Time For Value?

Well, the Green Bay Packers draft is completed. How it went is anyone’s guess. However, the drama created by QB Aaron Rodgers continues. Will he stay or will he go?? Really nothing I can do to control.

Much like investing in the equity markets. We have no idea what will happen in the short term. We have no control of any of it. We can only look at the long term and realize there are strategies that work long term.

 For example, we know that over the long term there is a premium to owning value stocks as well as small stocks. We know that over the long-term value and small will out-perform large growth stocks.

Unfortunately, over the last 5 to 6 years both have under performed the S&P 500 and by substantial amounts. As a side note I just read that 20% of the S&P 500 stocks account for most of the gain. Talk about lack of diversification.

However, there is hope that value and small stock are ‘coming’ back. Please read the link below from Dimensional Fund Advisors DFA founder David Booth.


There was also an article from Vanguard predicting that value stocks will out-perform over the next decade.

OK OK I don’t believe in anyone’s ability to predict the future. Regardless many continue to look for predictions.

The real benefit is that with discipline, diversification pays off in the long run.

You must ask yourself, are you looking for maximum return? Or are you looking to control risk? Most studies say investors fear loss more than they enjoy higher gains.

Only you can answer this question.

Let me know if I can help- answer any questions. Except whether Aaron Rodgers will be the Packers quarterback in 2021. Because I have no idea.

Emotion Based Investing…Does It Work?

There have been many investors asking do I need an adviser? The answer to this question would be ‘no’ except for one fact ….you are human. And humans are emotional beings.

If your broker/agent takes your order and does whatever you ask. You don’t need an adviser. But if you are looking for advice and someone to help you through the maze of investments. You need an investor coach/fiduciary adviser.

You can never overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely on logic, advertiser and journalists are well aware that emotion ultimately drives most investment decisions.

As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed. (Answers listed in the key below.)


1. “It doesn’t matter how sophisticated his charts are     or how much sense he makes, I just don’t feel comfortable letting him handle my money.”

2. “I’m not sure I should have put my money in that fund. It lost 15% already. Maybe I’ll sell some of it tomorrow.”

3. “My boss got 25% on his money. I only made 8%! I wish I got 25%.”

4. “I’d wish I’d known that stock was going up, I would have bought more shares.”

5. “My dad worked in that company all of his life and he left his shares to me in his will. It would be wrong to sell it just to diversify my portfolio.”

Answer key: 1. Trust 2. Regret 3. Envy 4. greed 5. Loyalty

We as people are naturally predisposed toward or against specific investing tactics. What is interesting is that no matter what our emotional tendency maybe, we can almost always find what looks like purely factual data to support our view. It is easy to overweigh information that validates our perspective while minimizing any information that goes against what we inherently believe.

The Good News: Simple awareness of your emotions when it comes to financial and investing matters can make the difference between good and bad investment decisions. The recent up has many investors looking to concentrate in the hot sectors.

Unfortunately, this leads to buying high and selling low. This breaks the number one rule of investing. Warren Buffet never fell for this mistake.

This is really what the financial institutions want…they make money when money moves.

This is a great example of why investors need an investor coach/fiduciary adviser. Your coach will help you build a prudent portfolio designed for you AND keep you disciplined to that strategy in both up and down markets.

As an investor you must remain disciplined to your strategy…you must own equities…globally diversify…..rebalance.

What Should I Do Now?

During discussions with potential clients. I have learned most people have a very short time horizon. Most people are looking at short term results. They want to know what the best strategy is for right now.

In fact many advisers are guilty of this same thing. They are constantly marketing the latest ‘hot’ strategy or ‘hot’ investment class. These ‘advisers’ are actually investment salespeople. Constantly looking to market what people want right now.

True advisers show you what is right for you over the long term. While investment salespeople show you what is hot ‘right now’.

This is the result of everyone’s short term thinking. We base our decisions on short term emotions. We believe the truly successful investors are always in the investments that are always profitable ‘right now’.

This is far from the truth. Successful investors find a strategy that they believe in and stick with it. There will be times that their strategy will underperform others or even underperform the market in general.

A great example of this is Warren Buffet. Mr. Buffet has a strategy that he has stuck with throughout his very successful career.

During the late 90’s the tech stocks were earning extraordinary returns. In 1999 many funds were earning 80, 90% I even recall one fund earning 200% in 1999. At this same time Mr. Buffet stuck with his strategy and earned a negative 15%. That’s right while everyone else was doubling their money. Mr. Buffet’s fund LOST money.

As an investor with short term thinking. You would avoid his fund like the plague. Subsequently, the tech bubble burst and investors were devastated losing substantial amounts of money. Mr. Buffet on the other hand flourished.

Long term Mr. Buffet was proven correct.

Part of what I believe is a successful investment strategy includes the Three Factor Model developed by Doctors Eugene Fama of the University of Chicago and Kenneth French of Yale.

To make it short the Three Factor Model states that over the long term

  1. Equities have a premium over fixed income
  2. Small stocks have a premium over large stocks
  3. Value stocks have a premium over growth stocks.

Remember this is over the long term which is how investors should be thinking. Short term investing is really speculating and not investing.

Both small and value are making a significant comeback. Over the long term, in my opinion, these premiums are real.  As true investors we must remain disciplined to our strategy and not seek out what is working for ‘right now’.

Ultimately you have to decide whether you are an investor or a speculator.

Because finding the strategy or investment class that is good for ‘right now’ will result in short term gain and long term pain.

To be a success investor, Long Term, you must own equities along with high quality short term fixed income…globally diversify….rebalance.

Are Trading Strategies For You?

Like everyone else I receive numerous unsolicited emails every day. Most, if not all, are unwanted.

This weekend, on a rainy Sunday afternoon, I decided to look at an email from an investment company. More specifically, a seller of investment strategies.

This particular firm stated it average 16% over the last 10 years. This caught my eye, like it was intended to do. Digging deeper I found they used passively managed ETFs. Even deeper used 12 different asset classes, ie, large cap growth, large cap value, small cap growth, small cap value, international, etc.

Each month they stated how to allocate to the different asset classes. Based their technical analysis they were able to earn the previously stated 16% but with a maximum drawdown of 12.9%. WOW!! Now they had my attention.

Until I looked at their disclaimers. It was stated in the email that these were hypothetical results. In other words they designed the strategy based on historical data. Which is called optimized trading. They continued on stating they would not guarantee the same results in the future.

The statement all investment managers must use. Past performance is no indication of future results. This rings true time after time.

Because as I have said in the past the equity markets are random and unpredictable. Sure, you could get lucky. But that’s what it is LUCK!

The future cannot be consistently predicted.

We must own equities with high quality shorter term fixed income, globally diversify and rebalance.

We may not look good for periods of time but over the long term this strategy will prevail.

This is because we are controlling risk. Most investors have no idea how much risk they are carrying.

The email with the unbelievable results can only be repeated historical data. This may or may not repeat. Your investment dollars do not and should not be used gambling and speculating.

DIY or Prudent Investing?

Recently I have heard someone say to me “I hope you are doing well in the market because I am’.  I did not respond to his proclamation nor will I in the future. This self-proclaimed trader obviously has made some good buys and sells.

They do not realize that they are gambling and speculating with their money. They can justify each trade with some signal or trend change or some other indicator. (The trading platforms like “Robinhood” make this speculating quite easy). These platforms advertise the successful trades made on their platform.

What they don’t tell you is that most of the traders that lost everything. Get rich schemes like these end up hurting most of those that participate.

Typically, traders with short-term 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.

There will be periods when the gamblers will outperform a prudent portfolio. However, over the long term the prudent portfolio will outperform.

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 you 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.

March Madness!!

Apparently, It may set a record for upsets. There were a large amount of them Including only the second time in history a 15 seed has made it to the Sweet sixteen.

If you watched any of the pregame shows you will notice how many of the ‘experts’ got it wrong. Personally, my pool ended when Illinois and Ohio State lost. So much for Big Ten allegiance!

At the beginning of the tournament the selection committee ranks the teams. Number 1 seed have the best chance to win and 16 seeds are considered the least likely to win. Well, the committee had some misses actually quite a few misses.

The broadcasters then took their turn at predicting with similar results. Not good. It turns out predicting the future is hard….really hard!!

We see the same things occurring in the financial world. Predicting the direction of the market is foremost the most popular. Then its stock picking.

What we see are similar results to the March Madness predictors. Hit and miss…mostly miss. When they get it right it is a matter of luck and not skill.

We need to learn that to succeed with investing we need to develop a proven philosophy and stick with it. Our strategy involves Nobel prize winning concepts that are proven over time to result in positive outcomes. LONGTERM.

Unlike my March Madness pool which had a disappointing end. Investing goes on. Predicting the future is really hard. Your financial future is too important to rely on luck and the Wall Street bullies.

Find an investor coach/fiduciary advisor to guide you.

Which I More Important Diversification or Discipline? Both

Just recently I read that Warren Buffet’s net worth has surpassed $100 billion. He is considered one of the best investors ever…long-term. Mr. Buffet is also considered a value investor. In that he buys companies that are underpriced for a variety of reasons.

One thing you can count Mr. Buffet for is discipline. Although I do not agree with the fact that he is not diversified. I do agree with his discipline.

During the dot.com era of the 1990s his fund underperformed the U.S. equity market by a relatively large margin. In fact, in 1999 the S&P 500 earning nearly 30% Mr. Buffet’s fund lost 15% as did many value and small stocks. He did not waver from his approach. He is quoted as saying I continue to believe in bricks and mortar companies.

Over the past few years we have experienced the value sector underperforming U.S equities as a whole. Will the 1999 to 2000 change repeat I do not know? Although value and small stocks appear to be making a comeback.

What I do know is diversification and discipline work long term!!

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.

Information Is Toxic!!

We receive information from a variety of sources today. It used to be newspapers. I know what’s that? Now its primarily social media.  It used to be the nightly news. Again,now it’s primarily social media.

No matter how you receive your news, whenever it involves investing it is invariably toxic. And will lead you to make emotional short-term changes.

  • Emotional decisions are seldom the right ones.
  • The world and the stock traders are watching. 
  • As always Wall Street does not like uncertainty.

The nightly news, daily stock market shows, and cable news and now social media focus on variability to get your attention.  They bombard you with the equivalent of “noise”. Short-run data and statistics that are useless. 

Paying attention to the short-term market fluctuations and ‘newspaper’ headlines will completely disintegrate your peace of mind and ultimately your portfolio.

The reason many prefer investing in real estate is there are no noticeable short-term fluctuations in price.  You cannot look up the value of your real estate property on a daily basis.  You treat it like a long-term investment, which it is. 

The stock market should be treated much the same, by ignoring short term volatility and the daily news reports.  By following a prudent process and strategy with your investments you will succeed in the long run.

Stop trying to control something you cannot control.

To succeed in investing for the long run you must own equities….globally diversify…..rebalance.

Proper Expectations Leads To Peace of Mind!

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.

Just recently there has been controversy surrounding GameStop stock. A group of small investors got together and managed to manipulate GameStop stock. They made a lot of money. But the real story was they caused some large Hedge funds to lose and lose big.

Many take this as an opportunity to make money using social media and a group of like-minded investors. They believe they have found the ‘answer’.

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.

If you believe your new adviser has the ability, to get into the market and out of the market at the right time. You will be disappointed over the long term.

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.

Attempts to ‘beat’ the market, have been unsuccessful in the past. Looking at a short term, outperformance will lead to disappointing results, long term.

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

Stocks…Out or In??

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 coronavirus, the liberal tone of the current political environment, like it or not, our own budget deficit and ballooning debt, the list goes on and on.

Will there be down markets in the future? Absolutely, there is no doubt. However, no one can tell you when and which countries and/or sectors will be involved.

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.

The Gamestop situation will go away, just like day trading in the 1990’s.

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.

There will be periods when a globally diversified portfolio will underperform. For example, these portfolios underperformed during the 1990s. Because .com companies were the rage.

Then the bubble burst and fortunes were lost. Except for the globally diversified portfolios. They continued to earn positive returns. With the exception of 2003, -3%.

For the last 5 years a diversified portfolio has underperformed. Comparing your diversified portfolio to others will only add anxiety to your life.

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.