Tuesday, October 30, 2012

Market Returns: A Presidential Prediction

With only a short time left until we select the 45th President of the United States of America many investors are in a state of panic.  Many believe the market is waiting for the outcome and if the "correct" candidate is selected the stock market will immediately surge on the news.  Or, if the "wrong" candidate is selected the market will tank the next day. Fortunately, history provides a guide on this matter and it suggests that, when it comes to U.S. Presidents, the market is a true Independent.

Friday, October 19, 2012

2013 IRS Inflation Adjustments

The IRS just announced inflation adjustments for 2013.  These rules affect many things such as your retirement plan contributions, gift tax exclusion, and the "kiddie" tax.  Make sure to bookmark this link as a handy reference.


Monday, August 6, 2012

What Investment Returns Can $200 Billion Buy?

The last siren call of investment managers is an appeal to your ego.  This is how it goes:

“Yes, we know most managers fail miserably to outperform the market after they pay themselves hefty fees, but those guys are for the small accounts. You have a million dollars! This will get you access to the next level of managers.  The really good ones.”

Or: “Oh, of course, accounts below a million dollars are better off investing in asset classes, but you have 5 million dollars! We have proprietary research just for you.  Our investments trounce the market.”

Or: “Well sure, if you only had $5 million it might make sense to keep expenses low. But you have 10 million dollars! You can pay for our quantitative algorithm that picks the best stocks based on how loud Jim Cramer yells the ticker symbol.”

Joking aside.  The trend is clear and you can see the allure.  At every wealth level it seems you have just enough to get you access to the real managers.  So how do you know how much you really need to get the best managers?  Maybe there is a way to find out.  Maybe there is an investor out there so large that they trump every other investor and truly have access to the very best managers.  And maybe this investor makes their returns public so you can see exactly how well their access to the “best” managers turned out for them.

Friday, July 6, 2012

The Mark Cuban Effect

Mark Cuban recently was quoted in a Bloomberg article reaffirming his dislike for the stock market.  He restated his view that most people should keep their investments in cash and "keep your money anywhere but the stock market."  While Mark is not a world renown stock picker he does have high visibility in the news and for some reason keeps popping up with investment advice.  As it turns out it appears that Mark has an uncanny ability to call market reversals.  Unfortunately he has historically made the OPPOSITE call.
It is something I have termed "The Mark Cuban Effect."

Wednesday, June 27, 2012

“I Am Not a Great Fool” – Investing Lessons from The Princess Bride

The Princess Bride can teach us a valuable lesson about investing.

I never imagined I would make such a statement until recently when I was pondering the futility of market participants trying to predict the next market downturn or pick the next big stock. 

For me it brings to mind the movie The Princess Bride.  One of my favorite scenes is the Battle of Wits between the characters Wesley and Vizzini.  For anyone who has not seen the movie the Battle of Wits is structured as follows: There are two wine glasses on the table.  One of which has been poisoned by Wesley.  Vizzini does not know which glass has been poisoned and must deduce which glass is deadly. Once Vizzini selects a glass they both must drink their wine and the loser will die.  Part of Vizzini’s thought process is as follows:

“Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.”

Monday, June 18, 2012

Hyped Headlines

Just about three weeks ago the market was in another panic.  It was a situation very similar to August of last year.  Job numbers were concerning and the markets were reacting dramatically to every headline.  The same point we made then applies this time around.  These numbers are a distraction and will only reveal something in hindsight.  For example, the confidence level of the jobs report is between -50,000 and +150,000 jobs.  This means the true number of jobs gained or lost could be up to 150,000 different than what was reported.  That is a HUGE swing when it comes to monthly figures.  Monthly figures are very volatile and the only thing you can be sure to get from following these numbers is a stomach ulcer.

Friday, June 8, 2012

Market Pullback

Another well-written blog was recently posted by Dan Wheeler concerning the recent market pullback. Click Here.  The main idea of this great perspective can really be summed up in two points:

  • Trying to time the market during these pullbacks is a futile exercise that almost always leads to more losses.
  • A long-term investing focus with emphasis on diversification and low costs is clearly the best way to have a successful investment experience.
A third point may be a useful addition for the especially nervous investor:
  • We cannot successfully time the market reversals, but we absolutely do try to predict them to happen.  One popular risk measure of the market, called volatility, is always a key input in determining a client’s portfolio and retirement projections.  If the market did not experience this volatility then that would be the real surprise.  The market swings can be disheartening if we have a short-term perspective, but some reassurance should come from thinking “I am glad my advisor already planned for this to happen.”

Monday, May 14, 2012

The Two Most Important Words in Advising

Kendall King, a partner and advisor here at Legacy Financial Group, linked to a great article on Financial Advising today on his twitter feed.

The link can be found here or if you follow Kendall on twitter (@kendallwking) it can be found there as well.

The most important words from this article are: "Fiduciary Standard."  There are several definitions of what a "Fiduciary" is, but they all say the same thing.  I will use the definition presented on the Fool.com website which is where the article in reference is taken from.

Wednesday, May 2, 2012

“Buyer Beware”

By Eric Burkholder

This a great blog post by Dan Wheeler.  Click Here.  A little background on Dan:  Dan is a CPA who has an extensive background in accounting and finance.  He recently retired from his spot at Dimensional Fund Advisors as director of Financial Advisor Services after 21 years.  He now is semi-retired and writing his own blog titled “Wheeler Writes.”

Prior to starting his career in the fee only advisor business he had a notable stint working for Merrill Lynch servicing retail clients.  It was this experience which ultimately led him to see the ethical failing of the commission based financial services industry and start out on his own as a fee based advisor.

He is currently writing a series of blog posts that speak to his time at Merrill Lynch.  I highly recommend everyone read his blog.  He discusses the same issues I often mention, but with the most important distinction of having actually lived it.  So I repost his short blog article and implore you to read it. (“Implore” was the fanciest sounding word I could think of to say “I really, really, really think you should read it.”)

Before reading it I want to highlight a few points that I think are especially relevant to you.

Saturday, April 14, 2012

Lower Equity Returns The New Norm? Think Again.

David Booth of Dimensional Fund Advisors does a great job of explaining market cycles.  There is no evidence that current investor sentiment has predictive power for future returns.  A case can actually be made that investors are usually wrong and we should expect higher than expected returns in the years to come.  Either way a properly diversified portfolio will still be the best way to reach your long term goal.

Tuesday, April 10, 2012

The Secret to Predicting Mutual Fund Performance!

By Eric Burkholder

There is a very good article out today on MarketWatch.com.  "You are the best predictor of next bull or bear" The title is misleading but the theme of the article is this:  There is no evidence that any person or any expert has any ability to predict mutual fund returns or forecast the economy.  Actually, an even better summary of the article is in the affirmative: There IS significant evidence that traditional performance metrics cannot reliably predict mutual fund performance and there IS significant evidence that experts do a very poor job of predicting turning points in the economy.  

Tuesday, March 27, 2012

Sasquatch Sighting!

By Eric Burkholder

In the era of perpetual reality TV offerings it is no surprise that Big Foot has finally nabbed his own TV series.  And like most outrageous reality TV I caught myself watching for a few minutes.

While it’s almost impossible not to enjoy the spectacle of grown men and women hunting down the elusive beast and honing their Big Foot Call, most rational viewers shake their head at the futility of the exercise.  Where is the substantial proof?  This is not the 1960s.  Fuzzy videos are ancient history.  We have night vision goggles, infrared cameras, and HD video in the hands of almost every cell phone owner.  Surely some irrefutable evidence would have surfaced by now.  If you are to convince me I want an image so clear I can count his pearly whites.  That is the type of evidence the technology today demands.

Friday, February 17, 2012

Predictably Unpredictable

By Eric Burkholder, Portfolio Manager
A 2011 review of market outcomes and the “experts” who failed to predict them.
 “Prediction is very difficult, especially if it's about the future.” - Niels Bohr, Danish physicist
Entering 2011, many investors had great hope in the world economic recovery.  Equity markets had just tallied two straight years of strong performance, central banks remained committed to low rates, and major developed countries were working to resolve debt issues.  As would be expected, pundits were out in full force predicting another great year for stock investors.  A survey conducted by CNNMoney of 32 “experts” found the average prediction for the 2011 S&P 500 return was 11%.  In fact, not one of the experts thought the S&P 500 would decline.[1]  How accurate were they?   The S&P 500 ended exactly flat in price at yearend and eked out a 2.11% return with reinvested dividends.