Due Diligence

He Called It

He called 5 market crashes and now has three more dates for you to worry about.  Technical analyst Sandy Jadeja is predicting financial devastation on three dates.  Well, now that I read the article, he doesn’t really say that at all, only that there will be sharp market movements in the future.  He names three dates, but doesn’t really attach any importance to them, only saying to “watch” them.  I hope this sounds fishy to you because this sounds shady as hell to me.  So I did some digging. Who is this guy?  Google Sandy Jadeja and you don’t really find much other than the recent Business Insider articles written about him.  I couldn’t find any education credentials, but I found a video of him speaking with a British accent so he’s probably really smart.  They don’t hand out those accents to just anyone. How does he make these predictions?…


The Tyranny of the Calendar

We are all beholden to the tyranny of the calendar.  Monthly or quarterly account statements tie a nice bow on a period of time, but can lend false significance to a time period’s returns. If you’ve got a brokerage account or 401(k), you probably got a statement ending on 6/30/2016.  As of the quarter end, the S&P 500 was up 3.99% over the past 12 months and 12.09% annualized over the past 5 years (77.02% cumulative). What if we look at the same performance, but ending a month later on 7/31/2016?  As of the end of July, the S&P 500 was up 5.61% over the previous 12 months and 13.37% over the past 5 years (87.36% cumulative).  What a difference a month can make! If statements were cut on 8/5/2016 we’d see an even bigger leap.  As of Friday, the S&P 500 was up 6.29% over the last 12 months and 15.18% over the past 5 years…


Six Degrees

There’s a theory/urban legend that everyone is just six degrees of separation from knowing every other person on the planet.  I prefer the Six Degrees of Kevin Bacon theory that every actor is six degrees (or less) removed from working with Kevin Bacon.  For example, Sean Connery is two degrees from Kevin Bacon.  Connery was in The Untouchables with Robert DeNiro who was in Sleepers with Kevin Bacon. We can play the same game of telephone with investment ideas, but this can play out like making a copy of a copy. Theranos, the Silicon Valley startup that set out to disrupt blood-testing, became a media darling under the assumption that everyone else had done the due diligence.  The company got its start by raising money from the CEO’s daddy’s friends.  Further fundraising rounds were based on the assumption that the investors in the previous round did their due diligence.  The media…


Red Flag - peer to peer lending

Peer to Peer Lending

Fear is an investor’s constant companion.  We are supposed to be greedy when others are fearful and fearful when others are greedy.  However, fear seems to loom largest when the markets are down and fades away when markets are up.  Pain of past losses gives birth to new fears that what happened in the past will happen again.  While fear was helpful to our ancient ancestors, it is less helpful in investing. One of the most insidious fears is fear of missing out – sometimes abbreviated as FOMO.  Fear of missing out is why everybody and their brother threw money at any stock with ‘.com’ in their name in 2000.  Fear of missing out is why your brother-in-law suddenly got into the house-flipping game in 2007.  Fear of missing out tells us that this is a once in a lifetime opportunity and if we get in on the ground floor, we…


Carnival Barker

Carnival Barkers

“Step right up, folks!  Hurry!  Hurry!  Hurry!  You are mere moments away from learning a secret so massive, it could undermine our very way of life!  Please move in closer so everyone can hear!  Tell your family!  Tell your neighbor!  Act now and I’ll throw in a free American flag, but supplies are limited!” We recently had a client ask us about a radio commercial he heard on the local AM station.  The commercial is deliberately vague, saying some guy predicted a bunch of stuff that came true in the past and now he’s predicting something really scary so check out his website.  The website launches a video that plays automatically and when you try to leave, you get a pop up that directs you to a transcript of the video. The transcript that I looked at was over 12,000 words long and required over 50 pages to fit in…


January Effect

By now, you’ve heard that the US stock market is off to the worst start to a calendar year ever.  This is the sort of news that is trumpeted far and wide as humans are wired to value and pass along bad news (and to elevate the status of those who sound the alarm).  This undoubtedly helped our ancestors warn each other about saber-toothed tigers, but can trip us up as investors today, leaving us easy prey for today’s investment product-selling predators.  I even heard a local economics professor talking about the ‘January Effect’ on the radio this morning.  The ‘January Effect’ is the superstition that as January goes, so goes the rest of the year.  So if the month of January is positive, then so will the rest of the year.  If the month of January is down, the rest of the year will be negative, too.  It’s so easy…


Goofy, Esoteric Securities are a Red Flag

Financial entertainment got a holiday gift with the fiasco surrounding the Third Avenue Focused Credit Fund.  The fund halted withdrawals amid investor outflows which was “shocking” according to Barron’s.  The sharks are circling as the media has had easy filler content – “Worried About Your High-Yield Bond Fund?” and so on.  The thing is, the Third Avenue Focused Credit Fund was not a high yield bond fund and even cursory due diligence would have revealed this.  That anyone was caught off-guard by this development should be the real story here. I still have my notes from my due diligence on the fund in January of 2013.  The number one thing that stands out is that it is/was a DISTRESSED CREDIT fund.  This means that it invested in illiquid and sometimes non-performing stuff.  I say stuff because they didn’t hold just bonds.  The fund also held equities and other securities from restructuring…


The Fear Trade

The fear trade is alive and well even in this incredible bull market.  Listen to AM radio for an hour and you will likely hear at least one commercial for gold or annuities. “Are you prepared to lose 20, 30, even 60% of your life’s savings in the next stock market crash?  It’s not a question of if it will happen, but WHEN it will happen!!!” “Tired of losing money in the stock market?” Humans are hardwired in such a way that pain registers more significantly than gain.  The predisposition to obey fear has been passed down through the generations in order to avoid and escape predators.  The caveman who investigated a rustling in the bushes ended up as a bear’s lunch.  The caveman who ran away lived to hunt another day.  Today’s environment is different.  The humans who give in to fear run straight into the jaws of the…