Investing

The Bull and the Swan

Preparing for the swan, it’s possible to miss out on the bull.  In my monthly commentary for Fairway, I asked “What does a 20% gain feel like?”  Spoiler alert: it feels like right now.  The S&P 500 is up about 20% since the bottom in February.  However, no sales people were calling my office 6 months ago to pitch me on how to make the most of the next 20%+ market move to the upside.  Pitches were framed entirely around disaster scenarios or worse… a sideways market (heaven forbid investing turn boring).  The financial product industry has spent the last 7 years pitching products to survive the next Black Swan event (or more accurately, to beat the previous Black Swan), but what happens when the next Black Swan turns out to be a Bull? What is a Black Swan, anyway?  It’s an unexpected event as outlined in Nicholas Taleb’s book…


Fed Minutes

On Wednesday, the Federal Reserve released the minutes from its latest meeting.  The minutes of these meetings are basically a form letter now with the Fed relaying its thoughts on the economy and rates via tweaks in the vocabulary used.  Changing “modestly strong” to “strong” can move markets.  There is a cottage industry of folks who live to parse the Fed minutes.  There are hedge funds using computer algorithms to receive, read, and trade on the Fed minutes faster than it takes you to hit reload on the Federal Reserve’s website.  They are obviously a big deal. Here’s what the Fed minutes mean to you: Nothing. Should you be scrambling to reposition your portfolio ahead of the next Fed meeting?  No.  Should you be scrambling to reposition your portfolio in reaction to a Fed meeting?  No. The great Federal Reserve word hunt is the latest in a long line of…


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…


Where’s Your Parade?

Cleveland toasts the NBA champion Cavaliers today.  The victory parade marks the end of a grueling season filled with ups and downs.  There were challenges on and off the court.  Some were very real (making a coaching change partway through the season).  Some were manufactured (the drama around Kevin Love from selfies to Banana Republic modeling).  In the end, the team came together and won the whole damn thing, ending Cleveland’s championship drought.  We face similar challenges as investors.  We won’t win every game (and sometimes the folks with the “best” records come up short when it counts).  We will run into challenges real and imagined.  There will be 20%+ drawdowns in the stock market.  The media will do its best to worry us, giving low probability hypothetical disasters unwarranted exposure.  At the end of your investing journey, where’s your parade?  It ain’t coming. There’s no parade.  There’s no medal.  You don’t…


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…


This market has taken wing.

Happy Anniversary

  Yesterday marked the anniversary of the market’s lowest point during the financial crisis, the birth of our current bull market.  A quick recap:   From its previous peak on 10/10/2007, the S&P 500 dropped 55% through 3/9/2009. From 3/9/2009, the S&P 500 gained 237% (almost 19% annualized), including dividends through 3/9/2016.   Today, there are plenty of people on TV who “called” the peak before the financial crisis.  They never tire of patting themselves on the back, saying it was clear to them that there was a bubble and obvious that we were on a road to ruin. This is bullshit, of course. The wizards on TV who “warned you all” are largely perma-bears who predict a new stock market crash every year, a case of a stopped clock being right twice every day.  Some of them pull out data like the CAPE ratio, saying it showed an extremely…


The regal ostrich, un-sexy majesty

Serious Investors Value the Un-Sexy

Most of us think that we are above average drivers.  Likewise, I have never heard anyone say they are bad at investing.  After experiencing negative returns, the market is to blame or maybe the President of the United States is to at fault if they belong to the “wrong” political party.  After positive returns, I only hear about how great the person is at picking stocks.  Here’s the thing: most people don’t actually know how their investments are performing. I have yet to see a brokerage statement that showed meaningful information.  The typical statement has something like this on one of the first pages: Month starting balance Income Withdrawals/Contributions Value change Month ending Balance The following pages don’t give much more information – usually a list of positions and transactions – so you can see if you had more or less than you started with last month, but how does that compare to…


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…


No Picture

It’s Forecasting Season

  From the Fairway Wealth Management Blog: As the leaves fall from the trees and the temperature starts to drop here in Cleveland, I am reminded that forecasting season is right around the corner. The same people who predicted $200+ oil, hyper-inflation, and multiple Federal Reserve rate hikes for 2015 will be begging for you to believe that they know what is in store for 2016. They do not. Beware predictions of what the market will do, particularly if they are precise. It may be an interesting game to play for fun, but anyone making a prediction on the S&P 500 out to two decimal places is a charlatan. Predicting the markets is like predicting the weather except that meteorologists realize that predicting the exact weather conditions twelve months in advance is lunacy. The financial entertainment industry is not as self-aware. On December 31st, 2016, what will Cleveland’s exact temperature…