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Does Diversification Work in The NFL?

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The U.S equity markets are making new all-time highs. Of course at one time the Dow Jones Industrial 30 had an all-time high of 200 then 1000 then 2000 then …….18,000…then????????

English: Brett Favre (#4) and Aaron Rodgers (#...
English: Brett Favre (#4) and Aaron Rodgers (#12) warming up before a game at Lambeau Field. (Photo credit: Wikipedia)

 

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.

 

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.

 

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.

 

The NFL season is quickly approaching. Teams are full of optimism about the future season. Every team says ‘This is our year’.

 

Being a Green Bay Packers fan I am very optimistic about this year. We appear to have all the ‘pieces’. The Packers appear to be well diversified.

 

The Packers are fortunate to have had two great quarterbacks in a row.

 

Can you imagine a team that put most of their money into one great player?

 

Even with these great players it takes a full team to win. Can you image Aaron Rodgers or Brett Favre without an offensive line or a good running game or receivers or….?  Can you imagine the result if your team had a great offense but a poor defense?

 

All consistent winning teams have a diversified collection of players. All working together as a unit.

 

Can you imagine a team that based its decisions on the emotions of the fans? Fans are great but they make emotional decisions with no plan. There would be chaos.

 

Without a good coach teams would make many emotional decisions during game time. Granted there are times this approach would work. But long term it is a recipe for disaster.

 

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 diversified portfolio designed for you. And more importantly keep you disciplined during both up and down markets.

 

Process (diversification) and discipline will lead to a successful outcome.

 

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

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NFL Draft Complete…Now More Predictions..

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Well the 2016 NFL draft is complete and my Green Bay Packers have made their selections. I wonder if anyone will compare the predictions with the actual picks.

Many ‘experts’ gave their predictions of which player each team should choose and why. It’s funny that none of these ‘experts’ are held accountable to their predictions. Because they are seen again and again as ‘experts’.

Now the analysis of grading the teams on their picks. I’m guessing it’s based on the same experts that predicted who they should pick.

What these ‘experts’ fail to realize is that the only true analysis is whether the picks help the team win football games. What about team chemistry?

So let’s get this straight first the ‘experts’ predict which players each team should pick. Then they predict which teams made the best picks. This is all followed by picking which teams will win their divisions, then win in the playoffs, then win the Super Bowl.

If we looked at all these predictions we will quickly realize that NO ONE can predict the future. NO ONE can predict which players will be stars. There is no way to consistently predict who will win and who will lose.

And yet the public continues to ask for predictions. Everyone wants to know what will happen next and how it will affect them. Every day we watch the weather forecast often disappointed that the predictions was WRONG. But guess what the next day we will watch the same forecaster. WHY?

To put this all into perspective, there were 253 players chosen in the 2016 NFL draft. There will be stars that were not even chosen playing in the NFL. Why were these players missed?  If all the experts had access to unlimited data on all amateur players. Why were the future stars missed?

Let’s compare that with the stocks available around the world, something like 12,000. How can the ‘experts’ pick which ‘ones’ will outperform other stocks and the market in general? Yet the public continues to watch the financial shows to find the next ‘hot’ stock or asset class.

Investors continue to look for predictions on where and when to invest their money. They watch the business news shows with the same predictors that got it wrong time after time. WHY?

It seems investors believe that investing means getting rich overnight.

These same investors fail to realize that the equity markets are random and unpredictable.

A much better strategy, if your goal is a secure retirement:

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

This strategy requires process and discipline. Both of which do-it-yourselfers are in short supply. It requires the guidance of an investor coach/fiduciary adviser.

NFL Draft or Stock Picks..

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This week the NFL will have its annual draft. Every team will each pick the player they feel will best help their team.

There is a lot of conversation and speculation on who each pick should be. Here in Green Bay fans are making their favorite pick. There is speculation that Ted Thompson, the Packer General Manager, will choose a linebacker or is it defensive lineman or is it offensive lineman?

English: Green Bay Packers General manager Ted...
English: Green Bay Packers General manager Ted Thompson during preseason training camp, Ray Nitschke Field, Green Bay Wisconsin, August 5, 2011 (Photo credit: Wikipedia)

Whomever each team chooses there will be questions about whether it was the right pick.

I believe if the player chosen helps you win it is a great pick. If not the picker should be fired. There have been countless hours used to analyze the correct pick.

As I said the only true test is how the draft pick performs on the field. Will he help us win?

Some teams trade future picks to move ’up’ in the draft to pick the ‘right’ player. This is much like trying to pick the next ‘hot’ stock and next ‘hot’ asset class.

Other teams like the Packers, Ted Thompson, Cherishes each draft pick. These managers believe in diversification. They know that trading and draft picking do not work over the long term. They know that you cannot predict a players success based on his past performance.

Some picks will work out great and some will be ‘busts’.

Like investing the successful teams build each year with diversified picks. They do not look for the ‘one’ guy to bring them to the promised land. The Super Bowl.

Predicting the next great player is like listening to The Jim Cramer Show. Each day Jim gives his ‘hot’ picks. He also gives his prediction of the future, ie, which way will the market go over the short term. His record, if you check, is quite poor.

Here’s a fun fact. The producer of the Jim Cramer Show is the same producer of the Jerry Springer Show. Remember the Springer show with its wild out bursts? It was purely for entertainment. Much like the Cramer show. The producer was interviewed and said that most of the ideas for Cramer’s show came from the Springer show.

As an investor you need to ask yourself. Do you want to predict the next ‘hot’ stock or next ‘hot’ asset class? Or do you want to develop a diversified portfolio with consistent success?

As in the NFL the draft is just the beginning. The next step to success is coaching. With the guidance of an investor coach/fiduciary adviser you will have the necessary discipline for long term investing success.

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There Is No Free Lunch….

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As I write this it is Monday January 4, 2016. The Green Bay Packers are no longer NFC North Champions. The equity markets have started the year in a very negative way. Many investors are getting nervous. Of course, the mood here in Green Bay is not a good one anyway given last night’s Packer loss.

Many are asking for explanations. Why is the market down so much the first day of the year? Is this the sign of things to come this year?

The financial news media is telling us that the Chinese manufacturing numbers were weaker than expected. Or was it result of the Middle East turmoil? (Of course, this could be an excuse nearly every day of the year.)

As I have mentioned many times before the equity markets are random and unpredictable. There is no way to consistently predict what will happen next. Anyone who tells you they can predict the future is delusional and you should run not walk away from them.

It is important for all investors to understand. There is no free lunch. You cannot earn stock market returns with Treasury bill risk.

And equity risk is just one of many risks we face on a daily basis. Most notably inflation risk. The risk that your investments will keep pace with inflation. Will your investments maintain their purchasing power? The equity markets allow us to maintain our purchasing power as well as grow our wealth.

I think a good analogy is how you accumulated your wealth in the first place. For the vast majority of us we had to work to accumulate our wealth. It included sacrifice to save for the future. We needed to forgo purchases that we ‘really wanted’.

But think about this. During your working career were all your day’s good ones? Were all your days UP? Were all your months, years….good ones? For most of us the answer is no. There were times some short and some extended where things did not go our way. But we persevered. We went on. Because we knew that in the long run things would work out. If we continued to work hard and work to improve ourselves.

There was/is a price for success. Dealing with the good and the bad.

The same can be said for investing in the equity markets. We know that there will be good days and bad days. If we persevere, in the long run we will succeed. You cannot panic at the first sign of market adversity. Because in the long run the good days will outnumber the bad days. And success will be ours.

Your investor coach will help you thru these ‘bad days’ so you can realize the good ones.

The Green Bay Packers on the other hand………….

Coaching..Process..Discipline!!

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As many of you may know I am a huge Green Bay Packer fan. Well Last night I watched my beloved Packers play their worst game under Aaron Rodgers. Nothing went right for the Pack. Let’s take nothing away from the Denver defense they played a great game. But the Packers had a very bad game.

After the game Aaron Rodgers was quoted as saying ‘We didn’t execute the plan we had in place’. Another quote might fit in here. ‘Everybody has a plan until they get punched in the face’. Mike Tyson.

The Denver defense played a flawless game so that probably had something to do with it. But anyone who regularly watches the Pack knows this was a subpar game for them. On both sides of the ball.

Being a staunch Packer I believe they will be back. Stronger than ever.

They will regroup and Coach McCarthy will emphasize getting back to their plan. What makes them a great team needs to be reinforced to the players and staff. It requires discipline in both the good times as well as the bad times.

There is no need to panic and look for another solution. Coach McCarthy knows his system works and he will make sure the Packers organization to a man is committed to that system.

Investors need to follow this lead. They need a prudent portfolio one which they understand and believe in. Sometimes when times are bad they need a coach to keep them from panicking. It is a huge mistake to look for something else. Something that works better right now.

Like the Packers they need to ignore the media hype and focus on their long term goals.

Also like the Packers they need to understand what the process is and believe in it. Remember investors do not have to know everything about investing to succeed but they do need to know the right things.

To succeed long term in investing find an investor coach/fiduciary adviser that you believe in and learn whatever you can.

Then you must own equities…globally diversify…rebalance. And repeat until you die.

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Does The Number One Pick Guarantee Anything??

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As I write this the 2015 NFL draft is in its second day. Here in Green Bay everyone is talking about the number one pick cornerback Damarius Randall. The ‘experts’ are saying why he is a good pick and some are saying why he is a bad pick. In the past, I watched these ‘experts’ for a while until I realized that they have no idea who is the best pick or player. Until the player performs on the field, they have no idea who will be a star.

Brett Favre warming up before a game.
Brett Favre warming up before a game. (Photo credit: Wikipedia)

There was a lot of hype on the overall number one pick QB Jameis Winston from Florida State taken by Tampa Bay. He is said to be a, can’t miss player. Well if you look at history since the draft began a long time ago only 13 overall number one picks have gone on to the Hall of Fame.

There is a lot of hype every year regarding the NFL draft. The experts keep predicting, the public keeps watching. Except for one thing the draft is nothing more than a guessing game.

Our own Brett Favre was drafted in 1989 by Atlanta in the second round as the 33rd player chosen. That means 32 players were seen by the ‘experts’ as better choices. Thankfully in February 1992 Atlanta traded him to Green Bay. Oops! OK I’m biased but Brett did pretty well in Green Bay and will be in the Hall of Fame someday.

Tom Brady will be in the Hall of Fame someday as well. He was drafted in 2000 in the 6th round. That means that the ‘experts’ believed there were over 160 players better than him. Another oops!

The Packers chose Tony Mandarich as a, can’t miss offensive tackle in 1989. He was chosen before the great running back Barry Sanders in the same draft. The ‘experts’ missed again.

Looking back many variables may have changed history. Would Brett Favre have been as great without Steve Mariucci coaching him? Or would Tom Brady be as great as he was/is without Bill Belichick? No one can answer this with any degree of certainty.

Great players have great coaches. In the right setting at the right time, greatness happens.

While talking with investors I am amazed at how often they rely on ‘experts’. To pick the right stocks.  Or help them get into and out of the equity markets at the right time. Or even do their own homework and do it themselves. Without proper coaching these investors are likely to realize disappointing results. It is possible that some will succeed but this will be the result of luck and not skill.

Coaching provides proper strategy and most importantly DISCIPLINE. There will be times when a good coach will have you doing something that they do not want to do. Like buying equities in a down turn. As part of the process, scheduled rebalancing requires selling the good performers and buying the poor performers.

Players/investors become emotional during times of crisis and hype. Without good coaching these ‘players’ will make emotional decisions that go against their overall strategy/plan.

If you are working with an adviser whether human or robo and they allow you to do whatever you want. The fees you are paying are too high no matter how cheap they appear.

Coaching matters over the long term.

Stop empowering the Wall Street bullies. Fire your broker/agent and hire an investor coach/fiduciary adviser.

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Dow Jones Industrial Drops 9,956 points…..

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That’s not a prediction, 9,956 points is what the Dow Jones Industrial dropped during the down days of 2014. Conversely the up days totaled 11,202 points for 2014. So for investors to realize the up days they need to endure the down days. The net effect for 2014 was positive. There of course will be years when the net effect will be down.

Unfortunately for investors there is no one who can consistently tell you which years will be positive or negative. There will always be volatility in the equity markets. To what degree they are volatile can also NOT be predicted consistently by anyone.

Over the long term equity markets will reward investors if they follow the three simple rules of investing:

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

Every investor that I talk with wants to earn stock market returns with Treasury bill risk, including yours truly. What they end up with is Treasury bill returns with stock market risk.

The reality is that the equity markets reward prudent and disciplined investing. Investors need to realize this and learn to live with the volatility. The alternative is to go broke slowly. These equity markets are a great wealth creation tool if they are properly used.

Success in investing does not involve:

  • Stock picking.
  • Market timing. (Getting into and out of the equity markets at the right time)
  • Track record investing(Investing with the ‘hot’ investment managers)

This may sound simple but in most cases it requires the guidance of a coach. As I have mentioned many times successful investing requires prudence and discipline. A coach will supply both.

As an example here in Green Bay we are devastated by yesterday’s Packer loss. There were many things that contributed to that loss but one offers a good example for an investor coach.

With about 2 minutes to play Seattle scored a touchdown pulling within five. No problem Green Bay receives the kickoff and runs out the clock. An on sides kick was Seattle’s only chance.

Brandon Bostick the Packer was coached to block so Jordy Nelson could easily catch the ball. Game over. Well Brandon ignored his coach and jumped up trying to be the hero. It bounced off him, Seattle got the ball and went on to the unlikely win.

The lesson, if you are coachable and willing to listen to your coach you will succeed in investing. If you want to go out on your own and become your own ‘hero’ you might succeed but likely you will fail.

Remember the equity markets will remain volatile and go up and down throughout the year. With your sound strategy and good coaching you will succeed.

What Does The NFL Draft Have To Do With Your Investments?

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This past weekend was the NFL draft. This is where the ‘experts’ tell us who the best college players are by position. The media and the NFL makes this draft a spectacular (or is it spectacle?) event. I am always amazed at the attention this receives from the media and the fans. If you look at past performance of these ‘experts’ why would you pay any attention at all?

This event has to be considered entertainment for the fans not for reliable information.

English: Green Bay Packers General manager Ted...
English: Green Bay Packers General manager Ted Thompson during preseason training camp, Ray Nitschke Field, Green Bay Wisconsin, August 5, 2011 (Photo credit: Wikipedia)

After the event the picks by the general managers are critiqued by the same ‘experts’. In Green Bay it is a full three day event for many, not me though. I must admit however that I did add an app to my iPhone to learn the Packers picks as they occurred.

The Packers General Manager Ted Thompson, as usual, went against the ‘experts’ picks and made his own decisions. He does not only pick the player with the best physical ability but also how the player would fit into the team concept. Football remains a team sport, regardless of what the ‘experts’ say. That said, Ted Thompson like I’m sure most other General Managers have a process, a system they follow to make their picks.

I believe once a GM caves in to the public pressure or begins listening to the ‘experts’ their jobs will be lost. Sooner rather than later.

Are the GMs always right? Absolutely NOT!! However when they follow a process that they believe in they will succeed in the long term.

This is also true with successful investing. When you follow a prudent process that you believe in you will succeed long term. Of course, there will be times when your portfolio will underperform. However, by not listening to the media ‘experts’ and remaining true to your beliefs you will succeed, long term.

Investing is not a short term event but rather a long term process. You need your savings to last a life time. Gambling and speculating is not the answer. While you may get lucky chances are you will lose. A consistent proven process will get you to your financial goals.

Once the general manager and head coach have assembled their team. It is the coach’s job to develop their own proven process. The coach will instill teamwork and discipline to build a successful team. Without the guidance of a strong head coach any team will fail. Even if the team has the best players at every position without a strong coach there will be failure.

Like a NFL team a successful financial portfolio will have the guidance of an investor coach. Your investor coach will help develop a globally diversified portfolio and keep you disciplined to your long term strategy. You need to remain focused on your long term goals. Without the guidance of a strong investor coach you will be swayed by the media ‘experts’.

Without a coach you will make decisions based on short term noise.

Like a strong NFL coach your investor coach will help control your emotions during both up AND down markets.

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

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The Great Packer Comeback!!!

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Packers make a historic come back.

While watching yesterday Green Bay Packers vs Dallas Cowboys at a good friends home I was amazed at the remarkable comeback by the Packers in the second half. The Packers were down 26 to 3 at halftime as I was NOT optimistic about the Packers prospects for the game and the season. The offense was very ineffective and the defense was nearly non-existent.

Green Bay Packers Head Coach Mike McCarthy. Ph...
Green Bay Packers Head Coach Mike McCarthy. Photo by Thomas J. Grant, Skaneateles, NY, USA. (Photo credit: Wikipedia)

I personally did not like what I saw and had little hope for a win. Things changed dramatically in the second half. Before we knew it, the score was 29-17…wow! Then it was 36 – 24. With minutes left the score was 36 -31 when the Packers intercepted Dallas. With less than two minutes to play Green Bay scored giving them the lead at 37 -36. This ended up being the final score.

But what does this have to do with investing, other than a fan bragging about his team? When Dez Bryant of Dallas made a great touchdown catch with 4 minutes to play I said a loss here would end the Packers season. My friend reminded me that the games was far from over. In other words never give up.

Today I sit thinking about this and what happened in 2008 to the financial markets. There seemed to be nothing but bad news and it continued for some time. Being invested in the stock markets was very painful. Many gave up and sold near the bottom. But with proper investor coaching many persevered. In fact an investor coach would have rebalanced when things seemed very bleak. Equities were dramatically down and U.S. Treasury bonds were up. Therefore we sold U.S. Treasury bonds and bought the downtrodden stocks bringing us back to our asset allocation target. (We bought low and sold high.)

We had a process, a process we believed and remained disciplined to. Like Green Bay Packer coach Mike McCarthy, your investor coach would not allow you to panic and sell your stocks at a low.  Coach McCarthy had a process that he believed and his players believed in. It’s not about predicting the future it’s about remaining disciplined despite the dire circumstances.

Even during the worst of times which seem to go on forever. These ‘bad times’ are short term in nature and will pass. Like the Packers on Sunday it required a cool headed coach and a process.

Plan to succeed and hire an investor coach.

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What Will An Investor Coach Do For You?

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The ‘new’ trend, maybe not so ‘new’, is that of coaches. I have seen examples of this as business coach, voice coach, career coach, health coach and in my case the investor coach. There are many others but you get the idea.

Italian American
Italian American (Photo credit: Wikipedia)

Most of us associate coach with sports. Our Green Bay Packers have many coaches from head coach Mike McCarthy to all the assistant coaches. Coach McCarthy is responsible for the plan for the entire team. Each assistant was hired to guide the players in a specific area. Altogether it will lead to the completion of Coach McCarthy’s overall plan.

To win the Super Bowl is the ultimate goal for all NFL teams.

Imagine the chaos if each player did whatever they wanted. What if the coaches listened to the fans and changed their plan after every bad play or bad game?

Many of us have had coaches who have guided us in our sport. We listened to our coach because we trusted their wisdom and knowledge.

Many times our coach had to tell us ‘NO’.

We were told what to do and we did it without question, well almost all of us.

A great example of a coach for us avid Packer fans has been most recently Mike Holmgren and Mike McCarthy. These coaches provided their players with the proper knowledge and discipline to succeed. But our most famous coach was Vince Lombardi.

Can you imagine one of Lombardi’s players questioning his directions? What do you suppose would have been his reaction? I believe he would have told the player that the players’ ideas might work but the player would have to find a different team to implement them.

Lombardi demanded attention to detail and discipline. He believed that with proper execution and teamwork success was inevitable. During his time in Green Bay many if not most of his players hated him at times.

But in the end his Lombardi’s players loved him and there was success long term.

An investor coach will provide you with the process AND the discipline necessary to succeed long term in investing. Many times your investor coach will ask you to do something that you do not like. After all you want to avoid all pain, such as during markets. These down markets can be prolonged and quite painful.  But your coach will keep you focused on your long term financial goals. This is also true when investors chase the hot sectors/asset classes. Your coaches’ role is to again keep you focused on the long term.

Unless of course you are able to consistently and accurately predict the future.

 If you are interested in investing for success by following a process and remaining disciplined with confidence hire an investor coach. Be prepared to hear ‘NO’ on your requests to stock pick, market time or invest in the hot track records.

You should not worry about being invested correctly if you are working a fiduciary adviser (investor coach).

The Wall Street bullies hope you continue trading as their profits swell when you continually trade. Stop being a victim and hire an investor coach.

A part of the process is three simple rules of investing:

  • Own equities and fixed income.
  • Globally DIVERSIFY.
  • Rebalance.

Risk cannot be avoided, however you can control how much risk is right for you. Your investor coach will help you control this risk, as well as control your emotions.

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