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Prediction

Every Imprudent Action Requires a Necessary Lie.

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All of us have said, ‘but it’s different this time’ ….’This Time This Expert is Right for Sure’……’I’m due’…..

As I write this Cyber Monday is in full swing. We all rationalize that because everyone is buying today we should as well. We say we can save a lot of money by not waiting and buying now. Many people are buying things they don’t need and in many cases they don’t really want what they are buying.

NASA Sunspot Number Predictions for Solar cycl...
NASA Sunspot Number Predictions for Solar cycle 23 and 24 (Photo credit: Wikipedia)

A necessary lie is a rationalization to justify self-destructive behavior. Some additional examples:

  • I will start my diet tomorrow…..
    So I will pig out today.
  • I’ll just gamble until I get even…..
    So I will let it ride.
  • I will buy today and pay for it tomorrow. Because I really want this…
  • This time I really do know what the market is going to do….
    so it’s all right to speculate with my money.

Remember if you do not know two numbers you are speculating with your money. They are expected return and expected volatility (risk).

We all watch the news and hear the latest predictions. These predictions are nothing more than guesses by ‘experts’ who have no clue what will really happen. In most cases their predictions are really a sales pitch for their product/solution.

The equity markets are random and unpredictable. You will hear many ‘experts’ say that when this happens this will happen.
What they don’t tell you or don’t know themselves is that thousands of variables will have to perfectly align in order for their prediction to come true. This proves to be nearly impossible.

There are two groups of people when it comes to equites or interest rates for that matter. Those who don’t what will happen next and those that don’t know they don’t what will happen next.

Stop lying to yourself that this time is different. Predicting the future is very difficult. Those that appear to accomplish predicting something are relying on luck and not skill.

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

Predict The Weather….Predict The Markets!!!

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This last week in Northeast Wisconsin was a difficult one for weather predictors. Thursday it was predicted would produce an epic storm with 8 to 12 inches of snow along with dropping temperatures and high winds. A state of emergency was declared. Schools were closed early and events were cancelled. The result 1 inch of snow and some rain. All in all a normal northern Wisconsin winter day. This is just an example of the ‘predictions’ made every day.

Blizzard prédictions
Blizzard prédictions (Photo credit: Des Geeks et des lettres)

Yet we continue to watch each day to learn what the future may bring regardless of past performance.

In the investment world predictions are made every day by the media. The predictions making the headlines are typically fear based. ‘The next crash will be…deflation…inflation… The President will….GDP will….  Remember it’s the media’s job the sell advertising space and they do that by adding viewers to their newscasts. (Everyone wants to watch a car crash.)

Most investors are looking for stock market returns with Treasury bill risk and research tells us that what these investors earn is Treasury bill return with stock market risk. These investors are stuck. They will watch the financial news daily for hours and get dragged into the hype and horror. You can recognize these investors because they look anxious, depressed and generally unhappy.

Admittedly the equity markets do experience bad performance however over the long term your results will be good if you globally diversify and remain disciplined. However the investors looking to ‘beat’ the market and learn the ‘holy grail’ of investing are continually worried about deficits, the President, unemployment, the dollar….you name it. These people are no fun to be around.

The markets are random and unpredictable period. This means that because an analyst(s) prediction came true has nothing to do with their ability to make correct predictions going forward. The Wall Street bullies have thousands of analysts making predictions every day. The laws of chance tells us that some of these analysts will be right.

However it is a matter of luck and not skill.

The analyst(s) with the correct predictions are asked onto the financial news shows to market their services. The public then showers these lucky analysts with their money. Only to be disappointed with future results.

One curious thing to consider is that the successful analyst(s) are never the same ones asked to be guests on the financial TV shows. Also keep in mind that shows like Jim Cramer are for entertainment only.

Although we know that some of these predictions, like the weather forecast, will come true we have no idea which predictions will be right.

Rather than being consumed by the financial pornography, all you need to follow three simple rules of investing:

  • Own equities and fixed income
  • Globally diversify
  • Rebalance

Although these rules are simple most if not all investors have a very difficult time following them. To be certain you follow these rules you will need the guidance of an investor coach/fiduciary adviser.

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A Terrible Year… Except for Investors

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Investors will be the victims of the Wall Street bullies if they let them. NO ONE can predict the future as these bullies want you to believe. The market rate of return is there for the taking. All you need to do it take advantage, build a prudent portfolio and remain disciplined. This will require the help of an investor coach. This coach will keep you focused on the long term and ignore short term volatility. You will also be coached to ignore the financial pornography that lures you into get rich schemes.

The Bombay Stock Exchange, in Mumbai, is Asia'...
The Bombay Stock Exchange, in Mumbai, is Asia’s oldest and India’s largest stock exchange (Photo credit: Wikipedia)

While index-based investors had a lot to smile about in 2012, investors relying on some stock market gurus were disappointed. John Paulson was hailed as the next “master of the universe” for his hugely profitable bet against mortgages in 2008. Investors flocked to his Paulson Advantage Plus Fund, hoping the magic would last. It didn’t. In 2011 the fund lost 52.5 percent of its value. The fund “recovered” somewhat in 2012, losing only a reported 19 percent!Paulson was not the only hedge fund manager who performed poorly in 2012. The HFRX Global Hedge Fund Index returned a measly 3.5 percent in 2012.

As you consider your investing strategy, you should reflect on this data. Remember that markets don’t always react to bad news the way you might think it will. The predictions of stock market pundits are wrong as often as they are right. Even if they are right, their insights might not help you predict the reaction of the market. Be wary of stock market gurus who claim to have the skill to “beat the market.” Their past success is more likely attributable to luck and is unlikely to persist.

You will find academically based information about investing in my books and those written by Bill Bernstein, John Bogle, Allan Roth, Burton Malkiel and my colleagues Larry Swedroe and Carl Richards. An investment of time and money educating yourself about responsible investing can make the difference between meeting your financial goals and running out of money when you are most vulnerable.

via huffingtonpost.com

Market timers can lose even if they are right. Predicting the market direction is the action of fools or gamblers. Either way you are better off with a globally diversified portfolio and discipline.

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

Posted via email from Curated 401k Plan Content

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Predictions Are Killing Your Returns

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The wall Street bullies have a vested interest in keeping you trading. It does not matter to the bullies if you make money or not. Their only concern is that they make money on every trade. If you want to succeed long term with your investments you need a prudent portfolio and discipline. Hire an investor coach to help you with both.

English: Fidelity Investments Branch on Boylst...
English: Fidelity Investments Branch on Boylston Street in Boston. (Photo credit: Wikipedia)

If you choose to consider the forecasting skill of “experts”, you should read an excellent white paper prepared by Vanguard, entitled: “Forecasting stock returns: What signals matter, and what do they say now?”The authors reviewed a number of indicators typically used to forecast U.S. stock returns. They concluded that forecasting stock returns is “essentially impossible in the short term.” Even over the long term, commonly used predictors “…have had little or no power in explaining the long-run equity return over inflation.”

The ramifications of this well-researched analysis are profound. Much of the securities industry is premised on giving advice about the direction of the markets. Relying on this advice has very negative consequences. It distracts you from determining your capacity for risk, diversifying your portfolio, low fees and taxes. Of course, if you focused on these factors, you would quickly conclude that your interest is not served by using brokers or advisers who purport to be able to “beat the markets”, using their predictive powers.

My prediction for 2013 is that, if you reach this conclusion and fundamentally change the way you invest, you will be investing responsibly and intelligently. You will also avoid becoming a victim of the securities industry.

via huffingtonpost.com

The first question you must ask yourself is are you an investor or a gambler? If you are a gambler you should look for all the predictions you can. However, if you are an investor you should develop a prudent portfolio and remain disciplined.

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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The Best, Boring Investment Advice You’ll Ever Receive

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The Wall Street bullies want you to believe that they can predict the future. They want you to believe they can capture all the great returns and avoid all losses. It is amazing that the public continually fall for this scam. NO ONE can predict the future. You should own equities, globally diversify and rebalance. If you follow this recipe, long term, you will succeed in reaching your long term financial goals.

English: Wall Street sign on Wall Street
English: Wall Street sign on Wall Street (Photo credit: Wikipedia)

It’s unfortunate that most investors succumb to the sales pitch of brokers and advisers who tell them they can “beat the markets.” If your broker falls into this category (and almost all of them do), ask her to describe her methodology. If it is based on past performance, is she able to predict tomorrow’s news? Since tomorrow’s news is what will affect stock and bond prices, why does looking backward have any predictive value?If there was a reliable way to “beat the market,” you can be sure it would be uncovered by the millions of investors and thousands of academics focused on the market every day. It would also be published in a peer-review journal. I have yet to find any credible evidence of investment expertise permitting anyone to consistently “beat the market.”

I issue the same challenge to brokers every day. Tell me your methodology for beating the market. Demonstrate that it works. I will check it out and will publish the results. I am still waiting for takers.

via huffingtonpost.com

NO one can predict the future, yet most brokers make you believe they can. If you want a main street solution to a Wall Street problem stop listening to brokers and invest in a globally diversified portfolio.

Please comment or call to discuss how this can help take the stress out of investing.

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Proper Expectations!

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There is never a shortage of predictions on where the markets will go next. These predictions are typically based on current events.

Who will win the presidential election?

WASHINGTON, DC - MAY 05: Rep. James McGovern ...
WASHINGTON, DC – MAY 05: Rep. James McGovern (D-MA) (L) and Rep. Walter Jones (R-NC) hold a news conference to introduce the ‘Afghanistan Exit and Accountability Act’ at the U.S. Captiol May 5, 2011 in Washington, DC. The bill would require President Barack Obama to give Congress a concrete strategy and timeframe for bringing troops home and report on the ‘human and financial costs of continuing the war.’ (Image credit: Getty Images via @daylife)

How will the ‘fiscal cliff’ affect the markets?

Will inflation take hold?

And the list goes on and on…

The talking heads on television need these predictions to keep viewers watching, which in turn increases advertising revenues.

Everyone wants to know what will happen next. In many cases, we make emotional decisions based on the latest short term predictions.  These decisions will in most cases result in very disappointing performance.

If you wish to succeed long term in reaching your financial goals, you need to develop a prudent strategy and remain disciplined to that strategy. Most important you must have realistic expectations.

Proper expectations are the key to investing with Peace of Mind.

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.

All of us would like to get rich quick. However, if this is your strategy, odds are you will be very disappointed. As I mentioned earlier, develop a lifelong game plan and stick to it. The only adjustment you should make is to gradually become more conservative as you get older.

To succeed in reaching your long term financial goals you should:

Own equities….globally diversify….rebalance.

Leave the predicting to the talking heads and if you do watch see it as entertainment, not strategy.

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  • Whose Side is Your Broker/Agent On?
  • Actively Trade to Nowhere.
  • Two Silly Predictions You Should Ignore
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Two Silly Predictions You Should Ignore

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The Wall Street bullies want you to gamble and speculate with your money, this is how they make money. Not by trading but by commissions. This is true of stock brokers, they make money on commissions not by trading stocks. So, when you see a stockbroker in a luxury car living an extravagent lifestyle, this is from your commissions not from stock trading expertise. Do not empower Wall Street.

English: Photograph shows stock brokers workin...
English: Photograph shows stock brokers working at the (Photo credit: Wikipedia)

Investors suffer from the perfect storm of collective amnesia and cognitive dissonance when it comes to evaluating the predictions of self-styled stock market gurus. It’s disturbing that these predictions are so casually made by people who know they will have a negative impact on many who follow them. They engage in this charade to keep their names in the news in an attempt to burnish their fortune-telling credentials and generate assets.The CXO Advisory Group performs a great service to investors by keeping track of the accuracy of stock market predictions. You can find their analysis here. They conclude these experts are right around 50 percent of the time, which is just about what you could expect by flipping a coin. There is no peer-reviewed data indicating that anyone has demonstrable skill (as opposed to luck) in predicting the direction of the markets.

via huffingtonpost.com

The financial services industry is never at a shortage of ‘experts’ to predict where the market is going. Unfortunately for investors the track record of these ‘experts’ is no better than a flip of a coin.

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

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A Day Late and a Dollar Short

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For investors and their advisers trying to beat the market or find ‘alpha’ this provides additional proof that it is really mission impossible. Many advisors believe that they bring value to clients by making prediction, picking under priced stocks. This is totally false and will cause investors to lose money unnecessarily. They would be better served by utulizing a prudent process and remain disciplined to that process. Advisers providing this type of guidance brings value to the client relationship. Selling return only increases client turnover and decreases public trust.

English: "Our aim is to serve investors,“...
Image via Wikipedia

The market for stocks and bonds takes into consideration all publicly available information and instantly incorporates that information into the price. This irrefutable fact has profound ramifications. Think about how most individual investors make investment decisions. They trade on their own using research tools provided by discount brokers (or worse, relying on technical charts with purported predictive value). They rely on analyst reports and the recommendations of their brokers or advisers. These “financial experts” are all too willing to pick the next “fund manager of the year,” identify “mispriced” stocks, select high yielding bonds and predict the direction of the markets.

Relying on this advice, instead of looking at the market and recognizing the current price is a fair price, which reflects current and forecasted news, is the most fundamental error made by investors. The likelihood of identifying mispricings and profiting from them is 50 percent, before costs and taxes.

This is not an intelligent way to invest.

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Another example and good advice on predicting the future. No one can consistently predict the future. The best alternative for all investors is to own equities, globally diversify and rebalance. This prudent process will lead to a successful investment experience.

Please comment or call to discuss how this affects you.

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2011 Winners Can Make You a 2012 Loser

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No one can predict the future. Yet the financial institutions has convinced the public that they can beat the market. The best solution for investors is to own equities, globally diversify and rebalance. Any other strategy makes more money for Wall Street and less for Main Street.

Arends looked at the “most hated” stockswith the most analyst “sell” recommendations. The top 10 of these stocks underperformed the most “loved” stocks by less than 1%.The overwhelming evidence that no one can predict which asset classes (much less which stocks or mutual funds) will perform well in the future has not deterred the same “experts” from making predictions for 2012. I want to get in on the action so here are my predictions:

1. A majority of investors will continue to believe brokers have the ability to pick outperforming stocks and actively managed mutual funds and to provide guidance on “what is happening” in the market;

2. A minority of investors will cancel their retail brokerage accounts and invest in a globally diversified portfolio of low management fee index funds in an asset allocation appropriate for them.

3. Over time, the returns of the minority of investors described in #2 are likely to outperform those of the majority of investors described in #1.

4. The primary beneficiary of perpetuating the myth that retail brokers and financial pundits can predict the future will be those dispensing this advice. The victims will be those relying on it

via huffingtonpost.com

Process beats predictions over time. No one can consistently predict the future.

Please comment or call to discuss.

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Einstein’s Theory… of Investing

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When investors look at an asset manager performance record they looking for  a repeat performance. This is seldom the case. There is zero correlation of past performance to future results. The investor best solution is to own equities, globally diversify and rebalance. This includes hiring an advisor who will keep them on track.

Investment Frontiers Symposia
Image by apec2011ceosummit via Flickr

Here’s real wisdom from Einstein. He defined insanity as doing the same thing over and over again and expecting different results. Welcome to the world of investing where brokers and financial pundits start each year hoping you are as uninformed as you were last year. They depend on your lack of familiarity with the overwhelming data indicating they are emperors with no clothes, whose real expertise is separating you from your money by pretending to have the ability to predict the unpredictable and to bring order to random events.Around this time last year, the respected journal Pension & Investments published an article titled: For 2011, it’ll be all about equities. A survey of 2,007 responding institutional investors picked “winning” asset classes for 2011. Stocks garnered the most votes with 40%. Commodities were next and bonds came in last.

James W. Paulsen, chief investment strategist at Wells Capital, predicted the S&P 500 index would reach 1425 and achieve “possibly” a 15% total return.

The reality was quite different. The S&P 500 closed the year at 1,257 — almost exactly where it was a year ago. The winning asset class was fixed income. A broad index of Treasury bonds was up 9.6%.

Let’s give this some perspective: The biggest, best, brightest, most sophisticated and highly compensated institutional fund managers can’t predict whether stocks will outperform bonds in a given year.

How do you like the chances of your broker picking stocks, timing the markets or picking outperforming mutual funds?

My New Years wish for all of you is this: Fundamentally change the way you invest. Cancel your retail brokerage accounts. Eliminate all individual stocks, bonds and actively managed mutual funds from your portfolio. Don’t listen to anyone who tells you they can add “alpha” by “beating the market” or predicting whether it will rise or fall. Ignore the financial media with their breathless predictions about the impact of yesterday’s news on tomorrow’s prices. Don’t succumb to the sense of urgency which causes fear and panic. Stop the transfer of wealth from your pockets into those who “advise” you.

Follow Einstein’s advice and don’t repeat your mistakes. Do that and I like your chances of having a happy and prosperous New Year.

via huffingtonpost.com

Great advice for any occasion.

Please comment or call to discuss.

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