Why can’t I watch CBS on my TV?

Blog post #404

Starting this past Saturday, my home TVs show the following message when my wife or I try to watch CBS:

Due to a fee dispute between CBS and ATT, CBS decided Friday night to discontinue providing their content to ATT’s TV services. We get our television service from ATT’s satellite service, DirecTV.

This is certainly not the most important or pressing issue to me right now, but my curiosity drove me to research the issue. There are a number of interesting points and lessons to be learned, as I delved into this matter.

The major dispute is how much ATT should pay CBS each month, per subscriber, for their content. Currently, and since 2012, CBS receives $2 per subscriber, per month from ATT. CBS wants to increase the fee from $2 to $3 per subscriber, per month.***

As the two sides could not reach an agreement, CBS took the action of withdrawing their television feed to ATT’s 6.5 million customers in many large metropolitan cities, including metro Detroit, LA, NY and San Francisco who have U-Verse landline cable TV or DirecTV.

I reviewed my cable bill. We pay over $100 per month for cable TV, without any extra premium channels. And then ATT/DirecTV charges another $7 per month for each TV that is used. That is all pure profit, after the minor cost of the cable box.

The lesson from my shockingly large cable bill is that these two companies should be doing everything they can to keep me happy, not upset me…. and potentially cause me to consider doing what my kids and so many others are doing, which is to cut the cable cord and get the TV channels/networks we want in another, cheaper manner.

Then I read this week that ATT lost almost 1 million pay TV customers in the last 3 months alone.**** That is a lot of customers and a lot of money. This industry is undergoing major change, and has been for years. I’m not sure these companies are effectively dealing with the rapidly changing environment they face.

So what are the financial lessons from this?

Change. Business and technological evolution have caused incredible change in certain industries, which are difficult to predict and anticipate.

If you go back 10 or 15 years, would you have thought that TV and cell/telephone phone providers would be profitable and great stocks to own? Likely most of us would have said yes.

You would have thought 10-15 years ago that everyone would have both a home phone and a cell phone, so the revenues and profits would be terrific going forward. Cell phone services were growing rapidly. The iPhone had just been introduced.

Except something which was NOT anticipated 15 or 20 years ago happened…..most of us stopped having home phones, or highly profitable landlines. This has had a major impact on the stocks of the companies in this industry.

A decade or two ago, who could have envisioned that millions of people would be watching TV without cable service? On their phones and other small devices? Netflix was something that existed as a mail order or drop off service. Dial up Internet was slow. You couldn’t download a movie or TV show via the Internet, at least not very quickly. Of course, all this has changed quite dramatically.

Let’s look at a few stocks in these related industries and see how they have performed over the long term, as compared to other large US stocks (as measured by the S&P 500 Index).

These are the average annual returns over the past 5, 10 and 15 years:*

5 Years
10 Years
15 Years
S&P 500**

What you see is that over the past 5, 10 and 15 years, all of these companies have vastly underperformed over every time period, other than CBS over the 10 year period. ATT, which is in the phone and cable/internet business (and just recently became a content provider as well); CBS, which is a content provider; Verizon, which is a phone and cable/internet provider; and Dish, which is a satellite TV provider, all have been lackluster performers compared to other large US-based companies.

Our firm’s objective is to provide advice to you to help you reach your financial goals, through understanding your goals, assets, income, time frame and level of risk that you can handle. Then we develop a financial portfolio and make investment recommendations for you.

What we don’t do is try to pick individual stock winners, and the stocks above are an excellent example of why we do not try to play the stock picking game. It is very hard. As we discussed last week, What does our crystal ball show?, we cannot accurately and consistently predict the future….and neither can anyone else.

Instead of the companies above, let’s say you had purchased Comcast stock many years ago. How would that have worked out? As you can see below, Comcast has outperformed the benchmark over each time period and far outperformed the other companies discussed.*

5 Years
10 Years
15 Years
S&P 500**

How could someone have known 15 years ago that Comcast stock would do so much better than ATT, CBS, Verizon or Dish?

Going forward, do you know whether Comcast will continue to be the best or most successful stock of these companies? As we have all heard and read….past performance is no guarantee of future results.

This is why we focus on structuring your portfolio based on what financial and academic data indicates will provide you with the best expected future returns over the long term, not based on what we or other financial analysts think may do best in the future.

  • We cannot know which asset class, industry or geographic region will do best in the future, so we recommend having exposure to all of them by being broadly globally diversified.
  • We don’t think the US will always outperform other countries in the world. Historically, the US has had years of outperforming other countries, and then there are other periods where investing Internationally has outperformed US based portfolios. Thus, we invest globally, to have exposure to both.
  • Over the very long term, we know that value stocks have outperformed growth company stocks. Similarly, we know that over the very long term, small company stocks have outperformed large company stocks.
  • However, we know that during some periods (which can be for many years) these “premiums” do not appear, and growth stocks outperform value stocks, and large stocks outperform small company stocks.
  • During these time periods, like in down markets, is when investors are tested and challenged to remain disciplined and adhere to the Investment Policy and portfolio allocation that is designed for many years, not just 6 months or 1-3 years.

Our goal is to provide you with excellent financial guidance. We want to be available and for you to talk with us when you have financial questions or issues in your life. We want to help you, and members of your family, including future generations, plan and make good financial decisions.

We want to structure financial portfolios that you are comfortable with and which provide good financial returns over the long term, so that you can stick with them through volatility and change.

We know change will happen. We want to help you deal effectively with future changes, with the markets, economic swings, tax matters, as well as technology.

What we don’t plan to do is cut off your service. We will not be your CBS, and pull the plug over $1 per month. In fact, our office did not have electricity for a few days this week, due to storms that hit the Detroit area over the weekend. With planning, technology and providers we work with, we were fully functional working remotely from our houses. And I was not distracted by any CBS televisions shows!


Morningstar.com as of 7/24/19

**S&P 500 Index represented by Vanguard 500 Index fund, VFINX, per Morningstar as of 7/24/19. Does include deduction of the mutual fund management fee. Does not include deduction of any advisory fees.

***“CBS is Blacked Out for 6.5 Million AT&T Customers. Here’s Why” NY Times by Edmund Lee, 07/20/2019

****“Cord-Cutting Hits AT&T Again While Wireless, Media” WSJ by Drew Fitzgerald, 07/24/2019

Note: As the portfolios that we recommend are broadly diversified, the stocks discussed above may be held in one or more of the mutual funds that we may recommend.

What does our crystal ball show?

Blog post #403

This is a question that clients and prospects frequently ask.

They want our opinions, predictions and insights about the future.

They want to know what we think will happen to the stock market in the next few months or the next year.

They want to know what the financial implication will be of various political and economic matters, such as the trade war issue or what will happen if so and so is elected or not elected.

These are all valid questions.

However, our crystal ball is almost always cloudy and murky.

The reality is that like everyone else, we cannot accurately predict the future.

Unlike some other forecasters and market analysts, we accept the reality that we cannot accurately predict the future. Even though other investment professionals may do lots of research and analysis, they still cannot reliably predict the future.

What does this mean for you, as clients and prospects?

We want you to ask whatever questions that you may have. Even if we cannot predict the future….about the stock market, specific companies, interest rates or future political events, we try to provide insights or perspectives that may be helpful to you.

In other words, we want to understand the background or concerns that your questions may represent and address those issues with you. If you have concerns about the future, we should talk about it. Even without a clear crystal ball, these can be valuable and worthwhile conversations.

Accepting that we cannot predict the future is an important element of the investment philosophy that we adhere to.

This concept may be new for people who have not worked with us.  This may go against what people traditionally thought about their financial advisors and money managers. Ideally, you want to meet with an advisor who has all the answers and will be able to tell you when the markets will be going down, when they will rebound, which stocks will do best and which areas to avoid.

That sounds great, except that we should all realize that no one can accurately and consistently predict the future. Yes, there have been a few very successful money managers who have beaten the market over the long term, but they are hard to identify in advance.

If you think another investment manager/advisor/broker can predict the future, or do detailed analytical work and research to try to accurately predict which company stocks will do better than others over the long term, that is called “active management.” Active management generally costs more, but over the long term, active managers’ performance in all (or nearly all) asset classes have been below their respective benchmarks.

We believe it does not make sense to pay higher costs for investment managers to try to beat a benchmark, based on trying to predict the future, when tons of academic and financial data shows that most of these efforts are not successful. Why pay more and generally get less?

If the Federal Reserve members cannot consistently and accurately predict the future of interest rates, even 3-6 months in the future, let alone 1-2 years into the future, how do you expect an active bond manager to consistently be able to predict the future of interest rates?

It may sound contradictory, but accepting that we cannot predict the future can be a source of comfort for you and enable you to have greater confidence in us, as your financial advisor.

  • We are up front with you and tell you that we are investing your money based on financial and academic data, not based on predictions of what may do best.
  • We are not continually calling our clients with our latest and greatest ideas, and not frequently changing our mutual funds because they are underperforming.

We want you to understand why we invest in the manner that we do.

We want you to understand your asset allocation and be comfortable with it.

We want you to be comfortable with the amount of risk that you are taking.

We want you to know that we will answer your questions as clearly as we can, in English, not in technical jargon.

We want you to know that we will adjust your portfolio and your asset allocation for reasons generally specific to you, not based on what we think may occur in some region, company or election. Changes to your portfolio are generally based on changes in your personal financial situation, your age, your health and your need and willingness to take risk, with a focus on reaching and maintaining your financial goals and and desired lifestyle.

We want you to know that we will provide you with analysis and insights about the financial markets, tax and estate law changes, but we will not make investment decisions based on what we think may happen in the the future.

Our investment philosophy and strategy is logical and rationale. It can be successful for the long term. It can provide you with financial comfort and security.

We can provide you with advice, guidance, excellent personalized service and clarity.

However, we cannot provide you with a clear crystal ball.

If this makes sense to you, we would be pleased to talk with you.

If you are a client and you have friends or family who could benefit from our approach, we would be pleased to talk with them.


Blog post #402

How much is enough?

How much money do you need, to have “enough”?

How much money do you need to support your standard of living?

How much money do you need to maintain your lifestyle, shop, travel, enjoy yourself, pay for medical expenses, support charitable causes you value….as well as provide financial support to children, grandchildren or relatives?

These answers are obviously very personal and will be different for each of us. One of the roles that we play as financial advisors is to help you, if you need it, to quantify how much money you will need in the future, to support the lifestyle that you desire.

In developing your investment plan, how you define “enough” is vital, as it defines your need to take risk. The more wants and needs that you desire, the larger the portfolio you will need to support your lifestyle. The more financial assets that you need, the more financial risk that you may need to take, and for how long, depending on what assets you already have and your ability to save.

If you already have adequate resources to support your lifestyle, then you would have less need to take financial risks. We would work with you to focus on maintaining your assets, taking intelligent steps to reduce your risks, such as being broadly diversified and determine an appropriate exposure to stocks. If you have already “won” the financial game, meaning you have adequate assets to meet all of your needs, your plan and strategy should be developed so that you don’t permanently lose a significant portion of your financial assets.

If you already have significant assets, then you should consider whether your portfolio has excess risk. Is the risk you are taking to reap potential stock market gains worth it, versus the potential negative outcome of financial losses?

A few things to consider. As your wealth and portfolio grow, some people convert what were once desires into needs or wants. Desires become expectations and reality. A vacation or trip that once seemed unattainable becomes an annual part of your life. You go from one home to wanting a vacation home. The nice car becomes a luxury car. These are all choices each of us make. Myself included.

These changes, which can occur gradually over time, can increase the need to take risk (and to save more), to cover the additional expenses as your lifestyle changes. If you need to take on more risk, you would need to increase your equity allocation. And that can lead to problems when risks appear, such as in 2000-2002 and 2007-08, and other time periods. While these losses were not permanent, they can be emotionally difficult without proper guidance, planning and your emotional ability to handle the risks and market volatility.

We advise clients when developing their investment plan and asset allocation. It is generally important to have some exposure to stocks, so your portfolio has some opportunity for growth which exceeds the rate of inflation, so you don’t lose your spending power over the long-term. But this may mean that if you have adequate (enough) resources for your needs, you likely don’t need to have more than 50% (and maybe even less than that) invested in stocks.

Some risks are worth taking. Sometimes you need to take long-term, rational financial risks, especially if you need to accumulate and grow your financial resources over a long time period.

However, some risks are not worth taking, or risks should be reduced. Prudent investors should not take on more risk than they have the ability, willingness or need to take.

The important question to ask yourself, and discuss with your financial advisor, is where are you in this financial game? What inning are you in? Are you winning, losing or still have a long way to play? How much risk do you really need to take?

If you have already won the financial game, are you only taking the financial risks which need to be taken, and not excess risk?

We would be pleased to discuss this important topic with you, or with others close to you, who could benefit from such a discussion or portfolio review. 

Talk with us.

This blog post was inspired by “Enough,” an essay in Appendix E of the book Reducing the Risks of Black Swans, by Larry Swedroe and Kevin Grogan, 2018 Edition.

Freedom and opportunity

Blog post #401

As we celebrate the long 4th of July weekend, we should be thankful for the freedom and opportunities which we have in our country.

We should be proud about many aspects of the US and our history.  However, like most other countries, companies, institutions and individuals, our country has room for improvement. We can all strive to be better.

We should be grateful for the incredible innovations and thoughtfulness that the our country has as core, guiding principles based in the Constitution and Bill of Rights.

We should celebrate capitalism and the opportunity that it has provided to so many of us.

We should celebrate innovators, as well as the people who protect and serve our nation, both past and present.

We should celebrate the freedom of the many choices that we have, including the freedom to get an education, choose a career (or a few of them), earn, save, spend, take risks and invest money freely, without the government controlling all of our actions.

We hope that you celebrate and reflect upon the vast freedoms, choices and opportunities which our country enables us to have.

If you are sometimes overwhelmed by all these financial choices, you know that you can rely upon our firm to help guide and advise you in making sound financial decisions.

We hope you enjoy the 4th of July holiday weekend with your family and friends!