Bad and Good Advice About the “Fiscal Cliff” - 1996 – 1996 (Photo credit: Wikipedia)

The Wall Street bullies want you to trade in and out of stocks based on financial pornography in the media. They create hype to encourage trading because they make money when money is on the move. A fiduciary adviser would discourage this kind of behavior, which is in your best interest.

If I hear “fiscal cliff” one more time, I will consider jumping off a real cliff. The financial media is in hyperactive overdrive, breathlessly dispensing what passes for investment advice. Here are some typical examples:Over at CNBC, Jim Cramer told his viewers to buy Cisco Systems (CSCO), Home Depot (HD) and PetSmart (PETM). He believes these stocks, among others, would be trading higher if the fiscal cliff was resolved. His logic is simplistic: These stocks are “recession proofers” and “big yielders.”

Yahoo!’s Breakout had Todd Schoenberger, managing principal of The BlackBay Group, as a guest on its Nov. 16 show. Mr. Schoenberger commented on the recent decline of Apple stock. He noted ominously that “[A]pple is a true proxy of the global economy.”

Sam Collins, the “Chief Technical Analyst” at InvestorPlace, believes “fiscal cliff confusion” creates a “buying opportunity” for CVR Partners LP (UAN). He notes the stock may be “… a temporary victim of fiscal cliff negotiations.”

I am sure you get the drift. Unfortunately, many investors will act on this advice, which is unfortunate.

In stark contrast to the musings of these pundits, Allan Roth provides sound advice in his Nov. 12, 2012 CBS MoneyWatch blog. Roth correctly notes that the approaching fiscal cliff is “not exactly a secret” and “thus the possibility is already priced into the market.” There is no reason to believe that stocks are mispriced or that self-styled “experts” could identify them even if they were.

Next, he observes that the market often acts in a way that is contrary to conventional wisdom. He uses the downgrade of U.S. debt in 2011 as an example. You would think lower-rated U.S. Treasury bonds would make it more expensive for the government to raise funds. In fact, bonds “soared” making it “much cheaper” for the government to borrow.

If you are really worried about what it going to happen in the stock market in the next month or two (or even over the next several years), you have no business owning any stocks.

The “fiscal cliff” is being used by the financial media and many brokers and advisers to justify short-term recommendations based on their purported ability to predict the future, time the market and pick stocks to buy or sell. Neither they nor anyone else has this expertise. Relying on their advice is not responsible investing. Don’t let the “fiscal cliff” turn into a financial disaster for you and your family.

Trying to pick stocks or market time is ok if you want to gamble and speculate with your money. However, if you are saving for retirement or any long term goal ignore the financial media and the Wall Street bullies. Your best strategy is to design a prudent portfolio and remain disciplined to that strategy.

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

Posted via email from Curated 401k Plan Content

Enhanced by Zemanta

Einstein’s Theory… of Investing

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.

Great advice for any occasion.

Please comment or call to discuss.

Enhanced by Zemanta

Why Spotting Bubbles Is Harder Than It Looks

Tree caricature from South Sea Bubble cards
Image via Wikipedia

Consistently predicting the future cannot and does not happen. The experts you see in media telling you what will happen next are never the same experts. Human beings fall prey to these pundits because we seek assurance of our future.

Can you spot a bubble?Ever since 1841, when a Scottish journalist named Charles Mackay published the book known today as “Extraordinary Popular Delusions and the Madness of Crowds,” the answer has seemed clear. If you watch carefully for signs of euphoria, you can sidestep the damage when markets go mad.

But bubble spotting isn’t as simple as Mackay made it sound—even, it turns out, for Mackay himself. Investors should always guard against the glib assertions of pundits who claim they can detect bubbles before they burst.

It’s also a reminder that expecting policy makers to predict the future by popping “bubbles in the making” is probably a bad idea.

Although plenty of people claim to have seen bubbles in hindsight, determining when enthusiasm morphs into euphoria is an inexact science at best. Consider today: With the global financial crisis lingering, but initial stock offerings like Groupon buoyant, is the stock market a bubble? When ATMs dispense gold bars, is gold a bubble? When some of the biggest bond investors say they are willing to buy Treasury bills at negative yields that lock in losses, are government securities a bubble?

History is full of examples of how no one can consistently predict the top or bottom of any market.

Please comment or call to discuss.

Enhanced by Zemanta

A Gross Miscalculation

Historical inflation, using data from http://o...
Image via Wikipedia
This is just an example of why trying to beat the market will cost you. Your retirement plan is far too important to be managed by forecasters. Even the most mighty will fall.

The financial media was all atwitter. Headlines screamed “Gross dumps Treasuries.” Many investors followed his advice and performed his suggested exorcism.Fast forward to August, 2011. Gross now admits dumping bonds was a “wrong call.” The U.S. economy grew more slowly than he anticipated, lowering the yield on Treasury bonds and causing the Total Return Fund to miss out on the rising market value of older fixed-rate Treasuries. Gross admitted his mistake, telling the Financial Times, “Do I wish I had more Treasuries? Yeah, that’s pretty obvious.”

Investors in the Pimco Total Return Fund have been impacted by this “mistake.” The Total Return Fund recently ranked 501 out of 589 bond funds in its category. It has underperformed its benchmark index by 1.26 percent year to date. Gross had this response to the inability of his fund to beat a simple index: “When you’re underperforming the index, you go home at night and cry in your beer… “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”

Investors may not be so sanguine. It was a Gross miscalculation, illustrating the vagaries of active management. Even the best and the brightest (Gross has a stellar track record) can get it wrong. If you are relying on brokers and active managers to “beat the markets” and “add alpha,” you are gambling and not investing.

Do you truly believe there is someone out there that can predict the future? Even the most famous bond investor Bill Gross gets it wrong costing his clients dearly. The best approach for most if not all investors is to own a globally diversified portfolio with low cost funds.

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

Enhanced by Zemanta

US Bond Prices and Bill Gross: Pimco’s Gross Regrets ‘Mistake’ on US Debt Call

ARLINGTON, VA - JANUARY 13:  Federal Reserve C...
Image by Getty Images via @daylife
If an investment strategy relies on an accurate forecast of the future it will eventually fail. Eventually even the most famous traders will get it wrong. Your retirement plan is far too important to risk it on forecasters.

Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt.

Mr. Gross emptied his $244 billion Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.

“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 percent real growth rates. It doesn’t look like it can.”

When the yield on the 10-year Treasury [US10YT=XX  2.184    -0.06  (0%)   ] was 3.5 percent in January, Mr Gross warned that the risk of rising inflation made government debt a poor investment.

Bond prices move in the opposite direction to bond yields, which he forecast would rise as Ben Bernanke, chairman of the Federal Reserve [cnbc explains] , brought the second program of bond buying, known as quantitative easing [cnbc explains] , to an end in June.

Investors saving for retirement should not rely on active managers to predict where the market is going. No matter how long the track record, even the best will fall in the long run.

Please comment or call to discuss.

Enhanced by Zemanta