Going for the Gold-Not!
In January 1980, gold was selling for $850/oz-I remember people selling their jewelry. According to Standard & Poors, the S&P 500 Index was at 110 that same January. On Friday May 11, 2012 gold closed at $1584 and the S&P 500 closed at 1353. (May 11, 2012 values from Yahoo.com)
That makes the annual return on gold, 1.94% over the 32.33 years while the S&P 500 returned 8.07% annually.
If you asked anyone where they would have liked to been invested, I don’t think you could find anyone saying, “I’m going for the gold”! Not even in this Olympic year.
If you can answer the 20 Must Answer Questions, you will be on your way to understanding investing. Contact me for a list of the questions.
All investments contain risk and no investment should be made without reading the prospectus.
It is not possible to invest directly in the S&P 500 Index
Past performance is not a guarantee of future results.
Copyright Mullennium Finance LLC 2012
May 16 2012
Big Time Speculating & Gambling
Do you Bet & Trade or Let Your Broker do it For You?
Here is an example of Big Time Speculating & Gambling
Late last week, JP Morgan Chase, the largest US Bank, announced a $2 billion loss by placing a hedge against their portfolio. The two words that were repeated in the story all weekend are “betting” and “trading”.
If the largest US bank can lose $2 billion by betting & trading, why would you subject your portfolio to such a practice?
Betting and trading by the likes of JP Morgan Chase is active management on steroids. Many mutual fund companies bet & trade in their portfolios. The average turnover in an equity mutual fund is close to 100% according to Morningstar. Turnover is buying and selling stocks in the portfolio, betting the stocks they trade (buy) will be better than the stocks they sell.
True investing involves owning equities, diversifying & rebalancing.
If you can answer the 20 Must Answer Questions, you will be on your way to truly understand investing.
Contact me for a list of the questions.
All investments contain risk and no investment should be made without reading the prospectus.
Past performance is not a guarantee of future results.
copywrite Mullennium Finance LLC 2012
KISS-It is NOT the way of Wall Street
In February of 2012, MFS Investment Management conducted a study of 974 investors and the major finding was that investors feel inundated by investment choices. Almost 400 of the respondents feel financial products are too complicated. The advice for advisors is to understand these complicated investments so they can be explained to clients.
That is bad advice. Advisors should coach and educate clients so that they understand that investing is simple. Own equities, diversify and rebalance.
The author of the Little Prince had this to say about complexity;
“Perfection is not when there is no more to add, but when there is no more to take away.”
Antoine De Saint-Exupery
If you can answer the 20 Must Answer Questions, you will truly understand investing. Contact me for a list of the questions.
All investments contain risk and no investment should be made without reading the prospectus.
Past performance is not a guarantee of future results.
Standards: Medical vs. Financial
On a Marketplace radio show on May 3, 2012 there was segment from the Marketplace Health Desk at WHYY in Philadelphia. Gregory Warner talked about why some patients “… walk into one hospital with clogged arteries and you’ll walk out with a prescription for Lipitor and instructions for a healthier diet. Walk into a different hospital — same clogged arteries, but a different town — and you’re more likely to end up on an operating table having a stent put into your heart. Both procedures tackle the problem, but one is a whole lot cheaper and safer, too”.
Gregory explained that Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation at the University of Michigan did a study of five million insurance records in the state of Michigan. She found that a patient was more likely to get elective surgery if they lived in an area with a lot of catheterization laboratory which were staffed with cardiologists and nurses trained in stenting.
Udow-Phillips said that it is not that it’s a wrong procedure (elective surgery) it just may not be a necessary procedure, but there’s a financial motivation to fill those cath labs and get them used.
Greg Warner said “…Both procedures tackle the problem, but one is a whole lot cheaper and safer, too”.
I wondered if there is any relationship to this story about medicine and the financial industry. The standard for medicine is the Hippocratic Oath-do no harm. In the financial industry, we have two standards-the suitability standard and the fiduciary standard. The former allows for many processes and/or products to be used while the latter requires that the interest of the client be first and foremost.
Could it be that some in the medical arena use what is the equivalent of the suitability standard? As Udow-Phillips points out, there is a financial motivation to one of the procedures.
Something to think about.
All investments contain risk and no investment should be made without reading the prospectus.
Past performance is not a guarantee of future results.
copyrite Mullennium Finance LLC 2012
Coaching versus Advising versus Selling
Choices for those who want to achieve market returns.
I received my certification in financial planning in 1992. Along with my MBA with a concentration in finance, I had a good foundation in knowing different ways to invest and was well versed in putting together comprehensive plans. During my studies for the CFP® certification it became apparent that a key to success in the financial world would be marketing. I knew the terms, the numbers, the investment vehicles, but didn’t have a clue about how to market. So, I joined a broker/dealer (B/D).
Their approach was to list 100 of the people I knew and start calling them. That particular B/Ds answer to almost every situation was to sell a variable universal life insurance policy. I didn’t last long there.
The next B/D concentrated on life insurance but there was no particular product that fit 90% of the situations. The national organization promoted certain mutual fund companies with which they had “preferred associations”. The next two B/Ds had the same kind of relationships with some of the same mutual fund companies.
Along the way, I learned about Morningstar and their depth of knowledge about thousands and thousands of mutual funds. I learned about five star funds, four star funds, track record investing and finally figured out that almost all the “professionals” I was dealing with were trying to forecast the future by selling past performance to present investors.
What I was doing was advising my clients on mutual funds that had outstanding returns in the past and I was selling that past performance. I had bought into all the tripe that Wall Street was promoting.
I did not realize it at the time but I was not convinced that what I was doing was in the absolute best interest of my clients. I was not uncomfortable with what I was proposing, but at the same time I was going to dozens of seminars and meeting each year, listening to area vice presidents expound on the latest offering of their company and present statistics to back up the speech. I read a half dozen magazines a month and poured through the Wall Street Journal on a daily basis. I was looking for a better answer to investing.
A little over three years ago, I found the answer. Investing is not complicated. It is simple, but as Carl Richards of Behavior Gap fame is fond of saying, that does not mean it is easy. There are three simple rules; First, own equities. Second, diversify and third, rebalance.
Today, I don’t advise. Today, I don’t sell. Today, I coach. In many ways, coaching is tougher than either advising or selling. Many people are not coachable. They “know” too much. Many people still believe what Wall Street promotes is good and believable. Many accept the premise that the research departments of the major Wall Street firms and the large broker dealers really can predict the future-which stocks to buy, which sector to overweight and when to get in and out of the market. Statistics tell a different story but it does not matter; Wall Street appeals to those myths and misbeliefs. By doing so, Wall Street makes a lot of money for themselves but not necessarily for the investors.
My job as Coach is to make sure my clients follow the three simple rules and educate them that our success record will be measured over decades, not over weeks, months & or years.
All investing involves risk. Read the prospectus before investing.
Past performance is no guarantee of future results
Don’t Play in the Market
I just read an April 12, 2012 Bloomberg Business Week article featuring Irving Kahh entitled , “How to Play the Market”. Mr. Kahn has been around for a long time. He started on Wall Street in 1928 and he claims that no two recoveries are the same. He talks about investing in value stocks, stating “With value investing, you don’t have to bend the truth to accommodate periods with derivatives and manias. Value investing will almost always be right.”
By stating that no two recoveries are the same, Mr. Kahn is telling a deeper truth that gamblers and speculators that is, those who “Play” in the market, don’t want to admit. That is, markets do not go straight up. They sometimes go down, thus the need for a recovery.
The chart below shows the folly of “playing the market”. The periods covered are 14 successive 20 year periods comparing the returns of the S&P 500 index against the returns of the average equity mutual fund investor. The reason that the S&P 500 is the “winner” for each of the periods studied is because the “players” follow the advice Wall Street-here is the next Apple or buy gold or get out now. Emotions kill returns. Following the advice of Wall Street kills returns. Stock picking, track record investing and timing the market will not lead to peace of mind investing.
Investing is not a game to be played. It is a wealth trail to be followed and the trail cannot be completed in 4 years.
Investors cannot invest directly in the S&P 500 Index however there are surrogates.
All investments contain risk and no investment should be made without reading the prospectus.
Past performance is not a guarantee of future results.
Markets = Feelings
The sketch, above, starts out with Carl Richards of Behavior Gap stating that Markets = Feelings. I am not sure what kind of feelings Carl is referencing, perhaps a feeling that an investor can achieve wealth using the market or maybe the feeling that the market is like a gambling casino.
The stock market is an opportunity and some people use it to build wealth while others use it as a casino. There is a real difference between black jack tables, slot machines, roulette wheels in casinos and the stock market. Casinos are set up using probabilities tables which guarantees the house will take in more money than they pay out.
The market does not care who wins or who losses. It is merely a mechanism that allows one person or entity to sell something and another person or entity to buy that something at an agreed upon price. There is no knowledge on the part of either party before the fact on who will gain or who will lose in the long term as a result of the transaction.
If you accept the belief that the market is an opportunity (to earn a return on your investment over time), it will influence your behavior in either a positive way or a negative way.
There are two beliefs about the market. The first is that it is efficient and that the price of any stock at any time truly reflects the real value of the company that the stock represents. The second belief that you can hold is that the markets are not efficient and that there are stocks that are incorrectly priced, either too high or too low thereby allowing you or somebody to take advantage of the disparity.
If you hold the second belief, then you are no better off in the market than you are in a casino. That is because your behavior over time will doom your success. There is no statistical evidence that anyone can or has been successful over time, picking stocks. There is no statistical evidence that picking stocks or mutual funds that have done well in the past will do well in the future. There is no statistical evidence that anyone can or has been successful over time in getting out of the market at its high point and back in when it has bottomed out.
However, there is plenty of evidence that if you hold a truly diversified portfolio, own equities and rebalance the portfolio back to your preset targets, you can achieve market returns. Note that I did not say beat the market. I said that there is evidence you can achieve market returns.
The market offers the opportunity. If you have the right believe and work with a coach to manage your behavior, you have the opportunity to achieve positive results.
All investments contain risk and no investment should be made without reading the prospectus. Past performance is not a guarantee of future results.
