When everyone is crying, I’m buying and when everyone is yelling, I’m selling. Apparently, this only hold true for his buy side. Because he also says his holding period is ‘forever’.

This sounds like market timing, which I do not believe works. That is getting in and out of the market at the right time.

I believe Mr. Buffet’s real point is do not listen to short-term volatility. Stay focused on the long-term.

If you can find an investor coach/fiduciary adviser to help you. You can stop fearing the markets. You can realize the great long-term results. The results that can lead to your successful retirement. Both up to and after your leaving the workforce.

Your coach will among other things teach you the three simple rules of successful investing.

  • Own equities and high-quality short duration fixed income
  • Globally diversify
  • Rebalance

These three rules may seem simple, but they are very difficult to follow without an investor coach/fiduciary adviser. Especially when the media is ‘scaring’ the hell out of you.

Memorial Day 2019

As we celebrate Memorial Day 2019 let us not forget those who fought and died for us and those who continue to fight for us. To protect our freedom.

You will never know how much it cost the present generation to preserve your freedom! I hope you will make good use of it!! – John Adams

This week will be a short message. Please remember and honor those who fought and continue the fight for our ability to seek the American dream. Everyone of us has the ability to seek the American dream, however it involves sacrifice. There are no short cuts to prosperity.

The free markets are part of the reason our veterans fought. It does not involve speculation but rather prudent investing. The American dream is not a get rich scheme. It requires sacrifice, hard work and planning.

A John Adams said above “I hope you make good use of it!!”

Honor our veterans, past and present, by making good use of it.

Long Term Will You Earn The Great Market Returns?

Many times, when I meet with investors I am asked ‘where is the best place to put my money?’  The financial institutions have taught investors that there is someone who can tell them what to do in every circumstance.

These institutions lead you to believe they know what you need. In fact these institutions sell you ‘product’ to feed your fear in every environment.

A true advisor will often tell you things you do not want to hear. Remember if your advisor only provides the product you ask for they are not an advisor but rather a salesperson or broker.

To succeed in investing being diversified means looking different.

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

Right now, on May 20, 2019 the top performing funds are U.S. Large Growth stocks.

To be diversified means including asset 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’.

The goal of diversification is to avoid the volatility, both up and down. Right now, U.S. Large Stocks can do no wrong. However, when there is another downturn like 2001 these concentrated portfolios will suffer.

We need to capture the great returns the other asset classes provide, over the long term. The goal of our portfolios to earn the great market returns. With less volatility. That means over the long term you should capture the great market returns with essentially less risk.

Typically, investors want to concentrate in the ‘hot’ asset classes. If these investors are lucky they will match the great returns the market provides. In most cases they will not.

Of course, we must state that past performance is no indication of future results.

Many will say that ‘times have changed’. They will make a case that U.S. Large stocks will always prevail in the future. Because of the trade wars or whatever…

However regular readers will know that no one can predict the future. No one can tell you which asset classes will out-perform into the future.

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

Trade Wars…Now What??

There has been a never ending, stream of financial news regarding the, trade war with China. First, we raise tariffs because we believe it makes for fair trade. Then China reciprocates and raise tariffs on the goods we buy from them.

What should we do, going forward, with regard to our investments? Should sell everything and go to cash or buy gold? This would be a mistake.

During times like these there are a large number of ‘experts’ making predictions about the future.  These predictions are for the most part worthless. Of course, one or two will be right. The problem you have is you have no idea which ones are right, this time.

These ‘experts’ want you to believe they have the skill to predict the future. Unfortunately, for investors this is a matter of luck and not skill.

The free markets are more powerful than any political agenda. These free markets will find a way stabilize and begin to grow.

There is a method to help us get through these difficult times. Just as you would never take a long-distance car trip without a map or GPS, you should never buy any investment without an Investment Policy Statement.

My GPS includes Modern Portfolio Theory, the three-factor model and the Efficient Market Hypothesis. Two of which have won the Nobel Prize for economics. The third was written by a Nobel Laurette.

This is a written document that states the goal of your portfolio, how much risk you will take, and what you will and won’t do when markets become volatile and crash.

I find it curious that crashes of the past are seen as buying opportunities. And current and future crashes are seen as risk.

Remember downturns happen. However, they are unpredictable and random. Attempting to time the market will lead to very disappointing results.

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

Comparison Envy!

Many investors are continually searching for better returns. They hear their friends talking about their great adviser. I have even heard one investor say they had the best adviser in the country. Not sure how that is determined. Of course, the best adviser in the country must be able to predict the future.

This comparison of one adviser to another is a dangerous strategy. Because one adviser may be hot today or even for a year. But that streak will invariably end. Followed by the next hot adviser.

Psychologists Kahneman and Tversky showed that more people would prefer to make $70,000 per year when others were making $60,000 than to make $80,000, when others were making $90,000. There will always be “others” with more assets, money, or larger portfolios.

We are doomed to disappointment because comparison destroys the joy of having and using what we already have. Most people would agree to make or have less as long as others were even poorer. Resist the impulse to compare yourself to your “neighbors”.

This includes comparing your portfolio or 401(k) account balance to your colleagues. In some instances you may be better in others worse. The goal of your investments is to attain your long term goal. This would include a strategy and savings discipline.

Developing a prudent strategy and remaining disciplined to it are very difficult, however in the long term will lead to success. No one can predict what asset class or sector will outperform in the future.

Warren Buffet has one strategy which he remain disciplined to. This is the primary reason for his success.

You are speculating if you stock pick, market time or base your investing decisions on track record performance.  Keep in mind speculating is ok, but not with your retirement funds.

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