What? Another Crisis…

Numerous times over the Christmas holiday investors have asked me if they should sell their stocks because of a crisis around the world. As with all ‘crisis’ events I said no, you should remain disciplined to your investment policy statement and rebalance.

There is constantly a crisis somewhere in the world. There will be other events both good and bad that will send shock waves, both up and down, into the stock markets.

This time, believe it or not, the markets are pulling back because the price of oil is dropping. It wasn’t long ago that the markets responded negatively to oil prices going up.

That is the point, there is no way to consistently predict market movements over the short term.

Keep in mind that in order to realize the superior long term returns of the equity markets we must control our emotions in both up and down markets. Warren Buffet has a saying I find helpful.

“Be greedy when others are fearful and fearful when others are greedy”.

In other words control your emotions there is no get quick rich scheme. If the ‘experts’ actually could predict the future why would they tell you? Fund managers, hedge funds managers, stock pickers, market timers all need investors to believe that someone can and does beat the stock market.

This is all part of their marketing strategy. When a manager actually does beat the market, (luck will allow some to win), the marketing department goes to work.

Unfortunately for investors there is no evidence that past performance correlates into future success or future losses.

Shows like Jim Cramer’s are based on their entertainment value and not on their value to investors. Investing is not a game as they make it appear. To succeed in investing for the long term you should own equities…..globally diversify….rebalance.

Any time or money you spend trying to beat the market is time wasted. Time which you could be spent improving your job skills or developing new job skills or spending time with family and friends.

So turn 2016 into the year you become an investor and not a speculator. Hire an investor coach and reduce your investing anxiety and improve your long term results.

How Does ‘Risk’ Affect You?

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

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

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

English: CNBC’s “Mad Money with Jim Cramer” ca...
English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

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

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

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

During the Packer-Lions game the Packers won on a last second ‘Hail Mary’ pass. High risk indeed. There was plenty of Packer fans releasing Dopamine.

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

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

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

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

Like the Packer win which was very unlikely and is not a recommended recipe for success on a consistent basis.

There will always be investors who get lucky and make unbelievable returns. We must realize that this is a matter of ‘luck’ and not ‘skill. These lucky investors will very seldom repeat in the future.

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

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

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

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

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

“Trading strategies work until they don’t.”

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

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

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

Are You Investing or Speculating?

During conversations with investors and financial professionals I hear of the hot adviser who beat the market. They made money throughout the ‘great recession’. They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

English: CNBC’s “Mad Money with Jim Cramer” ca...
English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

These ‘hot’ analysts claim they can pick the right stocks to beat the market. If you look at celebrity stock pickers like Jim Cramer and look at his track record you will realize how poor his picks are. And yet people continue to watch him and take his advice. He continues to make bold predictions. He sounds very confident.

During my studies of investing strategies over the last twenty years I have learned trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.

If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers. You would be a fool to ignore the chance of blowing your brains out. Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you, follow a prudent strategy.  Or if you are already in retirement a prudent strategy is a must. In all cases you should follow a strategy which is backed by academic research. This research should use as much data that is available in order to eliminate any chance of bias.  There is data going back to 1927 for many asset classes. Now that is what I call long term.

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

Allow the equity markets to work for you. In most if not all cases it requires the help of an investor coach/fiduciary adviser.

Jim Cramer Is Seeing Red

The markets are too efficient to allow accurate predictions. The markets are random and unpredictable and yet shows like Cramer’s continue to make predictions. These bullies only goal is to increase viewership and advertising dollars. Don’t empower the Wall Street bullies build a prudent portfolio and remain disciplined. To help with this you should fire your broker and hire an investor coach.

English: Lehman Brothers headquarters in New Y...
English: Lehman Brothers headquarters in New York City (Photo credit: Wikipedia)

Cramer’s advice to buy Chinese stocks now before his insight about driving global growth is “all priced in” is particularly foolish and misleading. Information about the prospects for China (and all other countries) is well known by the millions of investors in the global marketplace. It has already been widely reported in the financial press. The current price of stocks in China and elsewhere incorporates all of this information. As such, Chinese stocks are priced fairly today. They may go up or down in the future, but it’s tomorrow’s news that will drive those prices, and not information that’s already in the public domain.If Chinese stocks end 2013 with a significant increase, Cramer will tout his stock picking expertise. If they don’t, he will move on to the next prediction. There’s no accountability for bad calls. Eric Tyson, a best-selling personal finance author, wrote an excellent blog post on the perils of following Cramer’s advice. He noted Cramer’s advice on financial stocks (where you might think he has special expertise) has been terribly wrong. Most notable was his recommendation to buy Lehman Brothers on Sept. 5, 2008. The stock was trading at $16 a share. Cramer called it “a screaming buy” and opined that things couldn’t deteriorate further. After bankruptcy, Lehman sold for pennies per share.

The Wall Street bullies like Jim Cramer, know that the viewing public have very short memories. They will continue to make predictions right or wron it does not matter.

Please comment or call to discuss how this affects you and your investments.

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Cramer and His Colleagues Are Killing Your Returns

The Wall Street bullies want you to continuously trade your money. It’s ok if you want to gamble and speculate with your investment money. However, trading will and does result in very poor results. Keep in mind there will be a select few that succeed and earn a spectacular return. This is a matter of luck and not skill. No one can consistently earn superior returns. The market rate of return is there for the taking, take advantage and succeed, long term.

Investment Conference
Investment Conference (Photo credit: Salmaan Taseer)

In his excellent book, Think, Act ,and Invest Like Warren Buffett, Larry Swedroe summarizes data indicating that individual investors achieve poor returns. This data shows individual investors who rely on brokers and others who claim to be able to “beat the markets” underperform market returns that are theirs for the taking. The only winners are the brokers who “advise” them and the advertisers on shows like Cramer’s, who do their best to convince you they have an expertise that doesn’t exist.Since Cramer appeals mainly to high-testosterone men, it seems logical to inquire about the investing prowess of this demographic. One study showed that men trade more and have lower returns than women. The underperformance was more pronounced when comparing single men and single women.

The authors concluded that overconfident investors place too much confidence in the information they are getting and overestimate their expected gains on trading. There appears to be an inverse relationship between the amount of confidence and returns. The more confident you are, the worse your returns. Maybe that’s why Cramer always seems so confident of his advice.

Since women outperformed men, how did they do against market and risk-adjusted benchmarks? The same study demonstrated they underperformed.

Maybe you watch shows like Mad Money with members of your investment club. Too bad. Another study of 166 investment clubs showed the average investment club underperformed a broad-based market index by more than 3 percent per year for the period examined.

Perhaps you’re thinking this data applies only to investors of “average” intelligence, which (obviously!) excludes you. According to Swedroe, a study of the performance of investment returns earned by the Mensa Investment Club between 1986 and 2001 showed returns of 2.5 percent per year. During the same period, the S&P 500 Index earned 15.3 percent. To qualify for admission to Mensa, applicants must demonstrate intelligence test scores in the top 2 percent of the population.

If you believe the Wall Street bullies have your best interest in mind follow Cramer’s advice. These shows are for entertainment and to sell advertising not to help with your finances. Viewers have very short memories in that Cramer’s recommendations result in very poor performance. Fire your broker….hire an investor coach.

Please comment or call to discuss how this affects you and your financial future.

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Good and Bad News for Jim Cramer

When you are investing for a long term goal these specualting and gambling tactics are your number one enemy. When you develop a prudent strategy and remain disciplined you will succeed long term. Remember the Wall Street bullies want you to continue trading this is how they make money. It does not matter to the bullies whether you make money or not.

There is no indication that hedge fund managers have any special

Mad Money
Mad Money (Photo credit: Tulane Public Relations)

expertise in stock picking. According to an article in The Economist, the HFRX, which is a measure of hedge fund returns, is up only 3 percent as of Dec. 22, 2012. The S&P 500 returned 18 percent for the same period. The S&P 500 index has outperformed the hedge fund benchmark index for 10 straight years, with the exception of 2008, when both indexes sharply declined.

The evidence is overwhelming that no one has the ability to peer into a crystal ball and select outperforming stocks with any greater certainty than you would expect from luck alone. The forum CNBC gives Cramer serves to perpetuate a myth to the contrary, but it’s really more insidious. The daily grist of CNBC is a parade of self-styled market pundits regaling viewers with predictions about the direction of the markets, hot mutual funds, and undervalued stocks. Cramer’s show provides the underpinnings for their musings. The unstated premise is that, since Cramer has special insight, these people do as well.

CNBC lacks the courage to run a financial show that would counterbalance the errant nonsense of Cramer’s rantings. Consider how valuable it would be to investors if someone stood up to Cramer and discussed all the reasons why his recommendations made no sense. While CNBC’s fear of engaging in balanced financial reporting is understandable, because of its reliance on the securities industry for advertising revenues, its lack of ethics is indefensible.

Stock pickers need entertainer like Cramer to get investors excited about ‘beating’ the market. NO ONE can consistently predict the future, when these fund managers succeed it it a matter of luck and NOT skill.

Please comment or call to discuss how this affects you and your financial future.

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It’s Time for Cramer to Short His Show

You should run not walk away from anyone who tells you that they can predict the future. All shows like Jim Cramer’s are for entertainment only and should not be relied on to make investment decisions. You need to own equities…globally diversify…rebalance. A prudent portfolio and an investor coach will reduce your anxiety and improve results.

English: CNBC’s “Mad Money with Jim Cramer” ca...
English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

Paul Merriman did a thoughtful blog entitled: “Ten Reasons to Ignore Jim Cramer’s Advice.” He noted that Cramer ignores the high cost of active trading, uses shaky evidence, ignores proven basics, misses real diversification and extolls the virtues of “research,” despite data indicating it is a waste of time.The harsh reality is that relying on Cramer’s stock picking or market timing advice is no more reliable than basing your investment decisions on the picks of a monkey throwing a dart at a board filled with all the stocks in the Wilshire 5000 index.

Cramer’s hyperkinetic personality is particularly appealing to young, high testosterone men. It has made him a hit with the college crowd and a popular, cult figure. That’s precisely the problem. The quest for ratings has trumped responsible financial reporting. I have seen no evidence that entertainment value is a component of intelligent, responsible investing. It has the opposite effect by distracting you from engaging in a careful analysis to determine how much risk you can take in order to achieve a maximum return.

It’s simply irresponsible for CNBC to continue to air a show that appeals to younger investors and starts them off on their investing journey by providing a daily dose of misinformation.

Following Cramer’s advice is gambling with your investment dollars. For many it is the thrill of hitting the home run. Many investors dream of investing a small amount and turning it into enough money to retire. Although this is possible it is nearly impossible. Develop a prudent globally diversified portfolio and remain disciplined. The discipline is the most difficult so hire an investor coach to help you through the tough times.

Please comment or call to discuss how this would affect you and your financial future.

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Your Broker Can Aid in the War Against Terrorism

Mad Money
Image by Tulane Public Relations via Flickr
Remember your 401k plan is a retirement savings vehicle not a forum to speculate and gamble. You must have a plan and strategy to successfully reach your retirement goals.

The unstoppable Jim Cramer is touting the “countless companies” that will benefit from lower oil prices, like Fedex (FDX) and Darden Restaurants (DRI).There’s no data indicating Cramer’s percentage of stock “winners” is greater than what you would expect based on random chance. As former stock analyst Henry Blodget observed, “[I]t would be impossible to write a “Bad Advice” column about investing without discussing Jim Cramer.”If we can persuade terrorist organizations to follow market timing and stock picking advice, their financial demise is practically assured. Anyone familiar with the data would agree. During the ten year period from January 1, 1988 to December 31, 1997, the S& P 500 had an average return of 18.04%. A study of 25 prominent market timing newsletters found their average return was only 11.06%.

I am very confident my plan will work. It has been successful for decades with U.S. investors. For the twenty year period from January 1, 1991 to December 31, 2010, the average stock fund investor earned an annualized return of only 3.17%, compared to 8.21% for the S&P 500. After inflation and taxes, these hapless investors lost money.

Dan Solin can help investors avoid the traps of financial institutions and enjoy their life.

Please comment or call to discuss how this affects your plan.

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