The True Enemy of Every Investor

Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior.

The Wall Street Journal at 1701 Page Mill Road...
The Wall Street Journal at 1701 Page Mill Road in Palo Alto, California. (Photo credit: Wikipedia)


Unfortunately, the true enemy of every investor lies within.


The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to. This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle.


You will see that this cycle is hard wired into every human being in the world. No one is exempt.


After studying the collective behavior of thousands of real world investors over the past decade, several truths have made themselves clear. It is my belief that many, if not most financial product sponsors are aware of this dilemma,


but either don’t care that the investor is harmed by it,


or are ignorant of the damage that they unknowingly perpetrate on the American investor.


These Wall Street bullies sell fear during downturns. They will make bold predictions about the impending doom. They will attempt to sell you their solution: buy gold, annuities, life insurance, CDs, commodities, real estate or whatever. Anything that has safety or guaranteed mentioned.


I just read one such prediction ‘now is the time to become defensive’. Unfortunately for most investors they do not look at this predictor’s track record. In most cases it is not very good.


The reason they were quoted was because at some point they were right. But as we know this was a matter of luck and not skill. Investors on the other hand appear to be unaware that the equity markets are random and unpredictable.


Each day I can find in the Wall Street Journal 5 reasons the market should go down AND 5 reasons the market should go up.


As I write this today, September 9, 2016, the U.S. markets are down over 2%. Of course the predictor(s) will say ‘I told you so’. Again this was luck and not skill.


Is this just a one day occurrence or the beginning of a long down trend? No one can tell you with any degree of certainty. As I have said before no one can tell you whether the next 20% move will be up or down. What they can tell you is that the next 100% move will be up.


Investors need to ignore short term volatility and focus on the long term. Especially when investing for retirement. You will, hopefully be retired for a LONG time.


To succeed in investing you must own equities and high quality short duration fixed income.…globally diversify….rebalance.


Work with a fiduciary advisor/investor coach to determine the risk level that will help you reach your goals. With the amount of volatility you are comfortable with.


Your coach will help keep you disciplined during market extremes and conquer your true enemy.

Is Cheaper Better??

There has been a huge amount of attention from the financial media and advertisers that costs are the number one enemy of investors. While this is true in many cases. Buying investments based solely on cost is a mistake for most if not all investors.

These advertisers tell investors that they have all the tools they need to build a successful portfolio. All this at a very low cost to them. These advertisers say ‘why pay of an adviser when we can do it for you much cheaper.

The result is you keep more money for yourself. You eliminate the ‘unnecessary’ middle person. These advertisers say these advisers do not have your best interest in mind. They want you to believe all advisers add no value to your portfolio, just added costs.

Again while this is true in many cases a true fiduciary adviser can guide you to a successful financial goal. In most cases this would not be possible doing it yourself.

As an example. If you wanted to build a new house. You could go to any discount retailer, like, Menard’s or Home Depot or Lowe’s or any of the other ‘do it yourself’ retailers.

You can find everything you need to build a house in these retailers. You can even talk with their onsite ‘experts’ and learn what to do. But if you have all the necessary materials delivered to your home site. What do you think would happen? Where would you start? You could google it. Can you imagine the finished product? How long do you think it would take to build your house?

Let’s disregard the fact that your bank would probably not approve the loan if this were your plan. Even though it is cheaper.

Some construction friends of mine tell me that having a good general contractor is vital in building the structure on time AND on budget.

A general contractor is one responsible for ordering the right materials and delivering in the right sequence. They are also responsible for arranging the right contractors to do the various duties. Like plumbing, excavating, electrical, mason, carpentry, etc..

You could do this yourself and save money in the short run but in the long run it would cost more. And in some cases much, much more.

With regard to investing finding a good fiduciary adviser/investor coach is vital to reaching your long term financial goals. Like the general contractor your coach is responsible for putting the pieces together in the right order.

And more importantly supplying the necessary discipline to stay on track to your financial goal(s).

In both cases general contractor or investor coach/fiduciary adviser, find one you trust. One that understands your goals.

Where Is Your Evidence?

The first two months of 2016 resulted assets and wealth being transferred from those with no stomach for volatility TO those who can handle it. Many investors panicked and sold their equity positions during our recent downturn.

The doomsayers were coming out of the woodwork predicting the pending doom. ‘Run for the hills” they proclaimed. The market is crashing. In most cases these ‘experts’ had just the product/solution to protect you.

The best strategy for investors is to develop a scientifically backed portfolio, for their risk level and forget it. (I shouldn’t say forget because we will rebalance periodically.)

I recently read about a movement in the investing field. It is called “the Evidenced Based Investor”.

This movement is nothing new. In fact, this is what I have been proclaiming all along.

This ‘new’ movement says ignore the financial media, ignore your friends who found the next ‘get rich quick’ scheme.

There will always be someone who beats the market.  Unfortunately there is no ‘evidence’ that that same someone will do it again.

Remember the equity markets are random and unpredictable. That means that stock picking and market timing do not work. It also means that finding a money manager with a great return does NOT mean they will repeat.

Currently there is a cloud of pessimism covering America and perhaps the world.  There is also a human tendency to believe that when times are bad they will always be bad and conversely when times are good they will always be good.

Although no one can predict the future, the economy, America’s and the worlds’ will get better, when I don’t know, but it will get better. Do not react to these short term volatile changes.

Remember research has shown that the average investor holds their portfolio an average of three years, much to their detriment.

Following a prudent process with discipline will lead to investing success long term. In most if not all cases this will require the guidance of an investor coach/fiduciary adviser.

The ‘evidence’ is clear.

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

Free Markets Work!

Each day the media focuses on a new prediction. Their audience is continually searching for new predictions. What will happen next? What is the new hot asset class? Where is the best place to put my money?

Everyone wants to have the best investments, only making money and avoiding all losses. This futile exercise will only add anxiety to your life.

What investors are looking for is stock market returns with Treasury bill risk. What they receive is Treasury bill returns with stock market risk.

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 random and 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.

Many people believe that the executives at the large brokerage firms, banks and insurance companies have special insider’s knowledge. These same people also believe these ‘privileged’ executives make money buying and selling the right stocks at the right time. This is how they become ‘filthy’ rich.

This is not true. In most cases these executives make the bulk of their incomes off of the fees and commissions they charge you.

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

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.

Allowing the free markets to works requires a substantial amount of discipline. Most if not all of investors are far too emotional to remain disciplined during times of market extremes.

A case in point is the recent downturn during the month of January 2016. Many investors forgot about allowing the free markets to work and sold out of their equity positions.

To guide you through the inevitable volatility you need to fire your broker/agent and hire an investor coach/fiduciary adviser.

Do Not Lock In Losses!

We are experiencing some very turbulent times in the global economic environment. And we also are experiencing a sharp downturn

Wall Street prognosticators are trying to do is strike fear into the investing public. These Wall Street bullies are looking for an increase in trading. These bullies want you to move your money from one asset class to another. Remember they make money on every transaction, whether you make money or not.

Wall Street has a product for every situation. And they know the investing public is constantly searching for the next big ‘thing’.

Investors’ real goal is stock market returns with Treasury bill risk.

This is unattainable. Remember, where there is no risk there is no reward. This is true in all other areas of our lives, not just the stock market.

What we must remember is that stock market or equity risk is only part of the problem. Inflation risk is the most destructive to your savings over the long term. It is constant and unrelentingly eating away at your purchasing power.

Owning equities or stocks may be the best way to combat inflation risk.

The most successful investors of all time have one strategy, a strategy that does not always look great, but over time leads to success. These successful investors are not always looking for the next great strategy. At times they will look like they do not know what they are doing.  These successful investors know risk is unavoidable.

It has been proven time and again that market timing DOES NOT work. Not only must you be right getting out of the market, you must also be right about getting back in. Research has proven that this is NOT done consistently.

I find it curious that investors see past ‘crashes’ as buying opportunities while current or future ‘crashes’ are seen as risk.

A fun fact is that since 1925 the S&P 500 has averaged approximately 9.75%. During this time there have downturns of 10% or more 89 times. That’s approximately one per year. (Our current downturn has recently reached the 10% threshold.)

So if you want to keep control of your money and earn good market returns you must live with downturns. Because with downside volatility there is the upside volatility.

There are ways to control your risk while earning good market returns, long term.

Investing for a long term goal such as retirement requires patience, a prudent strategy and discipline. This, in most cases, requires the assistance of a good coach. A good coach will guide you in following these three simple investing rules.

Own equities….globally diversify…..rebalance.

If you panic and sell you are locking in any losses you have. This is a huge mistake.

To succeed in reaching your long term financial goals you don’t need to know everything about investing, but you do need to know the right things.

Uncertain Equity Markets??

Since the Greece crisis began a number of investors have said the equity markets are too uncertain and there is too much risk. They believe they should avoid the equity markets and use safe investments like annuities until thing ‘calm’ down. The problem with this strategy is that there is always uncertainty and risk in the equity markets around the world.

There is always something going on to disrupt the markets around the world.

Stock market of Brussels
Stock market of Brussels (Photo credit: Wikipedia)

If you only invest in the equity markets when things look rosy you will be sadly disappointed over the long term. To deal with this fear of the future we need to develop a prudent portfolio and remain disciplined. Our prudent portfolio will be at level of risk we are comfortable with. You need to ask what is the worst case scenario for this particular portfolio over a five year span?

This could mean 60% in equities and 40% in high quality short term fixed income. It could mean more equities or more fixed income.

Regardless of how much equities are in our portfolio we must avoid the temptation to market time when things look ‘bad’. It also can mean we must avoid the temptation to market time when things look ‘good’. This means getting out of equities when times look ‘bad’ and buying more equities when times look ‘good’.

To be successful long term we must:

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

This may seem simple but during times of crisis and boom our emotions take over. We make emotional decisions with our investment dollars leading to poor results over the long term. This is where the investor coach/fiduciary adviser adds their value. Remaining disciplined during these times will lead to a successful long term results.

For investors that realize that they nor anyone else can predict the future. This disciplined approach will reduce your anxiety and increase end results.

We must all remember that the equity markets, well, all markets are random and unpredictable.

Working with an investor coach/fiduciary adviser is the first step toward finding a solution best suited for you.

The typical broker/agent will sell you whatever you want. Their main objective is to make the sale.

While the investor coach/fiduciary adviser will recommend what is best for YOU and your long term financial future.

Is Safe Money Really Safe??

Remember when a stamp was a nickel or you could buy a candy bar for a dime? We do. At a relatively low inflation rate of 4%, it only takes 18 years for your wealth and its buying power to be cut in half. One of the primary goals of your portfolio should be to stay well ahead of inflation.

US-Inflation-by-year (Photo credit: Wikipedia)

Inflation can suck the lifeblood out of your portfolio.

Many investors are looking to avoid the volatility of stocks. They see this equity risk as too much to bear. The uncertainty of the economy brought on by the child-like antics going on in Washington DC. The struggles of the Eurozone to pay off their ever mounting debt has investors concerned about the future. There is nothing but bad news in the financial media. Nothing leads investors to a place of optimism.

All these concerns lead investors to seek out ‘safe’ investments. Investments such as CDs, annuities, cash, treasury bills or even bonds are sought because there is no apparent volatility.  What investors don’t realize is that these ‘safe’ investments have risks of their own.

This risk is even more dangerous than equity risk to your long term wealth.

Regardless of your investments there is risk involved. In the case of equity risk we see the effects every time we look at our statement or watch the daily news. We know that when the markets are down our account balances are down. This risk is visible and unwavering.

With regard to inflation risk we cannot see it daily, weekly or monthly. Unless we are paying attention to our rising food bill or utility bill or when we fiil our vehicle with fuel. These risks are losses in our purchasing power.

Remember with a small 4% inflation rate, in 18 years our cost of living will double.

Although we are in ‘safe’ investments and our account balances only show positive gains we are losing value every day, month, and year.

The trade-off between equity risk and inflation risk will always be there.  If we view our portfolio including stocks on a long term basis we will stay well ahead of inflation. The end result is building our wealth for a secure future and retirement.

To succeed in reaching these goals we must:

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

With the help of an investor coach we can stay focused on our long term goals. We will avoid the emotional panic selling during down markets. We will also avoid emotional euphoric buying of a hot asset class in up markets. We will follow the investment policy statement developed jointly.

Should You Get Out of (Or Into) the Equity Markets?

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 administration like it or not, our own budget deficit and ballooning debt, the list goes on and on.

Through all this bad news the equity markets posted solid returns in 2012 and 2013. 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.

Listening and taking the advice of the Wall Street bullies is not in your best interest.  These bullies include shows like Hannity or Limbaugh or OReilly who tell you how horrible everything is and try to instill fear.

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.

Prudent Investing Is Boring…

Prudent investing is boring. There is no excitement. It’s like watching paint dry. Except as Fred Taylor of Professional Associates wrote in a recent post, watching paint dry is too involved:

The Wall Street Journal
The Wall Street Journal (Photo credit: Wikipedia)

Even though this is my job, I’ll admit that I don’t watch the markets (closely) every day — largely because there’s no real need to and further, not following it minute to minute or hour to hour is good for reducing the stress level in one’s life.

Recently a close friend and client told me, “Tony I have been reading your weekly emails for quite some time and I beginning to find them boring.”  Well guess what they will continue to be boring. Because prudent investing is boring but in the long run rewarding as well.

Jason Zweig recently retired from writing his weekly article for the Wall Street Journal after ten years. He stated that he was successful because he was able to convince his editor that his material was fresh. He also stated his message was the same each week. Prudent investing works.

Prudent investing can be summed up with three simple rules:

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

These rules may seem simple however most if not all investors cannot follow them consistently. During market extremes, both up and down, investors will panic and sell during extreme downturns. This is usually followed by concentrating their portfolio in the ‘hot’ sector/asset class/stock during periods of ‘hype’.

This is why working with an investor coach/fiduciary adviser is so important to your investing success. We need to be reminded over and over to follow the basics of prudent investing. Hence, the ‘boring’ weekly emails.

Each day we are bombarded with predictions about what will happen next in the market. We hear this from ‘experts’ our colleagues or friends and family. The financial media is filled with this investing pornography. We are all seeking information to predict what will happen next. We are all worried about the future and how it will affect us and our finances.

What we don’t realize is that the markets are random and unpredictable. Therefore this investing pornography is worthless. Although long term prudent investing is boring it is also rewarding.

Remember there have been market downturns in the past, some were very severe. There will be downturns going forward. The problem is no one can tell you with any consistency when these downturns will occur.

Patience and discipline are boring. Long term prudent investing is boring.

Stop the excitement, fire your broker/agent and hire an investor coach/fiduciary adviser.

Which Do You Rely On?….Process or Superstition?

This past week I attended an investment symposium in Cincinnati. Ironically, the symposium was in a large downtown casino. Every week I contrast true investing from gambling and speculating. And here I was walking through a large casino that seemed to be busy at all times of the day. As I walked through I noticed the faces of some of the gamblers and in all cases it had the look of desperation and false hope.

Casino Royale en Las Vegas
Casino Royale en Las Vegas (Photo credit: Wikipedia)

I’m sure many of these gamblers felt they had an edge because they were sophisticated and had a ‘system’. But if you looked closer it was not a ‘system’ but rather thinly veiled superstitions. They relied on luck and when the luck ran out the sophisticated gambler moved on to the next ‘system’.

A prudent investor will not switch from one hot ‘system’ to the next. With the help of an investor coach they will develop a prudent portfolio designed for them and then remain disciplined to that process. That process includes among other things the following three rules:

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

The Wall Street bullies have extensive marketing campaigns, which begin as early as grade school, to keep the public gambling and speculating. You can tell you are gambling and speculating if you are doing any or all of the following:

  • Stock picking.
  • Market timing (Getting into and out of the markets at the ‘right’ times)
  • Track record investing (Investing in the hot managers or hot asset class)

These bullies forget to tell the public that these activities are in the best interest of the bullies and NOT you. These bullies use your emotions to keep your money on the move. Because their fees depend on you keeping your money moving from one strategy to the next.

Have you ever meet someone who won big at a casino? Did you find it curious why the casino would then give these ‘winners’ ‘free’ rooms and food. Perhaps even ‘free’ transportation back to the casino? Well these casinos do this because they know that if you continue gambling you will give all your winnings back.

Don’t get me wrong, gambling and speculating are not all bad. It’s ok as long as you gamble and speculate for entertainment purposes only. However it is not ok when this is your retirement plan strategy.

The Wall Street bullies believe the same thing if you continue trading their fees will continue and you will lose. These bullies will continue to use your emotions to entice you to gamble and speculate with your savings.

These gamblers and speculators will have continuous anxiety because they do not know what to do next. Their faces have the look of desperation and false hope.

Stop empowering the Wall Street bullies and take control of your own financial future. Fire your broker/agent and hire an investor coach/fiduciary adviser.