Can you summarize your investment belief in 10 words or less?
Jason Zweig asked this question in his January 27, 2012 column in “The Wall Street Journal”.
He asked some leading investors and financial thinkers for their own contributions. It appears that they believe in the KISS principle.
Following are some of the responses:
Anything is possible, and the unexpected is inevitable.
Determine value. Then buy low, sell high. ;-)
If everybody wants it, I don’t. Avoid crowds.
Other people are smarter than you think they are. Index.
Risk means more things can happen than will happen.
Invest for the long term and ignore interim aggravation.
100% of business value depends on the future.
Plan for the worst. Hope for the best.
Control what you can: your savings rate, costs, and taxes.
The less portfolio management costs, the more you earn.
Do the math. Expect catastrophes. Whatever happens, stay the course.
Fallible, emotional people determine price; cold, hard cash determines value.
Save. Invest long-term. Compounding returns builds. Compounding costs destroys. Courage!
Spend less. Diversify globally. Own whatever’s feared, shun whatever’s beloved.
The themes in the above quotes are very consistent.
To find out who said what, read the article. READ MORE
What does it mean to become the “most valuable on the planet”
Today’s “overheard” column in The Wall Street Journal asked the above question. The question was generated from Apple becoming the most valuable stock. Some other stocks that have held that title in the past include: General Motors ( decades ago), Microsoft (1999), Cisco Systems (March 2000), and General Motors (latter in 2000). “…reaching the top spot has proven to be something of a curse. Recently deposed Exxon Mobil is one exception, having made it to the top multiple times in a variety of different incarnations. For most of these companies, the rapid growth, superior products, investor giddiness or sheer luck that got them there succumbed to mean reversion, technological changes and hungrier upstarts putting a target on their backs. Either Apple really is worth as much as the major listed U.S. phone companies, railroad operators and car makers combined-or history is destined one day to repeat itself.”
There is a lot food for thought in this article. If you are a momentum or growth investor you are probably asking your self how much more you should buy. If you are a value investor, you may be asking yourself if you should sell, take your profit and reinvest in other securities.
Apple’s growth is has been the driving component of the recent growth in the S&P 500 and the NASDAQ. If you own mutual funds that invest in large corporations or technology, you probably have more exposure to Apple than you think. This may be a good time to review your financial plan and your investment portfolio to see if you need to re balance your portfolio. If you recently rebalanced your portfolio, and you periodically review your investment portfolio, you have already done this and you know when you will next review your situation.
I am not implying you should become a trader. You should periodically review your portfolios to see how how your situation and other factors impact how your investment portfolio should be constructed. The timing will be different for everyone. Some people review the investment portfolio allocation quarterly while others rebalance semi-annually or annually. It is important to be consistent.
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Two sides to our “Safety Net”
An article in todays The New York Times discusses the conflicted view of our safety net.
“The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement.”
The article discusses people who do not want help from the government. They believe that people should live within their means. These people also receive benefits from government programs such as; the earned-income tax credit, free breakfast and lunch programs in schools, disability benefits, unemployment benefits, veteran benefits and medicare. Some of these people “…describe themselves as self-sufficient members of the American middle class and are opponents of government largess drawing more deeply on that government…”
“Politicians have expanded the safety net without a commensurate increase in revenue.” The problem has has gotten worse because of the recent recession.
Like Americans in general, the people discussed in the article are divided on how to proceed. One person said “You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself.”
“Almost half of all Americans lived in households that receive government benfits in 2010, accordingly to the Census Bureau.”
Although the article does not suggest how to proceed it does help put some of the factors that need to be considered in perspective. Recognizing the conflicting views and emotions should lead to answer.
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You may not realize that our brains may not give us the best answer.
Returns realized by investor are lower than the returns of the funds they own. This was a frequent observation of the Fidelity Magellan Fund when Peter Lynch manged it (1977-1990). Morningstar statistics of fund returns and of the returns realized by investors continues to find that investors’ returns are lower.
This topic is the subject of numerous studies. Generally investors buy when the market goes up. Then they sell when it goes down. The result is that securities are bought high and sold low. The opposite of what should be done.
Jason Zweig discusses this subect in his February 11th article in The Wall Street Journal. He references seven surveys since 2008. “These surveys have shown that investors’ forecasts of future returns go up after the market has risen and down after it has fallen.” “The investing mind comes with built-in machinery that sizes up the future based on a surprisingly short sample of the past.”
He suggest some things we should do to minimize our overreaction to market fluctuations. The first hing is to pause and reflect how you reacted to past fluctuations. Ask your self how accurate you were. Next you should develop some”solid reasons” the market is under or over valued. Keep a record of reasons so that you can look back and see how accurate you were.
He suggests that investors not rush to action based on the current activity of the market. Investors should be patient.
I believ investors should have a plan and understand it. Their portfolios should be constructed so that they do not have to react to the short term fluctuations of the market. Portfolios should have enough invested that they can live for a time without having to liquidate parts of their portfolio because of market fluctuation.
If you view the daily fluctuation as static, you realize you should not be looking at your investments too frequently.
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“Everything You Know About Peak Oils Wrong”
The “Opening Remarks” of the January 30 – February 5, 2012 edition of Bloomberg Business week raises many conflicting issues. To give you a glimpse of why we are NOT running out of resources are the following estimated total proven oil rserves: in 1990 the estimate was 1.0 trillion barrels, in 2000 the estimate was 1.3 trillion barrels and in 2010 it was 1.5 trillion barrels. The statistics for other materials are similar.
Numerous reasons are given for this situation. One reason is that industries use less of mineral resources than in the past. New discoveries and new technologies that make more of the resources available are other reasons. “…the amount of energy the planet needs to generate the same amount of wealth is declining.”
“That evolution may not be happening fast enough to stave off climate change, but it suggests the possibility that we can keep improving global living standards even while reining in our collective impact on the global environment.”
The article did not address why the news media seems to stress how fast we are running out of these resources when the facts suggest it is not an issue. Nor does the article indicate why the media seem to only highlight the conflict over the reason(s) for climate change rather than the need to consider it in setting policies and modifying operations to consider climate change.
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FINRA Issued an investor alert about Email hacking.
“FINRA has received an increasing number of reports involving investor funds being stolen by fraudsters who first gain access to the investor’s email account and then email instructions to the firm to transfer money out of the brokerage account. …we are issuing this Alert to warn investors about the potential financial consequences of a compromised email account and to provide tips for safeguarding your assets.”
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Key Numbers for 2012 and 2011
The 2011 key numbers will help in preparing your tax return. For those of you that use a tax preparer it will help in organizing your information. It may also generate questions that you should discuss with your tax return preparer. the 2012 Key numbers will help you in your planning for 2012.
Key Numbers for 2012 and 2011
“Lou buys a computer”
You have to be old enough to remember Abbott and Costello and
too old to REALLY understand computers, to fully appreciate this.
For those of us who sometimes get flustered by our computers, please read on…
If Bud Abbott and Lou Costello were alive today, their infamous sketch,
‘Who’s on First?’ might have turned out something like this:
~~~~~~~~~~~~~
COSTELLO CALLS TO BUY A COMPUTER FROM ABBOTT
ABBOTT: Super Duper computer store. Can I help you?
COSTELLO: Thanks I’m setting up an office in my den and I’m thinking about buying a computer.
ABBOTT: Mac?
COSTELLO: No, the name’s Lou.
ABBOTT: Your computer?
COSTELLO: I don’t own a computer. I want to buy one.
ABBOTT: Mac?
COSTELLO: I told you, my name’s Lou.
ABBOTT: What about Windows?
COSTELLO: Why? Will it get stuffy in here?
ABBOTT: Do you want a computer with Windows?
COSTELLO: I don’t know. What will I see when I look at the windows?
ABBOTT: Wallpaper.
COSTELLO: Never mind the windows. I need a computer and software.
ABBOTT: Software for Windows?
COSTELLO: No. On the computer! I need something I can use to write proposals, track
expenses and run my business. What do you have?
ABBOTT: Office.
COSTELLO: Yeah, for my office. Can you recommend anything?
ABBOTT: I just did.
COSTELLO: You just did what?
ABBOTT: Recommend something.
COSTELLO: You recommended something?
ABBOTT: Yes.
COSTELLO: For my office?
ABBOTT: Yes.
COSTELLO: OK, what did you recommend for my office?
ABBOTT: Office.
COSTELLO: Yes, for my office!
ABBOTT: I recommend Office with Windows.
COSTELLO: I already have an office with windows! OK, let’s just say I’m sitting at my computer
and I want to type a proposal. What do I need?
ABBOTT: Word.
COSTELLO: What word?
ABBOTT: Word in Office.
COSTELLO: The only word in office is office.
ABBOTT: The Word in Office for Windows.
COSTELLO: Which word in office for windows?
ABBOTT: The Word you get when you click the blue ‘W’.
COSTELLO: I’m going to click your blue ‘W’ if you don’t start with some straight answers. What about financial bookkeeping? Do you have anything I can track my money with?
ABBOTT: Money.
COSTELLO: That’s right. What do you have?
ABBOTT: Money.
COSTELLO: I need money to track my money?
ABBOTT: It comes bundled with your computer.
COSTELLO: What’s bundled with my computer?
ABBOTT: Money.
COSTELLO: Money comes with my computer?
ABBOTT: Yes. At no extra charge.
COSTELLO: I get a bundle of money with my computer? How much?
ABBOTT: One copy.
COSTELLO: Isn’t it illegal to copy money?
ABBOTT: Microsoft gave us a license to copy Money.
COSTELLO: They can give you a license to copy money?
ABBOTT: Why not? THEY OWN IT!
àA few days laterß
ABBOTT: Super Duper computer store. Can I help you?
COSTELLO: How do I turn my computer off?
ABBOTT: Click on ‘START’…….
Should there be different standards for brokers and advisers?
This issue has been around for a long time. ” Brokers must recommend ‘suitable’ products, not necessarily best or cheapest’.” “Advisers must put client’s interest before their own.”
Most investors do not understand the difference in the the various players in the “financial” field or the different standards they are held to. Years ago, this was confirmed by a Rand study. Things got more confusing when the “Merrill” rule was adopted. Some regulators and consumer advocates have been trying to have all players (some are currently exempt such as those that are regulated by the states).
When discussing this issue, people usually tell me their broker does put their interest first. Most brokers I talk to tell me they put their clients’ interest first. Some even mention that they do not always sell the products with the highest commissions. It sounds as if everyone agrees that the clients interest should come first. If this is true why is their such a strong opposition to adopting one standard, putting the clients’ interest first?
READ MORE
“Most advisers overstate their expertise”
Jeff Benjamin of “Investment News” discussed a recent survey by Scott Smith
of Cerulli Associates Inc. Following is a portion of the article:
‘ “We found that 59% of respondents were calling themselves full-scale financial planners, when it fact many of them were actually investment planners,” he said.
In Cerulli’s parlance, which divides the overall financial intermediary universe into four broad categories, there are subtle yet distinct differences between an investment planner and a more comprehensive financial planner.
Even though 59% of respondents identified themselves as financial planners, Cerulli calculated that only 30% actually fit the definition of being better qualified and certified, working with clients to build comprehensive plans that include insurance and estate planning.
Investment planners, by comparison, focus on asset management, retirement and college savings plans but tend to offer more-modular-style plans.
According to Mr. Smith, only 22% of the 1,500 respondents identified themselves as investment planners. But when he went over the details of each respondent’s business, Mr. Smith realized that 56% of respondents are actually investment planners.
Mr. Smith said much of the discrepancy could be attributed to that fact a lot of advisers view themselves as being more comprehensive than they actually are, simply because they believe they have the potential to be more comprehensive.
“Firms have encouraged their advisers to expand their advice relationships with clients; however, advisers tend to overstate the degree to which they are involved in the planning process,” he said. “The movement to extend advice services is likely being accelerated by turbulent markets, as advisers who base their value to investors on investment performance have suffered more than those with broad advice relationships.”
In the two remaining categories — money manager and wealth manager — Cerulli found that advisers have a more realistic perspective on the services they are providing.
Money managers, defined as mostly managing and building portfolios, were identified by Cerulli as representing 9% of the total universe, which was in line what survey respondents indicated.’
The above illustrates why consumers need to understand the different type of financial and investment services that are available. Then they need to identify which type of service they need. There are resources on line that can help identify the background and experience of the person they think may be appropriate. Several people should be interviewed before retaining their services.
