Should You Get Out or Stay for the Ride?

Blog post #391

As many US market indices are at or near all time highs, and International markets are also performing strongly, many are asking the opposite question. Have US markets reached new peaks? Will they go higher? 

On Monday, the Wall Street Journal had an article titled “As Stocks Climb, Some Investors Wonder When to Get Out.” The article started by asking that as stock indices approach new record highs, it “leaves investors with a difficult choice: Lock in this year’s startling gains or hang on for the ride?”*

As an investor (and client), this may seem like a reasonable question. What should you do and how should you react when markets set new records? Will markets go higher? Should you be selling now?

This is another time we can be valuable as your financial advisor and guide, to provide you with advice and clarity during key moments and to help you avoid what could be a critical financial mistake.

We encourage and help you to be rationally optimistic. We help you to be rational, and not emotional, as you deal with uncertainty, especially in the financial markets. These principles enable us to provide you with financial and investment advice that is timeless and can be effective, if you are disciplined and patient.

We remain rationally optimistic about the long term financial markets, both in the US and overseas. History and academic data teaches us that corporate earnings will continue to grow, which will lead to higher stock markets in the future, both in the US and Internationally. 

Despite the fears and declines at the end of 2018, far more corporations have reported solid earnings for the first quarter of 2019 (so far) than declines in their revenues or earnings. Good earnings reports and guidance for continued earnings growth, along with the change to stable interest rates, have propelled stocks so far in 2019. 

Even though US markets may be at or nearing highs, and International markets are doing well, we recommend that for your long term financial future, you do not exit the stock market. This should not be a time to sell off a major portion of your stock investments.We know that you cannot successfully and accurately time the markets and predict the high and low points.

Instead, as your financial advisor, we already have a plan in place to handle market increases, which we call “rebalancing.” We have developed an Investment Policy Statement for each client, which details the intended allocation to stocks, based on your specific circumstances. 

For example, if your target allocation to stocks is 50%, as markets increase and the stock allocation increases to 55%, we would review your accounts and consider selling certain stock asset classes, to bring that allocation back towards 50%. We do not do this in an attempt to time the markets or make short-term market predictions. This is a disciplined strategy of maintaining your desired stock allocation, which has the long-term benefit of selling high and buying low. 

This gradual tweaking of your portfolio does allow for some selling as markets reach new highs, but more importantly, also allows you the opportunity to gain from further long-term increases in the markets.

Remember, the stock market has many more positive days and years than negative ones.

Remember, US and International stock markets have increased significantly over years and decades. We expect these long term trends to continue, with bumps along the way, of course. 

To reap these long term rewards, you must remain invested in stocks. You must be in the game.  You should stay for the long-term journey.

And it’s our role to help you along the way, so you can remain invested and have the ability to reap the long-term benefits that stocks can provide. 

Prior to working with our firm, you may not have had a disciplined strategy for how to handle the stock market reaching new peaks. Now
you do. 

We provide you with understandable answers and advice to these key questions. We provide you with clarity and guidance, so you can have a greater sense of financial security, comfort and success. 

If you have friends or relatives that could benefit from the advice and guidance which you have received, please let them know about our firm. We would be pleased to help them as well. You can start the conversation. 

Source

“As Stocks Climb, Some Investors Wonder When to Get Out.”The Wall Street Journal, by Ira Iosebashvili 04/22/2019  


Make Things Better

Blog post #390

Better implies that what you have right now can be improved. It is an assertion that requires confidence to say it and the optimism that it’s possible. 

Make implies that it’s up to you (and us). Someone needs to make it better. Better requires change, and change can be scary for some people. 

These are thoughts from a recent blog post, Make Things Better, by Seth Godin. Seth writes a daily blog, which I highly recommend, and is a prolific author.

Godin’s blog post about “make things better” is meaningful to us for what it represents about the values, goals and service that WWM provides to our clients.

We started WWM in 2003 to make things better. We entered the financial advisory business because we knew there were better ways to provide comprehensive financial and investment advice.

Investing can be complex. You may have had bad experiences in the past. You may have had advisors or brokers you thought were doing a good job, but something went wrong. You may not understand how to choose your 401(k) plan investments.

The financial world can be daunting and ever changing. You may not know what stocks, mutual funds or other investments are best for you. Tax and estate laws change. Retirement planning requires understanding and coordinating many types of data. 

You may not know the actual costs of your investments and whether you are paying hidden fees. You may not know how your money is really invested, especially if you have accounts at multiple places or brokers. 

Fees and costs are important and a critical component of investment success. We are transparent about our fees and the costs of the investments that we recommend to clients. When we meet with prospects, our fees and the total costs are generally much lower than the prospects current situation. We are not compensated by the investments we recommend, which is very different than traditional brokerage firm models. 

We believe your investments should be coordinated, so you have a real financial plan, which we call an “Investment Policy Statement.” We will advise you on your 401(k) plan and the many retirement decisions and issues you face. We can help you plan for Social Security and develop retirement projections. By having advisors develop a coordinated plan for you, this should reduce your financial anxiety and stress.

Working with a firm with a long-term investment philosophy which we feel is understandable, disciplined and rationale can help to provide you with confidence and security, regardless of how the financial markets are doing. We explain things in English. We communicate with you regularly, such as this blog, in a manner that helps you understand what is going on in the financial world. We know that clarity and understanding are important. 

We are very pro-active in our efforts to reduce and minimize the taxes related to your investments. We utilize tax-managed asset class mutual funds, which strive to minimize the taxes distributed from the fund, without hindering the performance. This type of fund is still relatively rare in the financial world. When appropriate, we place trades to recognize tax losses or avoid taxable fund distributions. We did a lot of these for clients last year, as applicable. 

For those clients who are now working with us, in Seth Godin’s terms, these people reviewed their situation at the time they first talked with us and thought working with us could make their financial lives better. They took the initiative to change, even if the change was difficult to do. 

We work hard at getting better. We take our role in providing you and your family with financial advice and guidance very seriously. 

If you are a current client, we hope that we have made things better for you. That is certainly one of our goals. If you have friends or relatives that could benefit from the advice, clarity and guidance we provide, please let them know about our firm. Forward these blog posts or share with them. 

If you are not yet a client but a reader of these posts and think you may be ready to consider a “change for the better,” please call or email us to schedule an appointment. 

Jeopardy phenom continues at record pace

As a follow up to last week’s blog post, James Holzhauer has continued with his incredible pace of Jeopardy winnings, as he has won $697,787 in 10 straight wins. Holzhauer now has the 4 highest winning games, including 3 games of more than $100,000 each. He is averaging almost $70,000 per night, while 74 game winner Ken Jennings averaged below $34,000 per game.

His speed, knowledge and confidence in betting are remarkable. My big question is when he eventually loses, will he be beat by a smarter and faster contestant, or will the cause be his own overconfidence? 

“All in” on must see Jeopardy phenom

Blog post #389

A professional sports gambler set a Jeopardy single game winning record of $110,914 on Tuesday’s episode. 

But that one day win is only part of the story. 

James Holzhauer has won an astounding $298,687 in 5 wins. His aggressive betting, different game strategy and vast knowledge has resulted in must see viewing. He is averaging almost $47,000 in his other 4 wins, which is far higher than typical winners. For perspective, Ken Jennings averaged $34,000 per night during his record 74 game win streak in 2004.

Holzhauer has turned the game upside down with his strategy. Most contestants start at the top of the board, starting with the small dollar clues in each category. Holzhauer picks the most valuable clues across the entire board first, which can earn him the most money the fastest. This enables him to bet super aggressively if he gets one of the 3 Daily Doubles, which he can bet up to his full winnings at that point in the game. He has repeatedly gone all in with huge bets, even at critical points in the game.

His change in strategy, how he plays the board, is interesting. I wonder why no other contestants, particularly those who have been very successful on the show in the past, have not tried his strategy? 

Similarly, for many of our prospects, and now clients, we present a different approach to investing than most had used in the past. However, once you understand it, you see the logic in our investment strategy. It will be interesting to see if future Jeopardy contestants adopt Holzhauer’s strategy in the future.

On Jeopardy, speed and information are key. Holzhauer is very fast with the buzzer, which then gives him an advantage, so he can try to answer the question correctly. And he is certainly well informed, as he correctly answered 129 of 133 attempts, through the 4th game. 

In investing, we do not feel that speed or certain information matters. Company specific information is supposed to be public and disseminated to all at the same time. Unless you have inside information, which is illegal, speed should not be an advantage. Earning announcements are generally either before or after the markets open or close. Major financial institutions can react quicker than individuals can, but they all get public information simultaneously. We rely on academic data and historical information for our investment philosophy, so speed is not critical. At times, we feel patience can actually be an advantage over speed. 

Holzhauer can have a significant advantage by being faster with the buzzer. However, he cannot control what categories he will face each show and the knowledge or expertise his fellow contestants have. He may be very skilled, but he may face a competitor that is even faster at the buzzer or smarter than he is on certain topics. He can only control his ability. 

In our investment strategy for stocks of using asset class mutual funds which are globally diversified, we take the view that active money managers cannot provide added value to you by being smarter than the market, over long periods of time. Active managers do research and charge higher costs to their investors, but extensive data shows that these active managers generally underperform their respective benchmarks.

Holzhauer has made very aggressive bets. So far they have paid off spectacularly. But his overconfidence may cost him a win at some point.

During his record breaking one night win, he bet all his money, about $34,000, early in the second “Double Jeopardy” round. He was far ahead of the two other contestants, but if he had answered the question incorrectly, he would have blown his insurmountable lead.  When he made this $34,000 wager, he must have felt that if he answered wrong, he was very confident he would recapture the lead because he was faster at the buzzer and then could answer subsequent questions correctly. He did get the question correct and went on to win.  His great confidence has resulted in huge success, so far. To keep winning, he will have to balance his aggressiveness without being too overconfident.

For many investors, investing in individual stocks has great appeal. You think you know what company, store or product will be successful, so you invest in it. Many years ago, before I began this firm, I thought I could identify mutual funds based on their past track records or reading about the money managers. All too often, this overconfidence in our abilities to pick financial winners does not prove out to be as successful as we would hope. Unexpected things happen to companies or sectors that we think are good ones. The world changes. Amazon comes along and online shopping has hurt the stocks of many retailers, for example. 

Holzhauer has made huge bets, relative to what others contestants have done in the past. I went back and watched online the previous highest single game winner, from 2010. That contestant bet $7,000 when he had $25,800 and $5,000 when he had $33,600. In comparison, Holzhauer bet his entire $14,600 early in the game, $25,000 later in the game and then wagered $38,314 on the Final Jeopardy question (though he could have bet more), as his goal was to win $110,914, as the total represented his daughter’s birthday, 11/09/14. 

Holzhauer is a professional gambler and he may already be wealthy. He obviously is a risk taker. He told ESPN “…my work is similar to an investment bank, except that I’m the analyst, trader, fund manager and day trader all into one.”**

In our investment firm, as we work with clients, we want to take appropriate risks, but not more risk than is necessary. We plan and discuss with you how much risk you need to take, and are comfortable with, to reach your various financial goals.

James Holzhauer is a highly intelligent person and professional gambler. I hope he continues to win, as he is great to watch.

This contestant is playing a game. He may be ok with “risking it all” on one question or taking outsized gambles on his ability to answer a single question, which may lead to huge success or failure. 

We feel strongly that broad diversification is prudent and advisable for your financial future. We are not “going all in” on one stock or any particular financial sector. 

As we manage your investments and provide you with financial advice, we want you to be comfortable and be able to sleep well at night.

Cite:

**”Sports Gambler James Holzhauer Shatters ‘Jeopardy!’ Winnings Record”,www.huffpost.com, 04/10/2019 by Ron Dicker

Sources:
“Professional sports bettor sets ‘Jeopardy!’ record”www.ESPN.com, 04/10/2019 by David Purdum

The secret weapon of the sports gambler who just broke the single-game ‘Jeopardy!’ record?  Children’s books.“,www.washingtonpost.com, 04/10/2019

www.jeopardy.com

Spring Investment Fundamentals

Blog post #388

The 2019 baseball season has just begun. 

This means that spring training has just concluded, which is the time when experienced players and rookies alike focus on the fundamentals of the game. Even though these players are the very best in their sport, they have just spent many weeks practicing baseball basics under the direction of their coaches.

The players went through repeated drills and practiced skills they have been doing ever since they were youngsters first playing baseball. Repetition. Reinforcement. Remembering the basics!

In that spirit, let’s review some investment fundamentals. 

Over the very long term, returns from stocks in the US and Internationally have far outperformed the returns of investment grade bonds, by a significant margin. 

It thus makes sense to own stocks, and not bonds, if you want your investment portfolio to grow over the long term.

The long term return of the S&P 500, representing large US based companies, is around 10% annually. We believe in a well diversified global portfolio, which includes small and large companies, as well as value companies. This type of globally diversified portfolio has future expected returns that should exceed that of the S&P 500 alone, over the long term.

To get the reward of the long term returns of stocks, you must endure the volatility that comes with owning stocks. This is a temporary risk, as diversified stock markets have climbed higher over time.

  • For example, the S&P 500, an index of 500 US-based companies, of which the companies in the index change over time, has increased over 25 times since the beginning of 1980.
  • The S&P 500 has increased from 108 on January 1, 1980 to greater than 2,800 in April, 2019.

The temporary risk is the challenge. The hard part for most investors is dealing with the volatility, like when markets drop by 20% or more. This has happened and will continue to occur, about once every 5 years since WW II. 

Helping you to deal with this volatility is one of the key benefits we can provide to you.

As stock markets cannot be consistently or accurately forecasted, the only way to benefit from the returns of the stock market is to remain invested in stocks, in accordance with the stock allocation that is determined to be appropriate for your specific situation. You can’t time stock markets. It doesn’t work. 

During the baseball season, a manager and coaches will continually remind their players of the key fundamentals, to help them succeed.

We remind you of these concepts to help you reach your financial goals. 

  • Risk and return are related.
  • The better your ability to emotionally handle the temporary drops of the stock market, the greater your chances are to reap the long term rewards that stocks can provide.
  • We will be here to guide and advise you.

Talk to us.