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.

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.