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Nobel Prize

Just The Facts!!

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Every day we hear on the radio or see on the television or print media reasons to make emotional decisions with our money. Every day there are reasons for any asset class to go up OR down. Every day there is new information that will affect us in a positive or negative way. The variables that can affect investments are never the same as there are hundreds if not thousands of such variables.

English: The corner of Wall Street and Broadwa...
English: The corner of Wall Street and Broadway, showing the limestone facade of One Wall Street in the background. (Photo credit: Wikipedia)

You can justify almost any imprudent investment decision with “facts.”  Information is filtered by our emotions to create “facts” that support our decisions or beliefs.  Without outside guidance, it is impossible to tell when and how this happens.  Truth in the field of investing is elusive. It may not be lies but rather that no one knows what will happen next. You may find someone who makes a correct “prediction” however there is no evidence that this same person or institution will be right going forward.

To truly succeed in investing for the long term, you must own

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

Your emotions will continue to guide many of your investment decisions. The media along with the Wall Street bullies will continue to use fear and hype to keep your money moving. They will continue to put a spin on any event that will strike fear and incite greed.

How many times have you heard ‘if this happens then this will happen’? Well just because it happens once has nothing to do with future results. As I mentioned earlier there are hundreds if not thousands of variables that must perfectly align for events to perfectly repeat. This very seldom is the case.

Don’t forget the media and the Wall Street bullies have access to you 24 hours per day seven days per week through the expansive media networks.

If you want to invest with less anxiety and do not enjoy watching all the daily newsfeeds. You need to find and follow the guidance of an investor coach/fiduciary adviser. Also keep in mind that hiding your money in your mattress is not a very good solution.

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Beat The Market…..Really????

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Over the weekend I was talking with a friend and an investor, not my client. He was telling me that he is invested in gold and silver. His reasoning is that the Fed is pumping too much money into the financial system and eventually the financial system will collapse. I believe he has been listening to the financial media, ie, financial pornography. These ‘news’ portals continue to use fear to sell their hot commodity/product. They will explain why the collapse is imminent and what to do about it. Which entails buying their ‘stuff’’.

Wise Investments Holiday Card
Wise Investments Holiday Card (Photo credit: pjchmiel)

It seems as though every week I discuss the Wall Street bullies. We have been trained from our youth to believe that someone knows what will happen and when. If the bully talking has impressive credentials, like an Ivy League degree, or Stanford or any prestigious university we give them additional attention and credibility. What these bullies don’t tell you is how they know what to do. How do they determine what will happen next? Many of the scenarios are developed using a method called ‘data mining’.  This entails determining what they want to happen or appear to happen and then finding a period of time in history that proves their ‘prediction’.

What these bullies don’t tell or perhaps they don’t know is that in order for an event to repeat. All the thousands of variables/unknowns have to perfectly align. This is virtually impossible but it is possible. These bullies know that investors make their decisions based on emotions and not logic or cognitive reasoning. The bullies continue to sell fear, right now, and hype when a hot asset class is making a huge move.

The proper method to do research is to look at all the data available and base your portfolio based on this research. In our case this involves data going back to 1926 for the U.S. equity markets. This data reveals market premiums in the equity markets that will reward investors over the long term.

Remember you need to avoid the three signs of gambling and speculating with your investment money. Avoid these signs and you will improve your results with less anxiety. They are

  • Stock Picking.
  • Market Timing (getting into and out of the market and then back in at the right time)
  • Track Record Investing (basing investment choices on a recent track record)

 

Unless, of course, you enjoy watching the financial news and reading all the financial articles/predictions. Looking at GNP, money supply, unemployment, trade deficit and list goes on and on. This can prove difficult because there are endless supplies of different predictions. The information you will receive will have countless contradictions.

In my opinion there is a much better approach. One that involves basing your prudent portfolio on academic, Nobel Prize winning research. With the guidance of an investor coach/fiduciary you can develop your portfolio/plan and learn to develop the discipline to maintain your strategy. This is equally important for both strong up markets and the inevitable down markets.

Einstein’s definition of insanity is ‘doing the same thing over and over again and expecting a different result’.  Stop following the lead of the Wall Street bullies and learn how to empower your own financial future.

The equity markets remain one of the greatest wealth creation tools on the planet, if properly used.

The free markets work use that information daily.

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What Is Risk?

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Risk. It means different things to different people. Most people associate risk with capital risk. Or risk in the stock market. This is the greatest fear of most investors. The risk of their investments going down. What these investors don’t realize it that this risk is short term ‘noise’. This volatility is why we earn a superior return over the long term.

An assortment of United States coins, includin...
An assortment of United States coins, including quarters, dimes, nickels and pennies. (Photo credit: Wikipedia)

From 1927 to 2013 the S&P 500 index earned 10.06%. During this time there has been down turns of 10% or more 87 times. And down turns of 20% or more 23 times. The average recovery period from 1946 has been 111 days. The lesson here is that in order to earn a good return you need to experience ‘bad’ times. And these bad times have been historically short term.

During the ‘bad’ times in the equity markets it seems like it will never end. It will end. One of the worst decisions an investor can make is to sell in a down turn. Because historically the recoveries have been fast and furious. Of course, past performance is no guarantee of future results.

No one can really tell us what would happen if the equity markets would go down and stay down.

  • Would companies go bankrupt?
  • Would insurance companies go bankrupt?
  • Would banks go bankrupt?
  • And which ones would go bankrupt?

I have to believe that this will not happen. I believe that the equity markets will experience another crash, however I have no idea when this will happen. And no one can tell you when this will happen. No one can tell you whether the next 20% move will be up or down but the next 100% move will be up.

The Wall Street bullies will continue to use fear to entice you to move your money. This is how the bullies make money, when you move your money.

Remember there are other kinds of risk.

There is inflation risk which is hidden and relentless. The purchasing power of your money is decreasing every year. Or at least most years. Inflation risk is your most dangerous risk during your retirement. Think about the things you bought just 10 years ago and what you pay today for the same product…cars….food….gas…heating fuel…etc…etc. The equity markets are a good tool to help you maintain the purchasing power of your money. As well as build additional wealth, over the long term.

Another risk is liquidity risk. Liquidity risk is the risk of the investor’s inability to meet essential outlays. For anyone that needs access to their money, like during retirement, should have the appropriate allocation in high quality short term fixed income.

Each of us has different goals and different time horizons. These need to be taken into consideration when designing a plan.

Your careful and knowledgeable choice of time horizon, risk tolerance, investment objectives, and decisions on withdrawal needs coupled with your investor coach/fiduciary adviser’s professional expertise gives you access to Nobel Prize winning methods of reducing risks associated with investing.

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Efficient Markets Rock!!!

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Every week I look for a subject to discuss what I have heard from clients/prospects. Some are questions, some are comments. This week I am going to discuss ‘The Efficient Market Hypothesis’ written by Dr. Eugene Fama in his Phd. Dissertation. Partly because Dr. Fama has won the Nobel Prize in Economics  for 2013 and partly because I continue to hear questions on market timing, when to get into and out of the market. I actually had someone ask for the current hot stock(s). YIKES!!

Investment Conference
Investment Conference (Photo credit: Salmaan Taseer)

I have mentioned ‘The Efficient Market Hypothesis’ , now Nobel prize winning, many times before. It has also been referred to as Free Markets Work. Dr Fama’s definition of the efficient market is as follows:

“In [a free] market at any point in time the actual price of a security will be a good estimate of its intrinsic value”.

This is just a brief definition because I do not wish to bore you with the entire dissertation. What he is saying is that price of a stock today represents its true value today. It does not represent a forecast of the future, because we all know no one can predict the future. Therefore all the knowable information is already in the price of the stock (security).

Any future movement of that stock is random and unpredictable.

Given this information we know that if you are trying to use

  • Stock picking
  • Market timing
  • Track record investing

You are gambling and speculating with your money. Anyone who recommends you use these tactics with your investment money should be considered a Wall Street bully.

When my financial services career began in 1992 I found it very curious why not one firm that I worked for recommended using ‘The Efficient Market Hypothesis’ or any other academic study I learned in finance classes in both college and graduate school. The research I learned proved these concepts work and making predictions does not.

What I concluded was the Wall Street bullies need you to continue to gamble and speculate with your money because this generates the most fees for these firms.

It has been proven numerous times that there is zero correlation between a stock pickers/market timers ability to pick the right stocks or correctly time the market in the past and their ability to do so in the future. This means that just because any adviser/agent has a good track record in ‘beating’ the market there is no evidence that they will repeat. It is not impossible but highly unlikely.

If this is true then why do investors continually seek out the ‘best’ investments for right now?

Why do these same investors look for someone to beat the market?

The markets offer great returns long term why not concentrate your investment money on capturing market returns?

Most of these questions can be answered by the fact that the Wall Street bullies continue to market gambling and speculating.

There will always be someone making predictions about where investments are going.

Stop being a victim of the Wall Street bullies. Learn about the most recent Nobel Prize winning concept along with other academic concepts to engineer a prudent portfolio. Designed for you.

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Should Your Investment Research be Based on Academia or the Wall Street Bullies?

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There are numerous predictions depending on the outcome of today’s election. What will happen to stocks if Obama wins? What will happen to stocks if Romney wins? No one really knows. This election is the most important election in over thirty years. It will determine the direction of our country.

English: 60 Wall Street
English: 60 Wall Street (Photo credit: Wikipedia)

Let’s pray that the American public makes the right choice.

More than at any time in our history….we need strong leadership.

That said, we must stop listening to the Wall Street bullies regarding what to do with our portfolio. Should we sell? Should we buy? What should we buy? What should we sell? The Wall Street bullies don’t really care. All they care about is that you trade. Most investors don’t know what to do.

All that you know is what the brokerage community or financial press wants you to know. They have trained you to accept their version of reality – over the span of your entire life.

There is a complete body of investing knowledge developed in the halls of academia.

Most people do not even know that it exists. This is the real wisdom you need to create wealth and abundance.

Rather than looking for the next great trade or asset class, invest in a portfolio based on Nobel Prize winning research. Instead of researching investments, your time will be much more efficiently spent on improving your job skills, or learn a new skill set leading to a new career, or even better, spending time with the important people in your life.

Perhaps you should look at your investments with a goal in mind rather than short term performance results.

Taking a long term view of your portfolio will reduce and perhaps even eliminate your anxiety.  Remember a disciplined saving strategy will outperform all trading strategies, long term.

Take control of your investments don’t empower the Wall Street bullies.

Successful investing requires discipline along with following three simple rules, own equities…..globally diversify…..rebalance.

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