A 4th of July Book Recommendation

The long 4th of July holiday weekend is upon us.

A time to be with family, attend a parade, have a barbecue and see fireworks. Maybe take a vacation.

It is a time to reflect on our great country, which started over 240 years ago.

It is also a great weekend to read a very moving and wonderful new book by historian and author David McCullough, The American Spirit, Who We Are and What We Stand For.  McCullough selected 15 speeches from the hundreds he has given in all 50 states over the past 25 years for this collection. 

From the sample of speeches I have read, I very highly recommend this optimistic book.

The 171 page book is a treasure of history. It is positive. It is inspiring. It is educational. I have learned something interesting on almost every page.

McCullough, one of the most honored American historians in the US, winner of two Pulitzer Prizes, two National Book awards and the Presidential Medal of Honor, reminds us of fundamental American principles and brings to vivid life people and places in American history.

His speeches are clear and succinct. He paints vivid pictures with words as few others I have read.

In these days of seemingly endless negativity, the first speech in his book addresses the incredible accomplishments of Congress over the decades….ending slavery, building railroads, ending child labor, creation of Social Security, the Voting Rights Act. McCullough adds perspective.

“We need to know more about Congress. We need to know about Congress because we need to know more about leadership. About human nature. We may also pick up some ideas.”

McCullough also challenges us as a country in his speeches to face some of the many problems which exist. Inner cities, poverty, violent crime and others. He advocates the core of many of the solutions to these issues “should be history, for the specific and realistic reason that all problems have histories and the wisest route to a successful solution to nearly any problem begins with understanding its history. Indeed, almost any attempt to solve a problem without an understanding of its history is to court failure…”

He stresses learning, history and education. Not just when you are young. Throughout your entire life.

In a 2008 speech at Boston College titled “The Love of Learning,” he says: “information is useful. Information is often highly interesting. Information has value, sometimes great value. The right bits of information at the opportune moment can be worth a fortune. Information can save time and effort. Information can save your life. The value of information, facts, figures, and the like, depends on what we make of it – on judgement.

He later goes on to explain that information and learning are acquired from great books, understanding the proper perspective, ardor and “attended with diligence.” He tells a great example of learning by surprise, on pages 143-45, of how one person’s trip to Europe planted a seed which would change the US’ spread of slavery.

The book provides a context to some of our values as a financial advisory firm. We rely on learning, reading and good judgement. We are continual learners. We base many of our decisions and advice by understanding the history of financial markets, as history can be more valuable than predictions and guesses about the future.

I hope you take the time this 4th of July weekend to learn more about our country’s history. Be positive and read this outstanding book. Buy a copy for a friend, child or grandchild.  Read.  Value our history.

Does your financial advisor invest as they recommend?

Have you asked your financial advisor whether they invest in the same investments which they recommend to you?

You should ask this question.

Depending on your broker or financial advisor, you may be surprised by the answer.

If you are a client of our firm, the answer is a clear yes. The partners of the firm invest their assets in the same stock mutual funds as we recommend to you. And relatives of the partners are invested in the same manner as well.

If you are not a client of our firm, or have an account with a major brokerage firm or bank, the answer from those brokers and advisors will likely be very different. If your advisor is investing differently than their recommendations, that should concern you. It should lead to more questions. Maybe that should lead to a conversation with us.

We feel this is a really important distinction. Our investments and interests are aligned to be identical to yours. We have the same skin in the game as you do. If you are making money, we are making money. If your accounts are going down, our accounts are going down.

I learned many years ago, prior to forming our investment advisory firm, that this was not always the case. In various conversations, I realized that brokers were making recommendations but not investing their own money consistent with their client recommendations. I asked this question. When meeting with brokers who managed my prior firm’s profit sharing plan, I was very surprised to learn that the brokers, who were close in age to myself, did not themselves own the investments they were recommending to our firm. This made no sense to me. This was a defining lesson for me.

I was reminded of this inconsistency while listening to a podcast** which featured a colleague of mine whose firm also works with our back office firm, BAM Advisor Services. Tim Delaney explained that prior to starting his financial advisory firm, he and his father had both experienced situations where they made investments in real estate and other deals, which turned out to be big losers. Tim later found out that the advisors who made the recommendations had not invested their money into these same investments.

These other brokers were selling investments and selling products. They were not following their own advice. We do not sell. We provide advice and recommendations, which we follow ourselves.

Investing our money alongside our clients is one of the guiding principles we have had since the inception of our firm. The exact allocation of the mutual funds I own may be different than yours, based on each person’s specific situation. But if you own a US small value fund we recommended, I own the same one. If you own an International Large Value fund, I own the same one. You get the picture. The same goes for Keith, my partner, as well as each of our parents.

This is another reason that you should be confident and comfortable with our firm and our principles. Your financial future is based on our recommendations and financial advice.

Our financial future is dependent on the same investments.

Shouldn’t it be this way?


**Financial Advisor Success Podcast, by Michael Kitces. Number 25, with Tim Delaney. These podcasts are primarily for financial advisors. This podcast provides a background similar to our firm, as it discusses how Tim transitioned from a full-time CPA to a financial advisor and his relationship with our mutual back office firm, BAM Advisor Services. Tim and I have been in a peer learning group for over 10 years and we talk on a regular basis.



We Bring Good Things to Life

Three years ago, on June 10, 2014, the DJIA (Dow Jones Industrial Average) closed at an all time high, of 16,946

Fast forward to today….3 years later….and the DJIA is even higher, near another new all time high of over 21,300. 

In 2014, would you have expected the DJIA, an index of 30 large US stocks, to be 25% higher three years later, in 2017? 

  • This is why we stress discipline, patience and focusing on the long-term. This is why we try to take the emotion out of the investment process.

On June 12, 2014, I wrote the following blog post: What should you do now, with the stock market near an all time high?  Please take two minutes and read this. I think you will find the perspective startling….and very useful.

At the time, I had just begun a commitment to write blog posts every week (see more on that commitment in this recent blog post).

This is an excerpt of what I wrote three years ago

“What matters most and what you should focus on is developing a proper, globally diversified long term investment plan, so you and your family can benefit from the world’s stock markets over the next 5, 10, 20 or more years… If you are not invested in the stock market right now, yes, we would invest in a globally diversified portfolio for the future. If you are invested now, we would review your portfolio to see if it is globally diversified.” ~ from blog post dated June 12, 2014

A very different story

We do not recommend investing in specific companies, as you will learn why. 

“You should not be thinking about what the economy or specific companies are doing right now. You should not be concerned with how Apple, Ford or IBM will do this week or next year. You cannot control or accurately predict any of this.” ~ from blog post dated June 12, 2014

GE, once a highly regarded company, has been by far the worst performing company in the DJIA since 2001. From a WSJ article** on GE’s stock performance since September 2001, let’s review some data:

  • The DJIA is up 121% from September 2001 to now.
  • From September 7, 2001, when the current CEO took office, to 2017, GE shares are down about 30%.
  • Pfizer, down 11% in the same time span, is the only other current company in the DJIA that was down over these 16 years.
  • At one point during the financial crisis, GE’s stock was down 80% from September 7, 2001.
  • A few companies which have been removed from the DJIA during this period have performed even worse than GE:
    • Citigroup down 84%, was removed from the DJIA in 2009.
    • Alcoa down 58%, was removed from the DJIA in 2013.
    • General Motors and Eastman Kodak both declared bankruptcy.

What is the point? For many years, GE’s tagline was “we bring good things to life.” That may have been true…. for their products. However, they have not brought good financial benefits to their shareholders over the past 16 years.

This is the risk of investing the majority of your money into individual stocks, certain industries or regions of the world. You cannot predict the future.

I doubt anyone would have predicted in 2000-2001 that GE, Pfizer, Citigroup or GM would be among the worst US large company stocks to own over the next 16 years.

How can you know what will be the best or worst performing stocks for the next 16 years? 

This is why we strongly recommend investing in broad asset class mutual funds, on a global basis. By investing in asset class mutual funds, you benefit from the long-term growth of companies and the world’s stock markets, while minimizing the potential impact of the underperformance due to a handful of individual stocks to your portfolio.

Which do you think…. will bring good things to your life?

A. Picking GE, holding it, and taking the chance to vastly underperform the US and global stock markets.

B. Owning a portfolio of high-cost, actively managed mutual funds, which the vast majority underperform their respective benchmarks over most time periods.

C. Owning a globally diversified portfolio of low-cost, asset class funds which benefit from the long-term growth in US and global stock markets, while minimizing risk through multiple forms of diversification.

We recommend C.

**Source:  WSJ, “Under Imelt, GE Was the Worst Performer in the Dow, ” June 12, 2017

The Benefits of Disciplined Rebalancing

A quick philosophy recap:

  • We believe in broad, global diversification. This means owning stocks in the US as well as a significant allocation to international stocks (companies based outside the US). See more on the Benefits of Global Diversification in this blog post from April, 2017.
  • We believe in having an Investment Policy Statement, or a plan for how much you should own of each asset class and how much of your assets should be in fixed income v. stocks. These decisions are based on your specific situation, age, goals and risk tolerance.
  • We believe in rebalancing your accounts throughout the year, based on what is happening in the financial world, not just at year end.
  • We believe in being patient and disciplined.

Why does this matter, today in 2017?

So far in 2017, International stocks and Emerging Markets (smaller international countries) are far out-performing US stocks. For the past few years, non-US stocks had underperformed US stocks.

  • By being patient and disciplined, we maintained the exposure of our clients’ accounts to global investments, not just US stocks. Our clients are benefiting this year for being patient and disciplined. True global diversification works over time.
    • This practice of rebalancing enables an investor to accomplish the goal of buying low and selling high.
  • The year to year changes in the markets are often unexpected. 
    • By the end of 2016, the US small value asset class was the top performer for 2016.
    • For 2016, larger International asset classes underperformed other asset classes.
    • As we rebalanced accounts late in 2016 and early 2017, we would have generally reduced the allocation (or taken some profits) from the US small value asset class and increased the allocation of the International asset class, toward their target allocations.
    • Fast forward to early June, 2017. International and Emerging Markets are top performers and US small value asset class is lagging.  Rebalancing works. But you need to be disciplined and adhere to it.
    • Conventional wisdom is not positive about Europe. Most people feel the US economy is stronger than most overseas economies.
      • However, perceptions and actual stock market returns are often two very different things. International markets are outperforming US stock indexes in 2017.
      • This is why we do not rely on predictions, forecasts or concerns. The financial markets are efficient and act in ways that few can accurately predict over long periods of time.

Our conclusion

You want to have a successful financial experience.

You want a sense of greater financial security and don’t want to worry.

You want to be confident about your financial future and that you will not run out of money.

You want to sleep well at night (at least not be up at night with financial concerns).

By adopting the investment philosophy and principles we have utilized, you should be able to have the financial security you desire and sleep well at night.

Because of the strategies we have adopted for the advice we provide to our clients, we also sleep well at night. And that should be re-assuring to you as well.


Keeping my major commitment (business and personal)

In June, 2014, I made a decision.

I decided three years ago that I would write a weekly blog post that we would email to our clients and others.

Not every once in a while. Not when I felt like it.

I committed to write and publish EVERY WEEK.

I have been disciplined. I have made the time to write. I have written an article almost every week for three years.

Prior to this, I had written over 145 blog posts between 2009 and April, 2014, but only on a sporadic basis.

Why do I feel this is one of the most important things I do as a financial advisor?

By writing weekly, we are able to communicate in a very timely and regular manner to our clients. We are able to convey and reinforce our investment philosophy, principles and beliefs in real time.

Reading these blog posts regularly, you should have greater clarity about your investments. You should have more confidence in our philosophy, especially when the financial markets are challenging. Hopefully, you better understand the benefits of being rationally optimistic, focusing on the long-term and on what you can control, rather than on the day-to-day news and market volatility.

I am convinced that we are better financial advisors because I am writing these weekly blog posts. We are passionate about being excellent advisors. Writing makes me think. We are more aware of the questions and issues our clients raise, as these are likely future blog topics. We are more curious. We research topics to provide information which will be useful to you. I am a continual learner and voracious reader. My reading often turns into content to share with you.

Writing these blog posts every week takes time and discipline. Writing and self-editing generally takes a few hours each week. Additionally, others in the firm edit, review and put them into final form to email to you and add them to the firm’s website.

We think these weekly blog posts are valuable. We hope you find them informative and help you to be more educated about your investments and the constantly changing financial world.

Do I plan to continue writing these blog posts every week in the future?

Absolutely yes! Even though they are sometimes written in the evenings, on planes or in hotel rooms, I feel these emails have become a vital aspect of what WWM uniquely provides to our clients. While these blog posts do not replace personal meetings and phone calls, they are a way to regularly communicate with you.

We are providing clarity, advice and information on a weekly basis. These are not canned pieces written by analysts in New York who do not know you. When a major stock market event occurs or a tax law is proposed, I expect to write about it within days and hope that you appreciate receiving our thoughts in a very timely manner.

What is a major lesson I have learned by writing on a weekly basis?

A number of years ago, I participated in the Strategic Coach program for entrepreneurs, founded by Dan Sullivan. He introduced a concept called the 4C’s: commitment, courage, capability and confidence.

When I committed to writing every week, it took courage.  I didn’t know if I would be able to do this.  I didn’t know if I would have the discipline or ability.  I enjoyed writing earlier in my life as a high school newspaper editor.  The weekly commitment gave me structure, which led to developing greater capability.  The more blog posts I completed, the greater my confidence has grown.

Dan Sullivan’s 4C’s is a great concept for achieving bigger goals, taking on new challenges or making a significant change in your life.  For me, this circle of the 4C’s has proven to be extremely effective and applicable.

This concept also applies to each you, our clients. At one time each of you made the decision to work with our firm as your financial advisor. This took courage and commitment. It was likely a significant change for you. As you become more comfortable with our capabilities, your confidence in our advice and philosophy will grow.

Thank you for reading!