A Plan We Believe In.

It is now the day after my beloved Packers had another devastating loos in the NFC Championship game. This time to Tom Brady and the Tampa Bay Buccaneers.

Today many fans are angry and blaming everyone from the coach(es), to Aaron Rodgers, to the defense, to various individual players to on and on.

When things go wrong everyone is looking for excuses. Someone has to be to blame.

I personally don’t know what to say after another loss like that.

Matt LaFleur, publicly has said he found a defensive call at the end of the first half inexcusable. It seems the coaching staff were not on the same page.

This has some implications for investors to understand their plan before bad things happen. Many investors feel they should always be in the hot asset classes and nothing else.

These investors are really nothing more than speculators.

Things will eventually go bad. We must have a strategy we believe in and have the discipline to follow our plan.

There is no strategy that will always outperform. Unlike the NFL we must be more concerned with long term performance and less concerned with short term volatility.

Perhaps we should follow the lead of successful pension plans. Control risk and have realistic long-term expectation.

You will need the help of an investor coach/fiduciary adviser.

Should You Get Out Of The Equity Markets??

I wrote the below in 2013. It seems thing do not change. During 2020 there was nothing but bad news regarding the markets. And yet we realized a solid return for 2020. Now investors are wondering what will happen after inauguration day. Below is the 2013 message.

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 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. 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.

I personally get calls from gold brokers claiming they represent Sean Hannity.

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%.

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 follow 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.

OK The 7 Day Free Trial Is Over. Now What?

Well, the beginning of 2021has been rather disappointing. I have decided that the 7 day free trial has resulted in my cancelling the subscription.

COVID has continued to be a major issue. Although the vaccine is becoming available the disease continues its rampage. I have not decided if I will take the vaccine, since the scientists do not know the long-term effects.

The political scene continues to be a major issue for all Americans. I personally do not know whom to believe. I think, going forward, I will rely on reading my news. The major media outlets, especially social media are completely unreliable for unbiased news.

Given all this uncertainty Many ‘experts’ are predicting a major correction. However, as we all know the future in unpredictable. There will be a correction, but no one can tell you when and to what extent.

Because the future is unknowable and unpredictable. There will be the lucky ones that get it right. But no one can consistently predict the future. The experts that get it right very seldom repeat.

As an investor, your best course of action to invest in a globally diversified portfolio at the proper risk level for YOU.

Trying to time the market or pick the right styou ocks/investments only adds anxiety to your life. Who needs added anxiety? Especially right now. And over the long term, you will be extremely lucky to beat a globally diversified portfolio.

This required discipline to follow the plan, because there will be times when your portfolio will not perform very well. However, over the long-term you will be successful.

To accomplish this most investors need the guidance of an investor coach/fiduciary advisor.

Diversification Is Your Buddy!!

Given the good 2020 returns for U.S. large stocks, many investors are considering moving all their money into this hot asset class. Thereby avoiding U.S. small stocks, international stocks and emerging market stocks, including fixed income.

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. Part of the issue is that gamblers need to brag to their friends about how well they did. They naturally forget the losses.

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 some large pension funds.

Since most investors will be retired a long time. They need to invest for the long term which can be 20 to 30 to 40 to even 50 years. Many investors have a hard time thinking is such long terms. Even if you look at a 10-year period a diversified portfolio will in most cases prevail. Although this has not been the case recently.

Over time these portfolios will help you successfully accomplish your investment and retirement goals.

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

Please email any questions or comments and I will personally respond appropriately.

What Makes The Equity Markets Move?

When I tell people, I am a financial advisor many will ask what made the market go up or down that particular day.  Of course, there are those that when I tell them I am a financial advisor, they run.

People love stories. And they need/want to know why something happened. The media is great at giving them what they want. This is their job.

Let’s say a journalist calls up a prominent advisor or trader or financial executive on a day the market is down 2% or up 2%.. The answer might be ‘the market is down due to unrest with the 2020 U.S. elections’. Sounds reasonable right?

But is this the real reason for the down market? Perhaps it was due to any number of different ‘reasons’. Often far too complex for a journalist to write about.

I believe that most trading days that you can go to the Wall Street Journal and find five reasons why the markets/sectors/individual stocks should go up and five reasons it should go down.  Every day.

Like I mentioned in the beginning people are looking for a story to validate a decision to buy or to sell. And every day they can find a reason to do both.

Let’s say you are watching CNBC or reading about some expert and you learn that the Fed will make a change in monetary policy and the market goes down 2.2%. You will then conclude that any time the Fed makes a change to monetary policy that you should sell your stocks. Only the next time when the Fed changes monetary policy the market goes up 3%. Ooop!

Remember the markets are extremely complex. There are thousands of variables affecting investments around the world. Any time an advisor/broker tells you a story about why a particular asset class/sector/individual stock will be a good investment going forward, be wary. Their story is a sales pitch. Because no one can predict the future.

The markets are, although not perfectly efficient, far too efficient to take advantage by anyone on a consistent basis.

Successful investing needs to be long term focused. Any short term noise is meaningless. Any predictions about market/individual stock direction are meaningless.

If your advisor/broker truly has a long term focus, they will show you your investment policy statement (IPS). The IPS is your guide, it tells you the plan going forward. It tells you what to do when the market is down and when the market is up. Consistency leads to success.

The need for stories leads many investors to believe that if they study the markets and watch CNBC and scour the internet for answers they can beat the market. This requires a lot of agonizing work and a great amount of time. Many believe that there is a broker/advisor who will do this for them or they do it themselves. In nearly all cases this assumption leads to disappointing results.

A much more efficient approach is to build a globally diversified portfolio around the dimensions of higher expected returns and applying them consistently. These dimensions are derived from data over long periods of time and across different countries and multiple markets.

To succeed in investing for the long term you need to maintain a long term focus. Avoid the short term noise and STORIES.

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

Deja Vu All Over Again!

In the immortal words of Yogi Berra..”Déjà Vu all over again”.

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 is even more conversations about ‘safe’ investments. ‘Guaranteed’ is often used to describe their ‘solution’.

There are an increasingly amount of ‘experts’ extolling the underperformance of ……………….. for the near future. These ‘experts’ have an obvious conflict of interest as they recommend their own solution.  These ‘experts’ are using recent history as a sales gimmick. You will hear ‘look I would not have as much ………… or ………… will underperform for some time to come’. Or both.  As you can see the underperformers are interchangeable.

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 re-balance 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.

In his 1993 letter to shareholders of Berkshire Hathaway, Warren Buffet counseled; “By periodically investing in a ‘passive’ fund….the know-nothing investor can actually outperform most investment professionals.

Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.” He repeated the advice 10 years later in the 2003 letter. Mr. Buffet, in my opinion, was saying that trying to stock pick, market time and track record investing was ‘dumb’.

Over the long term the properly coached investor will outperform the ‘sophisticated’ investor. These ‘sophisticated’ investors believe because of their wealth they will receive special advice. This may work over the short term. However, over the long term the properly coached investor will prevail.

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. Right now these strategies are under performing the U.S. Equity markets. Although there are signs this may be changing. 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.

What’s The Best Strategy?

Well it appears the election has been decided??? And the coronavirus vaccine is on the way. If asked will you get the vaccine? I’m still debating.

In the meantime, Wall Street continues to come up with new predictions.

The Wall Street bullies are continuously promoting stock picking, market timing and trading. We have all seen the talking heads on the business channels, using the brokers’ tools, picking stocks and making great returns.

People like Jim Cramer want you to believe it is easy.

These commercials/shows make us believe that it is an easy task to predict market movement or pick the next ‘hot’ stock. The latest is options trading made easy.

The bullies know we are looking for a get rich scheme to make our lives easy.

Hit it right, they contend, and you will be on easy street.

When you bet on a long shot in gambling or assume excessive risk by trying to pick the “big winner”, your brain releases Dopamine.

During the current NFL season there has been a record number of comeback wins from 10 or more points. There was plenty of fans releasing Dopamine.

The casinos in our area count on the excitement of winning a large sum of money with little risk. Just a small wager will result in huge returns. They count on the release of Dopamine.

This chemical produces a euphoric feeling and is closely related to the high that cocaine and morphine produce.

For stock pickers, even thinking about placing an order for a stock they hope will bring them huge returns can produce this chemical.

All the while stock pickers ignore the real risks and likely losses in the speculative venture.

Like the comeback wins which are considered unlikely and is not a recommended recipe for success on a consistent basis.

There will always be investors who get lucky and make unbelievable returns. We must realize that this is a matter of ‘luck’ and not ‘skill. These lucky investors will very seldom repeat in the future. Many believe that if you find the right Chartered Financial Analyst CFA you can win.

Do you recall the Bernie Sanders scandal? Many of his clients said if you were not a client of Bernie you were a loser. How did that turnout?

Successful investors have a long-term plan when allocating their assets. They know there is an academic and scientific method available when building a prudent portfolio. Their strategy includes understanding the expected return and expected volatility of their portfolio.

Many investors believe that looking at past performance is a good indicator of future results.

This is exactly what the Wall Street bullies want you to believe.

As investors we must realize that if something happened in the past does not mean it will repeat in the future. Thousands of variables must be exactly the same for these situations to repeat.

During a meeting in Chicago I met with an active trader and his quote has stuck with me.

“Trading strategies work until they don’t.”

The problem for us investors we will never know when these strategies will stop working.

Develop a prudent strategy and remain disciplined. Find an investor coach/fiduciary adviser who shares your beliefs and go confidently into the future.

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

Happy Thanksgiving…2020!!!

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.

More importantly, we continue to live in the greatest country in the world despite how you feel about the political climate.

The year 2020 also stands out as the year of the coronavirus

However, there is no political party nor virus that can change the fact that the free markets work and we will overcome. People will continue to believe that hard work, discipline and prudent risk taking will lead to success.

I continue to believe that the majority of Americans believe in the American dream. As I have said before the only thing that doesn’t change is that things change. The path to the American dream may change but it is still there.

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.

Refuse To Be A Victim!!

Every day we hear more news, usually bad.  The media has a belief that if “it bleeds it leads”. Somehow people enjoy hearing bad things happening to other people.

How many times have you heard, “I’m glad that I do not have to deal with this generation”? “They are lazy, with no work ethic, no ambition, entitled…….”

I believe everything generation does not approve of the next generation. think about it, what did your parents’ generation say about you and your generation?

What we have to accept is that every generation is different, thankfully. We must believe that the free markets work, and the next generation will figure it out.

Unfortunately, the free markets do not guarantee anything. Some will win and some will lose. However, losing is not the end. It only determines what does not work for you.

No matter how much we believe that the free markets work and how much faith we have in the underlying system there will be stress in our lives about the future. 

We must refuse to be a victim.

In his book former General Electric CEO, Jack Welch points out that feeling sorry for ourselves in one of the most destructive and energy sapping behaviors you can engage in. yes, it’s unfair that the markets are insane and some people are unreasonable. 

We must accept this for the reality that it is and move on.

Every minute engaged in self-pity is one too many.  In the words of Jack Welch, “Refuse to be a victim”.  Develop a scientific strategy for investing and we believe that the “bad times” will not last forever.  Believe it or not we must also remember that “good times” will not last forever.

Remember the only thing that does not change is that things change.

For all of us this will involve keeping our emotions in check. This proves impossible for most investors. The solution is to work with an investor coach/fiduciary adviser.

It is during down markets as well as extreme up markets that your coach will earn their fees. Allow them to earn these fees by being ‘coachable’

To succeed in investing for the long term we must own equities…..globally diversify …rebalance!

Predictions, What Are They Good For?

Well the election appears to be over. However there appears to be a court battle looming.  For those of you who remember the 2000 election, Al Gore fought the results for 37 days and that was for one state, Florida. Remember the hanging shard.

In the end George Bush was inaugurated, I really expect the same result.

In the meantime, today it was announced that there was been very promising result in the Pfizer in a 90% effective coronavirus vaccine. The equity markets have reacted extremely positively. This is probably overdone, but I’ll take it.

I recall many predictions, depending on the election results. I wonder how many got this one right. I doubt there were many. I had many clients asking to get out of the market until things ‘settle down”.

As many of you know I do not believe in market timing. In that an investor can get out of the market at the right time AND get back in at the right time.

This has been proven to result in poor outcomes.

I also do not believe in stock picking or track record investing. There are examples of good stock pickers, Peter Lynch of Fidelity Magellan Fund averaged 29% per year for 13 years. Even with this stellar performance, Mr Lynch state3d he believed most investors of hos fund lost money.

Why? Because they bought at a high and then sold during the inevitable down turns.

There are of course, other examples of successful stock picking. But the average investor will not beat the market over the long term.

Which leads me to track record investing. This is using past performance to predict future results. NOT! Is possible? Yes. But not very likely. There is very little evidence that past performance predicts future results. This is why there is a disclaimer on all financial literature.  Past performance is no indication of future results.

To receive the best long term results you should

  • Own equities with the correct amount of high quality, low duration fixed income for you.
  • Globally diversify
  • Rebalance

This with the help of a fiduciary/investor coach will help you succeed, lomg term