Main Street vs. Wall Street — Why Investing is NOT Speculating

I was talking with an experienced Advisor and he said that many of his clients are concerned that the financial system is rigged against them — constructed by policy makers, regulators, banks, rating agencies and Wall Street firms for their own benefit.
 
“Clients feel sometimes as if they are playing in a casino, where the house always wins,” the Advisor said. “How do I help them understand the difference between Wall Street and what I do?”
 
This question made me reflect on how poorly served we are by Wall Street as a whole, as well as the financial media. All the hype and noise and product pushing serve only to obscure some very simple and powerful truths. Continue reading

March Madness and Investing…How Good are Your Predictions?

Blog_March_MadnessThis blog was originally published in March 2015 and has been updated.
 
Each year around this time an estimated 50 million of us around the country carve out a few minutes of our day to complete a bracket trying to predict which one of the 64 NCAA Men’s College Basketball teams will win the tournament this year. Guessing which team will win can be a lot of fun, but it’s awfully hard to do!
 
With top seeded teams losing in droves, as seems to happen every year, it quickly becomes apparent just what a fool’s errand predicting can be. After Thursday’s 16 games (March 17), only 25,704 out of the 13 million brackets on ESPN.com were still intact, amounting to just 0.2% of entries. Continue reading

Optimism Bias Can Ruin Your Financial Life and Portfolio

Blog_Ben_SteinEconomist, actor and author Ben Stein provides a blueprint for many of the mistakes investors make in his book, “How to Really Ruin Your Financial Life and Portfolio.” Rather than dissuading investors from making these mistakes, he “encourages” investors to trade frequently, believe that we can successfully pick stocks, put our money into hedge funds, etc. “In your heart, as you very well know, you are legions ahead of those average investors, and even legions ahead of the indexes,” he says.1 Mr. Stein’s “encouragement” not only playfully mocks the logic underlying many of these tactics, but also reveals insight into investor behavior that will help guide conversations between advisors and clients. Continue reading

From Heroes to Zero

U.S. Equity Mutual Funds Maintaining Top Quartile Performance   Represented by managers with 12 month trailing outperformance to March of each year. Data source: Standard & Poor’s Does Past Performance Matter? The Persistence Scorecard, June 2014 and www.nytimes.com/2015/04/05/your-money/measure-for-measure-index-funds-rule.html

U.S. Equity Mutual Funds Maintaining Top Quartile Performance
Represented by managers with 12 month trailing outperformance to March of each year.
Data source: Standard & Poor’s Does Past Performance Matter? The Persistence Scorecard, June 2014 and http://www.nytimes.com/2015/04/05/your-money/measure-for-measure-index-funds-rule.html


“Past performance is no guarantee of future results.” If you’ve ever doubted that statement, just look at the picture.
 
You may already be familiar with the study done by the S&P Dow Jones Indices team, where they looked at the performance of the top 25% of U.S. stock mutual funds that had been around for at least 12 months as of March 2010. Continue reading

March Madness and Investing…How Good are Your Predictions?

blog_march_madnessSource: ESPN MediaZone. http://espnmediazone.com/us/press-releases/2015/03/barack-etology-president-obamas-mens-bracket-unveiled-espn-exclusive-wednesday/
 
Each year around this time an estimated 50 million of us around the country carve out a few minutes of our day to complete a bracket trying to predict which one of the 64 NCAA Men’s College Basketball teams will win the tournament this year. Guessing which team will win can be a lot of fun, but it’s awfully hard to do! Continue reading