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.

Free Markets Work!!

Each day the media focuses on a new prediction. Each day the media develops a new concern for investors. Their audience is continually searching for new predictions. Their audience is continually looking for stories that have a negative impact on their investments and their lives.

What will happen next? When will the pandemic end? What is the new hot asset class? Where is the best place to put my money? Is Tesla the answer? Or green energy? Or bitcoin? How will the cancelling of the Keystone Pipeline affect fuel prices?

Lately the political arena has been a hot bed of concerns. With the new administration what will happen to the economy? How will we handle immigration? This list seems endless. There will always be pontification from both sides.

The question becomes how will any of this affect you directly? Can you really predict how any of these predictions will affect your/our world?

Everyone wants to believe the side they agree with.

Everyone wants to have the best investments, only making money and avoiding all losses. This futile exercise will only add anxiety to your life. No one can consistently predict the future.

When someone is right on a prediction it is a matter of luck and not skill or knowledge.

Free markets are unpredictable.

Free markets left to their own devices set prices better than any individual or committee. They incorporate all of the knowable and predictable information in the present, as well as knowable information about the future. 

Only unknowable future news and information can change prices going forward.

Rather than attempting to predict the future use your time and resources to improve your skills, either career or life.

You can also spend your time with friends and family. Because we cannot predict the future and we cannot control the future.

Your investments are best allocated by owning equities, globally diversify and rebalance. Follow these three simple rules and you will succeed in reaching your long-term goals.

If You Follow the Herd, You Will Get Slaughtered.

During the turbulent times we have and are experiencing there will be ‘experts’ telling you what is the best place for your money.  It could be gold, annuities, real estate or even a pyramid scheme……..or alternative investments like hedge funds or Private equity.

Sometimes it means concentrating your portfolio in on one or a small amount of hot performing asset classes. It could be all U.S. stocks or all U.S. large stocks or all emerging market stocks or all international stocks or……

Right now, the U.S. stock is in its longest bull market in history. Does this mean U.S. stocks will slide in to a bear market? I have no idea.

In the news right now is alternative investment vehicle Private Equity. Apparently some small investors have wrecked havoc on some large private equity firms. They can also be called hedge funds.

Private equity firms are for accredited investors only, sophisticated investors. The potential reward are great along with the potential risks. One PE firm lost 53% in a two week period. These PE firms are not regulated like mutual funds, in fact they have very few regulations.

Private equity firms can utilize any asset class and the can make money when the market goes up or when it goes down. Which means you double your chances of gains but also double the chances for losses.

Whenever there is fear in the air someone has the answer for your investments.  This is a very dangerous time to be speculating.

If an investment strategy is on the cover of every magazine, and all of your friends and associates are doing it, it’s reckless to follow suit.  Only hot, sexy, and speculative techniques make the cover.  Don’t follow your friends!

Remember the most successful businesses have one strategy and they stick to it. Such as McDonald’s, if you visit a McDonald’s anywhere in the country, they are all set up the same. They know there may be a better way to run a restaurant but their systems works for them.

Warren Buffet is another example, he has one way of investing and it has made him the most successful investor of our time. There are times when he losses more money than most but over the long term he wins. He does not fall for the latest fad.

As an investor you may be tempted to change your investment mix to accommodate current events. This is call market timing and it has been proven not to work. You may get lucky in the short-term but you will eventually fail.

To succeed in investing for the long term you should own equities….globally diversify….rebalance.  The key is to remain disciplined to this strategy.

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.