Whose Side Is Wall Street On?

Nearly every investor or prospective investor I meet with, talks about the Wall Street bullies ability to beat the market. They believe these bullies have a special talent. They believe that these bullies know ahead of time what will happen to the equity markets. They believe that these bullies make money because of a superior intelligence. “They know something the rest of us don’t know’.

The study below tells us there is another story. These bullies DO NOT have the ability to predict the market or an individual stock or asset class with any consistency. If they do make a ‘right’ call they will market the heck out of it.

These are the bullies that you see on the financial networks or quoted in the financial magazines. Everyone wants their next ‘right’ call. Sadly, these successful bullies rarely if ever repeat the past successes.

Headline from a financial blog: ThinkAdvisor:

“On Wall Street, if You Earn More You Cheat More, Study Finds

Across the industry, about one-third of financial professionals say comp and bonus plans compromise ethical standards”

The past several years have been filled with headline-grabbing legal settlements by financial services firms — $11 billion here, $5 billion there. Most of them involved conduct that took place before the 2008 crisis. Virtually every major Wall Street firm has pledged to redouble its efforts to instill an ethical culture. And virtually all the large firms said that if there was bad behavior, it is behind them.

Well, it isn’t.”

Rather than indicating that Wall Street has cleaned itself up, it suggests that many of the lessons of the crisis still haven’t been learned. And the mind-boggling settlement numbers, as well as stringent new rules, like the of Dodd-Frank regulatory overhaul in 2010, appear to have had little deterrent effect.”

Nearly one in five respondents feel financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.”

One in 10 said they had directly felt pressure “to compromise ethical standards or violate the law.”

The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system,” William C. Dudley, the president of the Federal Reserve Bank of New York, said in a speech late last year on Wall Street culture. “I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms.”
These are the main points of the article.

 

Investors need to stop empowering the Wall Street bullies. Stop looking for the next ‘great’ investment. Stop looking for the next ‘great’ predictor. Stop looking for the next ‘great’ stock picker. Stop trying to time the market. Stop being in touch with your broker daily.

 

These bullies do not have your best interest in mind. Remember in the USA one in 25 people is a sociopath. On Wall Street the number is one in ten.

 

Start following the research of the academics. Start using evidence based investing. Start following a prudent process. Start working with an investor coach/fiduciary adviser.

 

Side note can anyone tell me what is the number one pastime of

executives in Northeast Wisconsin? The answer may surprise you.

Stop Trying To Beat The Market.

About three weeks ago I received a call from a reporter/writer for the U.S. New and World Report. She asked me a number of questions regarding my business and my investment philosophy. She said she had looked at my website www.401kplanadvisors.com and found the posts very interesting. We talked for about twenty minutes and finally she told me the article would be published for the online version of the magazine.

After I read the article it was apparent that she read a few of my weekly posts and used the material. The link to the article is below. Please enjoy.

http://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/05/11/why-investors-should-stop-trying-to-beat-the-market

For those of you who have been regular readers of my blog posts you know what I stand for. I believe the markets are efficient, in that, all knowable information is already reflected in the current price. Therefore, trying to predict future stock movements is not a prudent strategy.

This article points out the need for investors to avoid the Wall Street bullies. These bullies continue to lure investors with their ability to ‘beat’ the market. They want you to believe that they have a special talent to find the right stocks to buy, or get into and out of the market at the right time. They will show you the track records of the current ‘hot’ money manager.

All informed investors know that past performance is no indication of future results.

So please take some time and read the article. If you have any questions or comments please send them over.

The True Enemy of Every Investor

Many of the investors (potential or not) I talk with have many reasons for an unsuccessful investing experience. It could be the stock market is too risky or their broker/agent is no good or the federal government is using bad policy or the Federal Reserve has pumped in too much money or not enough. The list of excuses goes on and on.

 

All investors are searching for the right combination to earn stock market returns with Treasury Bill risk. This includes finding the right stock(s), the hot fund manager or the hot asset classes. They believe that someone out there can get them into and out of the market at the right time.

 

Successful investing to many investors is finding the right portfolio that will experience no losses.

 

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.

 

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.

 

To succeed in investing you must own equities……globally diversify….rebalance.

You need to fire your broker/agent and hire an investor coach/fiduciary adviser.

 

With help of your investor coach you will build a prudent portfolio at the right amount of risk for you. Your coach will then work with you to remain disciplined during both down markets as well as markets are surging up.

 

Don’t empower the Wall Street bullies but rather follow an academically researched strategy with the help of an investor coach/ fiduciary adviser.

Market Returns!

Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar research study, the average investor has failed significantly to achieve market returns. From 1984 thru 2013 the S&P 500 has earned on average11.1% per year while the average mutual fund investor has earned LESS THAN 4%.

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

 

Why are the returns for mutual fund investors so low?

  1. The average holding period is 3.31 years. Not quite long term.
  2. Track record investing – chasing the market.
  3. Stock picking.
  4. Market timing.

 

This is a stunning failure. Research shows the average actively managed mutual fund underperforms the market by two to three percent per year. Accepting this fact, the investor’s job of allocating assets is greatly simplified.

 

The investor only needs to allocate his/her assets into various asset categories to achieve market returns and remain disciplined over long periods of time.

 

This is easier said than done and most often requires the aid of a coach. By focusing on market returns, there is no stock picking at all. No forecast, no prediction. There is no gambling on beating the market. You just own every single stock in that asset category. That’s what we talk about when we refer to market rates of return.

 

You can tell you are gambling and speculating with your money if you:

  • Stock pick (Active Management)
  • Market Time (Active Management) Getting into and out of the equity markets, presumably at the right time.
  • Track record Investing. Picking investment managers based on their past performance.

 

Remember it’s not about picking the “best funds” rather it’s about maintaining a disciplined approach.

 

Investing success requires you to:

 

  • Own equities and high quality short term fixed income.
  • Globally diversify.

 

Your investor coach will help you build your portfolio based YOUR time horizon and tolerance for risk. Your coach will base this strategy on academic research. Some of which has won the Nobel Prize in economics.

 

Many ‘advisers’ will allow their clients to market time during market extremes both up AND down. Please remember these are not investment professionals but rather investment salespeople. They will do whatever the client wants in an effort to keep their ‘business’.

 

When you work with an investor coach/fiduciary adviser you will be ‘coached’ to remain calm during market extremes. You will need to remain disciplined to your investment policy statement.

 

Remember you are an investor not a gambler/speculator. Your savings need to last your lifetime.

 

Stop empowering the Wall Street bullies and fire your broker/agent and hire an investor coach/fiduciary.

Gearing Up For The Next ‘Crash’……

This past month has been a difficult one for equity investors. There have been more down days than up days and many investors AND bystanders are getting nervous. We have been experiencing a bull market for the last five years and somehow investors are surprised when the market goes down.

My friend and coach Mark Matson did a video, link below, entitled ‘Gearing Up For The Next Crash..” I encourage you to watch it. It is long, a little over one hour. I believe it will put your mind at ease and accept all downturns as part of the investment process.

https://www.youtube.com/watch?v=zHf_UlwS8PA

After you watch this video please share it with your friends and family or anyone you believe would benefit from this valuable information.

As always there are three simple rules of investing:

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

Although they are simple they prove to be very difficult to follow. An investor coach/fiduciary adviser will provide the help building YOUR prudent portfolio and the discipline to stay the course during the inevitable downturns.

Do You Trust The Wall Street Bullies?

During conversations with potential clients I continue to be amazed that these people believe that the Wall Street bullies can and will help them. They believe that Wall Street firms like Merrill Lynch, et al, can and will be able to give them earn above average returns with little or no risk. They continue to believe that their investment money is ‘safer’ with these Wall Street bullies.

These investors appear to have very short memories. Back in 2001 Merrill Lynch had Enron on their Strong Buy list just days before the scandal broke. Their investors lost hundreds of billions of dollars. And yet investors continue to believe that these bullies have their best interest in mind when recommending investments.

Remember this, these bullies are held to a suitability standard while the fee only registered investment advisory firms are held to a fiduciary standard.

A suitability standard means that the recommended investment need only be suitable. There is no requirement that the recommended investment be in the best interest of the client. Conversely, those held to a fiduciary standard must make recommendations that are only in the best interest of the client.

One question I ask is why is the financial services industry fighting so hard to not follow the fiduciary standard? Do these bullies have something to hide? These bullies have been profiting off investors for a long time. And they want to continue to profit off these gullible investors.

Where do you want your investment dollars? With someone who must make recommendations based on your best interests or theirs.

As to ‘beating’ the market Mark Matson wrote in Mind Over Money

“The critical element to outwit, outsmart and out invest the Wall Street Bullies is to know that it’s not that hard. All you’ve got to do is diversify, get market rates of return, and stay the course over long periods of time.”

An investor coach/fiduciary adviser will help you avoid the three signs that you are gambling and speculating with your investment money. When you follow these signs you are helping the Wall Street bullies profit at YOUR expense.

  • Stock picking.
  • Market timing.
  • Track record investing.

When you are ready to stop empowering the Wall Street bullies and invest with less anxiety with greater long term returns. You must fire your broker/agent (Wall Street bully) and hire an investor coach/fiduciary adviser.

Free Markets Work!!!

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?
  • When will the next crash occur?

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

The famous black swan theory of Nassim Taleb notes that in the European mind swans were known to be white—-until a single black swan was discovered in late 18th century Australia. From that moment, it was no longer possible to predict the probability of seeing a black or white swan, absent relevant data.

That metaphor led to Taleb’s view that world wars, pandemics and disruptive technologies are all black swans that are unpredictable except in hindsight for lack of historical precedent.

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 and high quality short term fixed income.
  • Globally Diversify.
  • Rebalance.

Follow these three simple rules and you will succeed in reaching your long term financial goals.

You will add to your anxiety and reduce your long term results if you invest using the following:

  • Stock picking…that means picking the stocks you believe will outperform..(hint it doesn’t work long term)
  • Market timing….you have be right twice getting out and then back in…(hint this is also a taxable event).
  • Track record investing…there is a reason this statement must be made …past performance is no indication of future results…(hint when a stock picker gets it right it is a matter of luck and not skill).

These are clear signs that you are gambling and speculating with your investment dollars.

Stop empowering the Wall Street bullies, fire your broker/agent and hire an investor coach/fiduciary adviser.

When Is The Best Time To Invest??

When dealing with investors I have heard a number of questions.  The most frequently asked is; what will the market do next?  Every one of them believes someone knows what will happen next. Investors are in constant search of the ‘expert’ that will give them the answers and ‘beat’ the market. Unfortunately, there are no answers to the question; what will happen next? While investors are searching for the right answer they lose money unnecessarily.

Different risk and return of investment for th...
Different risk and return of investment for the different investors (Photo credit: Wikipedia)

This is evidenced by the Dalbar research study which looks at individual investor performance over a 30 year period. The latest study revealed that the 30 years ending December 31, 2013 the S&P500 earned 11.10% while the individual investor earned 3.59%.

Why the difference? It can partially be explained by the investors search for the ‘best’ manager. This is called track record investing and it doesn’t work.

The invisible hand of the market sets prices more efficiently than any other process known to man.  Is it perfect?  Indeed, No.  There is no perfect price; only what a willing buyer and seller negotiate.  The market instantly incorporates the collective mind of every market participants.  Markets work.  Unfortunately, most investors never tap their real power.

Stop trying to beat the market and let the market forces work for you. This will be accomplished by following these three simple rules of investing.

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

These 3 simple rules will lead to a successful investing experience. Although these are very simple rules most if not all investors will fail to follow all three. In most cases this failure comes at the worst time possible.

Without the help of an investor coach/fiduciary adviser investors will panic during market downturns and sell. Conversely, they will buy into the media hype when an asset class is soaring. Only to be disappointed and devastated when the ‘bubble’ bursts.

Stop empowering the Wall Street bullies and hire an investor coach/fiduciary adviser and learn how to invest with less anxiety and better long term results.

Which Do You Rely On?….Process or Superstition?

This past week I attended an investment symposium in Cincinnati. Ironically, the symposium was in a large downtown casino. Every week I contrast true investing from gambling and speculating. And here I was walking through a large casino that seemed to be busy at all times of the day. As I walked through I noticed the faces of some of the gamblers and in all cases it had the look of desperation and false hope.

Casino Royale en Las Vegas
Casino Royale en Las Vegas (Photo credit: Wikipedia)

I’m sure many of these gamblers felt they had an edge because they were sophisticated and had a ‘system’. But if you looked closer it was not a ‘system’ but rather thinly veiled superstitions. They relied on luck and when the luck ran out the sophisticated gambler moved on to the next ‘system’.

A prudent investor will not switch from one hot ‘system’ to the next. With the help of an investor coach they will develop a prudent portfolio designed for them and then remain disciplined to that process. That process includes among other things the following three rules:

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

The Wall Street bullies have extensive marketing campaigns, which begin as early as grade school, to keep the public gambling and speculating. You can tell you are gambling and speculating if you are doing any or all of the following:

  • Stock picking.
  • Market timing (Getting into and out of the markets at the ‘right’ times)
  • Track record investing (Investing in the hot managers or hot asset class)

These bullies forget to tell the public that these activities are in the best interest of the bullies and NOT you. These bullies use your emotions to keep your money on the move. Because their fees depend on you keeping your money moving from one strategy to the next.

Have you ever meet someone who won big at a casino? Did you find it curious why the casino would then give these ‘winners’ ‘free’ rooms and food. Perhaps even ‘free’ transportation back to the casino? Well these casinos do this because they know that if you continue gambling you will give all your winnings back.

Don’t get me wrong, gambling and speculating are not all bad. It’s ok as long as you gamble and speculate for entertainment purposes only. However it is not ok when this is your retirement plan strategy.

The Wall Street bullies believe the same thing if you continue trading their fees will continue and you will lose. These bullies will continue to use your emotions to entice you to gamble and speculate with your savings.

These gamblers and speculators will have continuous anxiety because they do not know what to do next. Their faces have the look of desperation and false hope.

Stop empowering the Wall Street bullies and take control of your own financial future. Fire your broker/agent and hire an investor coach/fiduciary adviser.

There Will Always Be Uncertainty In The Equity Markets!!

We are experiencing, among other things, some very tense and violent situations around the world right now. The situation in Ukraine, including the downed airliner, the Israel and Gaza battle. As well as our own battles within our country. There is uncertainty all around us.

Federal Reserve Bank of NY, 33 Liberty Street
Federal Reserve Bank of NY, 33 Liberty Street (Photo credit: Wikipedia)

But OMG what should I do with my investments? Or is this a good time to invest? These are the typical reactions to a short term down swing in the markets. Many of us forget to keep ourselves focused on the long term. We forget that the stock market does go down. It is the price we must pay for the great returns we realize, long term.

Please remember a fact from Frederick C Taylor.  From 1926 thru 2012 the Standard & Poors 500 has earned a 9.75% average annual return. There have been 22,040 trading days during this time. Only 52% of those days were up days or 11,461 days. That means there were 10,579 down days. The down days are admittedly more painful, but necessary to earn the great market return.

It is also important to remember that

There ain’t no such thing as a free lunch

(alternatively, “There’s no such thing as a free lunch” or other variants) is a popular adage communicating the idea that it is impossible to get something for nothing.

We read or listen to the financial media telling us why a downturn is occurring. I’m not sure what the answer really is. Perhaps, it’s just the market looking for a reason to correct.  Again I do not know the answer.

I do know that downturns are inevitable. They happen.

Dealing with these downturns is part of the reason the long term returns are so attractive.

For long term investors these downturns mean nothing. Anyone who tells you they can predict the market turns are gambling and speculating with your money not investing. In fact you are gambling and speculating with your money if you:

  • Pick stocks
  • Market time
  • Track record invest.

During a downturn in the markets if you become overwhelming uncomfortable. You should talk with your investor coach about reducing the level of risk in your portfolio. If the both of you decide a reduction in risk would be right for you then do it. However, do not expect to increase the risk level when market conditions improve. This would be market timing and therefore imprudent.

Those of you that are already clients know that you are globally diversified with the right amount of risk for YOU. Each of you know the three simple rules of investing:

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

Keep in mind no one can predict the future with any degree of consistency.

My suggestion to all of you is to relax and enjoy the summer weather. Stop watching all the ‘bad’ news. Do not allow the Wall Street bullies to make you do something you will regret long term.

Selling or panicking during a downturn will result in  “Short term gain ….Long term pain’. Stay focused on the long term and with the help of an investor coach/fiduciary adviser your financial goals are attainable.