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The Wall Street Journal

The True Enemy of Every Investor

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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.

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Free Markets Work…

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It seems like every day an investor will ask me about my prediction for the stock market. Well anyone who works with me knows I do not believe anyone can predict the future movement of stocks with any consistency.

I believe no one can tell you whether the next 20% move will be up or down. But the next 100% will be up.

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?

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

This is why people continue to watch the talking heads on the business channels. And why shows like Jim Cramer are so popular.

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

To repeat…..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.

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.

The problem really is when a stock picker or broker gets hot. People pour money into them to join the ‘party’. Problem really arises when the hot picker or broker cools off and lose money.

As an example Bill and Hillary Clinton’s son-in-law started a hedge fund less than 2 years ago and has since closed it. Why? Because the fund lost 90%. Hot then Not.

I call this musical brokers.

If you are serious about making your money last and grow with a certain degree of consistency. You need to fire your broker/agent and hire an investor coach/fiduciary advisor.

Your fiduciary advisor will help find the level of risk you are comfortable with and that helps reach your goals.

Your portfolio will be globally diversified. In my case the portfolios also have a small cap and value cap tilt. Regardless of this, a globally diversified portfolio will underperform at times.

This is where many investors stray off course. They then believe the globally diversified portfolio is no longer working. Or some broker shows them an outperforming strategy.

There is no strategy that will always outperform. But switching from one strategy to another will lead to poor results in the long term.

To remain disciplined during underperforming periods work with an investor coach/fiduciary advisor.

Process, consistency and discipline work. Free Markets Work.

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What Changes Do You Want?

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Again I would like to discuss the problems we have as a nation and a world. Police continue to be killed in the name of revenge. Or is it a revolution? Terrorist continue to make cowardly attacks on innocent people. There continues to be political scandal after scandal.

The ‘people’ are demanding change. C

hange in methods. Change in leaders. Change is distribution of wealth.

What these ’people’ don’t talk about is changing themselves. Becoming accountable for their own actions. Change the person we push blame on. Whether it be the government, or our employer(s), or our family, or even Wall Street. We need to push the blame on ourselves.

Maybe what we really need is to begin to believe in ourselves. Perhaps a little confidence would do wonders. Before we can accomplish anything, wealth or success. We must believe that it is possible. We must stop doubting ourselves.

Of course this does not mean there will be no setbacks. There is no clear path to any worthwhile goal.

Many investors believe there is a way to earn stock market returns with Treasury bill risk. What most end up with is Treasury bill returns with stock market risk.

Successful investors find an investment philosophy that they believe in. And they stick with it. There is no strategy that will always earn the ’best’ returns. Successful investing will always involve risk. Which means at times your portfolio will be down.

Remember no one can tell you whether the next 20% move will be up or down. But I will tell you the next 100% move will be up.

Successful investors also realize that without professional help they will allow their emotions to make investment decisions. This means that sticking with a strategy requires discipline. Discipline that an investor coach/fiduciary adviser provides.

Remaining disciplined sometimes means you will look ‘stupid’ or you don’t know what you are doing. Or the most used phrase ‘it’s different this time’.

Over the long term remaining disciplined to your strategy will lead to success.

You will have many advisers approaching you with the ‘hot’ strategy or product. Keep in mind these ‘advisers’ are nothing more than salespeople, pushing the right buttons.

So stop blaming someone or something else when things do not go your way. Many times it is the result of you losing your focus on the long term. Many times it is the result of you not being disciplined during market extremes.

As I go through life I hear the older generation saying that they would not want to be starting over. They do not understand how the younger generation will survive. However every older generation says the same thing. And we continue on. This pattern has been going on for generations.

What people don’t realize is that change is constant. The only thing that doesn’t change is that things change.

Stop stressing about short term investment results and find an investor coach/fiduciary adviser. Someone that will be there for you in both up and down markets.

Stop pushing blame and take responsibility for your actions.

Remember unsuccessful investors are focused on short term results while successful investors are focused on the long term. Which are you?

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What Will Happen Next??

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Our country, as well as the rest of the world is going through some very contentious times. I personally have never seen our country more divided than it is right now. There have been sadly, a large number of police killed by ‘protestors’.

Each time there has been a call for gun control. More regulations is not the answer. Perhaps we should just enforce the ones already in place.

It seems no one is accountable for their own actions. It is always the fault of someone else or something else.

There have been horrendous and cowardly terrorist attacks around the world. And there does not seem to be any effort to stop them.

Is this a lack of leadership? I believe it is. There has really been a lack of leadership in our country for quite some time. It seems everyone has their own agenda.

Many of the people I talk with remain pessimistic about the future. What if this happens or that happens? They ask. I’m not sure what will happen either short or long term. What I do know is that things will change. The only thing that doesn’t change is that things change.

Rather than trying to predict the future, which no one can consistently do, I follow my investment philosophy, which is that markets are efficient.  In that, all the knowable information is in the current price of securities. Any predictions made are a guess. The markets going forward are random.

I believe that free markets work. I believe that economies around the world will continue to grow. What I do not know is what sectors or industries or products will grow.

Therefore we must remain diversified and disciplined.

There will always be short term volatility. My role as an investor coach is to keep investors focused on the long term. Trying to time the markets or pick the right stocks will lead to poor results, long term.

Your goal as an investor is to reach your long term goal. This is not done by earning the highest return possible. Earning the highest possible return can be accomplished in the short term, however it cannot be accomplished long term.

UNLESS, you believe that earning the market rate of return is the highest possible return.

The markets may not be perfectly efficient at all times, however they are far too efficient to take advantage of and improve returns.

Let’s reduce your anxiety and improve returns, long term.

Let’s begin to become accountable for our own future.

The poor results of many investors is not the fault of someone on Wall Street. But rather our own lack of discipline and our fear of the future.

To succeed long term you must own equities…globally diversify..rebalance.

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