Process vs. Outcome

Recently a well known financial advisor wrote a very good article concerning the difference between investing process and investing outcome.  It is easy to read and he provides some great examples so I encourage you to check it out:

https://www.washingtonpost.com/business/get-there/youre-obsessed-with-outcomes-heres-why-attention-to-process-pays-off/2016/01/22/f03828a4-bebe-11e5-bcda-62a36b394160_story.html

I think his final paragraph summarizes the concept very well:

“We never really know what the source of a good outcome is; however, we have a high degree of confidence what the probabilities are for a good process. A strong process is a guarantee — not of outcome or results, but of the highest probability of obtaining desired results. That’s why it is so important to investors.”

Academic Based Investing

Here at Legacy Financial Group we have always been proponents of academic based investing.  Our goal is to design portfolios based on what we know from academic research and empirical data about how markets work and where returns comes from.  As a result of this philosophy we have used mutual funds from Dimensional Fund Advisors (DFA) as the core of most of our portfolios.  They have a long history and strong foundation in building investment vehicles that maximize the use of our knowledge of financial markets.  Below is a video highlighting the academic pedigree of DFA and some of the key academic finding that are incorporated into all their funds.

And The Winner Is....

The best performing developed market of the past 20 years will come as a surprise to most.  The fact that an investment in this country nearly doubled the return of the US during this time will be even more surprising.  But the most interesting aspect about this country's performance is how it became the best performing developed country over the last two decades.

Understanding Investor Bias: International Markets Edition

Last year was a very clear example of how investors can be blinded by biases.  2014 was unique in that most major equity markets performed well below average except for the U.S. large cap market (as measured by the S&P 500).  The S&P 500 was up 13% last year while international markets were negative and very little else returned more than about 4%.  Many investors immediately became nervous over their portfolios.  Some even mulled over the idea of completely getting out of anything outside the U.S.  There were a lot of strong reactions to just a single year of performance.

Every year out of all the major assets classes there is going to be a top performer and a bottom performer.  It is rare that anyone ever questions why they did not own only the top performer.  No one knows which asset class will be the best performer on any given year, and it is universally agreed that diversification can help reduce risk and increase long term return.  So why did last year seem to get some investors so riled up? 

Successful Investing: Warren Buffett Wisdom

Every year tens of thousands of people make the pilgrimage to Omaha, Nebraska to listen to arguably the most successful investment manager of all time, Warren Buffett. The extremely popular event starts this Monday. Undoubtedly, some are hoping to glean some investment secret or word of wisdom that they can turn into investment gold. And who can blame them? In a world where we are constantly bombarded with hot investments, market forecasts, and pundit predictions it seems nearly impossible to ever be sure what to do with our money. Thankfully, Warren Buffett does dispense some great advice and it is actually much different than what you might expect.