Markets are Random …..Get Over It!!

During many conversations with investors. I have come to realize that they continue to be afraid of the equity markets. They are afraid they will lose all their money.

Many expect to earn stock market returns with treasury bill risk. Many believe there is someone out there who can and does know when to get in and out of the market to maximize return and avoid all losses. 

After nearly three decades of research I can tell you this person does not exist.  You will find someone who makes a correct prediction. The problem is there is no evidence that their predictions will be correct going forward.

Have you ever noticed that the same ‘predictors’ are on the
financial talk shows more than once?

Of course, with the exception of Jim Cramer, who I believe is on for entertainment value. If you ever went back and looked at his picks from the past. You would realize he does not beat the market. In fact, he lags significantly behind the market.

If you invest in stock markets no one can predict “save” you from the down periods—NO ONE.  If markets were not random and unpredictable, they wouldn’t offer higher expected returns.  Markets randomly and unpredictably go up and down.

The down markets are short term volatility that we must live with to earn market returns.

The most successful investors have a philosophy they believe in and stick to it regardless of the3 market conditions.

As we age our situation gradually changes from growing our money to taking an income stream that keeps up with inflation. To succeed in this, we must reduce the level of risk in our portfolio as we grow older.

We will succeed in our investing when we own equities, globally diversify and rebalance.

It is also vital to hire a fiduciary adviser/investor coach. Your coach will keep you focused on the long term returns of the equity markets. And ignore the inevitable short-term volatility that we experience in the equity markets.

Can Anyone Predict the Future?

Everywhere I look in the investment media someone is talking about alternative investments. This is what the sophisticated investor is looking for. Many are still smarting from the tech crash of the early 2000’s and more recently the 2008 housing crash. They feel there must be a better way, at least for sophisticated investors like them.

Your wish is my command. The Wall Street bullies have a ‘product’ for every season. You want alternative investments you got them. These alternative investments can include:

  • Managed futures
  • Private equity
  • Long/short ETFs
  • Leveraged products
  • Commodities (including gold)
  • Hedge funds
  • Real estate
  • Leveraged real estate
  • Actively managed mutual funds
  • Stock picking

Of course, this list is not all inclusive. But the message is clear these ‘products’ are for ‘sophisticated’ investors looking to juice up their returns.

The pain of the past crashes is fresh on their minds and they want to avoid the pain.

This is a prime example of gambling and speculating with their investment dollars. This is not prudent investing.

The equity markets include all of the above. The Wall Street bullies are just telling you to overload in a specific market sector.

Many of the above are described as inflation hedges. Except when you look closely. The inflation is not nearly as volatile as the alternative asset classes used to hedge it. WHAT???

Predictions and forecasts can all be rationalized after they are wrong. ‘It didn’t happen like I said it would because…column A, column B or whatever’.

Whether you are a ‘sophisticated investor or not. Working with an investor coach/fiduciary adviser will lead to successful results, long term. Each investors needs to develop their own portfolio and understand the level of risk they are assuming.

Remember Bernie Madoff had hundreds of ‘sophisticated’ investors looking to avoid losses and earn superior returns.

Stop empowering the Wall Street bullies and follow three simple rules of prudent investing:

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

Although these are simple rules they have proven very difficult for individual investors to follow, consistently. In most if not all cases it will require the assistance of an investor coach/fiduciary adviser.

Should Your Investment Research be Based on Academia or the Wall Street Bullies?

Many times, I have heard. What will happen to stocks if Trump is reelected? What will happen to stocks if a democrat wins? No one really knows.

That said, we must stop listening to the Wall Street bullies regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? The Wall Street bullies don’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 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 saving strategy will outperform all trading strategies, long term.

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

Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance.

Should You Get Out of the Equity Markets? Continued..

I essentially wrote this exact article twice over the last 7 years. The message bears repeating now.

During conversations with investors I continue to hear apprehension when the subject of stocks is discussed. This apprehension or fear is completely understandable.

We hear nothing but bad news from the media, the continuing battle in Washington, the International crisis, terrorism at our front door, the socialist tone of some current members of Congress like it or not, our own budget deficit and ballooning debt, finally the trade war with China.

Will there be down markets in the future? Absolutely, there is no doubt. We are experiencing a bad market right now.  However, no one can tell you when and which countries and/or sectors will be involved. And no one can tell you when the markets will recover.

The equity markets around the world are random and unpredictable.

This is undeniable. However, the equity markets remain the greatest wealth creator in the world, if properly used. This does NOT mean picking the right stocks or market timing, getting in and out of the market at the right time. Neither of these activities promoted by the Wall Street bullies are in your best interest. These activities benefit the Wall Street bullies and will not improve your returns.

The market returns are there for the taking, they are waiting for you to take advantage.

Listening and taking the advice of the Wall Street bullies is not in your best interest. 

Even worse taking stock picking advice from the likes of Jim Cramer.

Your time can be much better spent than worrying about the direction of the equity markets. If you have developed a prudent portfolio and remain disciplined you will succeed long term. This will require the help of an investor coach who will keep you from letting your emotions take control.

Remember the Equity Markets are forward looking:

  • Expectations about the future are in today’s price.
  • Market returns are not strongly correlated with macroeconomic variables such as GDP
  • Markets can provide positive returns even during periods of poor economic performance.
  • Timing markets is difficult.

A study was done looking a past recessions and stock returns. The conclusion there is no correlation between recessions and stock returns.

To succeed in reaching your long term financial goals you need to own equities, as scary as this may seem, globally diversify, no one can tell you which countries and/or sectors will outperform and rebalance, buy low sell high.

If you these simple rules you will stop gambling and speculating with your investments and improve your results with less anxiety about the future. If you are younger growth must be your goal, a retiree your goal is to keep pace with inflation. Owning equities in your portfolio is a great solution to accomplish both.

Long Term Strategy and Discipline Wins!

There continues to be more and more media attention that the ‘buy and hold’ strategy is dead. That Modern Portfolio Theory no longer works. This is another attempt by the Wall Street bullies to keep your money on the move.

There are an increasingly amount of ‘experts’ extolling the underperformance of equities for the near future. These ‘experts’ have an obvious conflict of interest as they recommend their own solution.

I even heard of a late-night show comedian saying that there is a recession coming. Unbelievable, Now, there may be a recession coming but no one can predict when and how long, not even a celebrity.

True investors are much better served using a passive management strategy and utilizing Modern Portfolio Theory and ‘buy and hold’. This strategy, over the long term will lead to success. It should be emphasized that ‘buy and hold’ should really be ‘buy and rebalance’.  ‘Buy and hold’ might signify set and forget and we must rebalance back to our target allocation periodically. This entails buying low and selling high, automatically.

When we rebalance we sell asset classes that have done well and buy asset classes that have done poorly, short term. Buy low, sell high. This is done periodically and eliminates the need to forecast the future.

There is some confusion as to, what is an investor? Many believe that a successful investor makes more than their peers all the time. This they believe is measured on a short-term basis.

A true investor will make comparisons of 10-year performance and perhaps longer. It might be ok to compare 5-year performance. But investing is a long-term disciplined process. When you compare performance on a short-term basis. Like monthly or worse daily, you are really a speculator not an investor.

Now its ok to be a speculator, but if you have a long-term goals like retirement planning. Being a speculator will lead to disappointing long-term results.

To be successful, investors, no matter how large, would be far better off using a passive strategy with Modern Portfolio Theory as part of the process. Modern Portfolio Theory is actually part of a larger strategy called Free Market Portfolio Theory. 

Remember no strategy always looks like the right thing to do. We must continue to believe the free markets do work.  Most importantly we must believe in our strategy and remain disciplined.

We must own equities….. globally diversify ……. rebalance.

Do The Free Markets Work?

I believe it is important to revisit this concept often. Because investors have very short memories. They believe again and again that someone can tell them what will happen next to the equity markets.

This is one question most investors never think about. Primarily because the Wall Street bullies want you to believe that free markets DO NOT work. The bullies will continue to supply you with forecasts on what will happen to your finances.

First let’s look at the assumptions if Free Markets Fail:

  • The market fails to price goods and services appropriately.
  • It is possible for some individuals to identify in advance which prices are inaccurate.
  • Underpriced or overvalued markets can be forecasted or predicted.
  • By taking advantage of these miss-pricings, either in stocks or market sectors, it is possible to both increase returns and avoid losses in investments.
  • People with this view would utilize traditional investment myths and speculate with their assets.

However if Free Markets Work.

  • Based on supply and demand the free market is the best determinant of market prices.
  • All available information is factored into the current price.
  • Only new and unknowable information and events change pricing.
  • The randomness of the market makes it impossible for any individual or entity to consistently predict market movements and capture additional returns unrelated to risk.
  • People with this view would utilize free market investment strategies.

It is vitally important that you decide whether free markets work or free markets fail. This will determine how you will invest for your future.

If you believe free markets fail you should continue to invest in the traditional investment strategies of stock picking, market timing and track record investing. This would require that you stay connected to ALL sources of financial information. By following this strategy you will, in my opinion, be gambling and speculating with you investment money.

Ask yourself one question, do you really want to constantly stay connected to the equity markets?

If on the other hand, you believe that free markets work. You would concentrate on capturing market returns. Build a globally diversified portfolio. Identify YOUR risk tolerance. Eliminate the traditional investment strategies.

And finally, work with an investor coach who shares this belief.

The Wall Street bullies want you to believe that there is someone on Wall Street that can predict the future. This message is constantly bombarding the investing public thru the media and marketing campaigns. They need you to believe that someone can earn you above market returns AND avoid all large losses.

After many years of watching Wall Street I can tell you no one can consistently ‘beat’ the market.

You will never have peace of mind with your investment dollars if you continue to seek the ‘hot fund manager’ or the next ‘hot stock’.

Any investment that requires an accurate forecast of the future is destined for failure because the equity markets are random and unpredictable.

To determine if your portfolio is built to take advantage of the free markets or built on the assumption that free markets fail view Portfolio MRI . You will learn what is required to take advantage of the free markets.

Keep in mind there will always be examples of those who beat the market however it is extremely unlikely that they can repeat.

To succeed in investing for a lifetime you need to follow three simple rules:

  • Own equities
  • Globally diversify
  • Rebalance

Your investor coach can help you stay disciplined throughout your life. As you age your coach will help you adjust your risk to assure you reach your financial goals.

Downturn or Crash?

We are experiencing some very turbulent times AGAIN in the global economic environment. And we also are experiencing a sharp downturn  Although this downturn, as of today, is less than 6%. So far, this downturn does not qualify a correction. Corrections are technically 10% to 20%. While bear markets are considered downturns of 20% or more.

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.

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 ou panic and sell you are locking in any losses you have. This is a huge mistake.

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.

Discipline Wins!!

While I do not agree with Warren Buffet’s approach to investing for most investors. He is a stock picker. However, what I do believe in is his discipline. He has a process and he sticks to it regardless of short term market noise.

Most investors would not be able to endure the volatility of a Warren Buffet portfolio.

This quote will help many investors realize extraordinary results.

It’s not necessary to do extraordinary things to get extraordinary results. Warren Buffet

Everyday there are new financial products generated by the Wall Street bullies. These products are designed to take advantage of the current situation on Wall Street. The short-term market noise should be ignored by successful investors.

Wall Street needs investors to continue moving money. From one product to another. Without regard to what is in the clients’ best interest.

Every day I read about the next great manager or next great strategy. These ‘greats’ are all the result of taking advantage of the current short-term noise in the equity markets.

As an example, during the mid to late 1990s the equity markets were realizing great returns, averaging nearly 39%. In fact, in 1999 they earned nearly 35% and at the same time Mr. Buffet’s fund lost 15%. Mr. Buffet believed in his philosophy and remained disciplined. Many said his time was over he had become irrelevant.

Unfortunately for investors their great returns were followed by the bursting of the ‘tech bubble’. Many lost 80% because they were concentrated in tech stocks. At the same time Mr. Buffet’s had a solid positive return. The reason? Mr. Buffet remained disciplined to his philosophy and flourished.

Most investors need a process to follow, a game plan so to speak. Something to follow during both ups and downs in the markets.

But most importantly they need discipline. The discipline to follow their plan regardless. Many times, it will not look like the thing. However, over the long-term it will serve them well.

This is where a fiduciary adviser/investor coach adds value, or earns their fees if you will. During market extremes, both up and down, provides discipline to help avoid any major mistakes.

To succeed long-term own equities…globally diversify…rebalance.

What Do You Expect From Your Portfolio?

Many investors believe that there is someone, some advisor, some investment manager, or some brokerage firm that will have the ‘answer’ to beat the market. Finding the ‘answer’ will allow them to save less and earn more to achieve their long term financial goals.

The sad truth is there is no substitute for a sound savings strategy combined with building a prudent portfolio which is aligned with you goals and tolerances. There is no substitute for designing this prudent portfolio and remaining disciplined to that strategy.

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

Do not expect to pick winning stocks and beat the market.

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.

Remember there will be another ‘crash’ or ‘bear market’ but no one can tell you when and how much.

Also, when building a prudent portfolio. There will be times when your portfolio underperforms and perhaps for extensive periods of time. In 1999 the stock market was averaged over 25% return for the 4 previous years. But then came 2000 and 2001, the market crashed, and investors lost big time.

The reason? Investors were overloaded with the hot asset class or the hot stocks.

Investors with prudent portfolios fared quite well. And over the long term out performed.

Remember the Wall Street bullies want you to continue to search for the ‘answer’. These bullies make money on every trade whether you do or not.

The stock market is the greatest wealth creating tool ever created, IF properly used. The main ingredient is that it does require discipline.

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

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.