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The Price of Admission

Everything is down this year except cash and municipal bonds. Headlines are dismal.  Volatility is rampant.  This isn’t some freak event.  It’s the price of admission. Taken as a whole, yes it is unusual to have almost every asset class down in a calendar year.  What’s not unusual is the negative movements themselves.  Stocks go down.  Bonds go down.  Commodities go down.  Real estate goes down.  They will also go back up.   While the S&P 500 only got a bear kiss (down 19%, not a full 20% bear), we’ll eventually see another full-on bear market.  The longer we go without one, though, the more hysterical the news will be.  Each year that passes without a bear market is a year that experienced, seasoned folks retire and bright-eyed neophytes file in.  We’ve had ten years of this.  If your financial advisor is younger than 32, they haven’t navigated a bear market. …

whose line

Scoring Points

In the short-term, the market is like Whose Line Is It Anyway, the show where everything’s made up and the points don’t matter.  Yes, the points don’t matter just like the nutrition facts on a Happy Meal.  If you’re looking for proof, check out October.  More than 80% of S&P 500 companies beat their earnings estimates, yet the index was down almost 7% for the month. Not only are earnings strong, but unemployment is incredibly low and the economy is doing much better than the experts told us was possible.   Just like the pictures of food on a Denny’s menu, that doesn’t matter.  Day-to-day, the markets are linked to the whims of an irrational crowd of humans.  There are already plenty of irrational reasons (ETFs, “trade wars”, and politics) for the October decline, but just like the Do Not Disturb sign on your hotel room door none of these really matter….


Investing in Relationships

Investors must believe that investments will continue to rise in value.  There is no guarantee this will be the case.  It’s a leap of faith.  There is a rational reason why stocks should go up in the future – the objective of a business is to make money and that should create value for shareholders.  However, in the short-term stock price is based on the irrational passions of the market.  We can even cherry-pick cases like Japan or time periods like March 2009 to show that sometimes even the long-term isn’t a sure bet for stocks.  Why would you bet your hard-earned money on something that’s not guaranteed to work? Why do we date?  Get married?  Have friends?  Adopt pets?  In the short-term, all of these relationships can cause us stress.  Try explaining how cheeseburgers work to an 8 year-old who wants a cheeseburger for dinner, but “without meat”.  These…

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Stop, Drop, and Roll

There are many milestones on the path to adulthood: turning 18, graduating from school, landing that first job, having a baby.  There are also less tangible markers of adulthood such as a shift in our perception of threats.  Saturday morning cartoons implied that quicksand would be a real and ever-present obstacle to daily life.  School assemblies left us wondering just how often we’d be catching fire.  Hollywood warned us about the Commie Reds invading our neighborhoods and training montages.  All of these threats were overblown.  Quicksand and catching on fire are extremely remote issues.  As we all know, Head of the Class planted the seeds of the Soviet Union’s destruction when they traveled to Moscow in 1988.  The USSR only lasted 6 months after the last episode of America’s favorite classroom comedy in 1991. Adult Problems Now that we’re older, we worry about adult things like jobs and babies.  One item…


I Blame SportsCenter

The market was down 3% yesterday although you’re more likely to see this as DOW PLUMMETS OVER 800 POINTS.  I don’t know why it’s down, but neither does anyone else.  No one knows what it will do from here, either.  However, I do know how things will play out on CNBC as every perma-bear in New York City is wetting their pants waiting for their booking agent to tell them what time to arrive on set.  I expect doom n’ gloomers making victory laps and appealing to our baser instincts. It’s All SportsCenter’s Fault The golden age of ESPN was wall to wall SportsCenter and actual sporting events.  Today it’s talk shows and even SportsCenter is less focused on actual sport and more story-driven.  Why?  Drama sells.  The WWE is basically soap operas for rednecks and you’re smarter than a redneck, right?  ESPN is the WWE of sports.  What’s really…

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Your Bad Taste in Music Isn’t Helping You Invest

Spotify’s algorithm recently uncovered a gem (to me, anyway) from my youth, adding Gilby Clarke’s “Cure Me Or Kill Me” to one of my playlists.  I admit that this is not a great song, but seeing as how our musical tastes are developed in our teenage years, this track scratches an itch for me.  It brings me back to laying in bed, headphones cranked too high, listening to 106.9’s Top Ten at Ten.  Tremor Christ, Volcano Girls, Counting Blue Cars, Loser, Andres – all on ROCK ONE OH SEVEN WRQK, CANTON’S ROCK STATION!!! Like our taste in music, our perspective on risk can be overly influenced by our early investing experiences.  Vanguard found that Millennials who started investing with them after the global financial crisis were more than twice as likely to hold zero-equity portfolios as those who started investing before.  They also found that older investors held more equities…

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Can’t Trust’em

It pays to be skeptical of financial product pitches.  Investments that are sold rather than bought are often inferior and loaded with fees.  Marketing (even for good funds) is filled with cherry-picked data, but that’s the job of the marketing folks – make the product look good.  However, sometimes a pitch comes across my desk that goes beyond marketing and makes me wonder whether the money manager is dishonest or just incompetent.  Either way, they get filed under ‘Can’t Trust’em’. The latest entry into my ‘Can’t Trust’em’ file is a manager that absolutely crushed the S&P 500 over the last 10 years.  They lost a ton less than the index during the crisis and were up over 60% in 2009.  Returns for other years were pretty middling, but they shined when it counted the most, right?  I looked around on their website a bit and found a document called ‘BACKTEST’. …

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Rising Rate Pitch

Rising interest rates have been a market bogeyman for almost a decade.  During that time we’ve gotten pitched all sorts of products that claimed to protect against this.  They never seemed to do well, mostly because rates never went up!  A couple of years ago that changed.  The Federal Reserve has finally moved toward rate normalization and we’re getting the rising rate pitch all over again. Rates are still very low Interest rates here in the United States are still very low.  Raising interest rates can be a bad thing, but I’m in favor of a modest campaign of slow rate hikes to get back to more normal levels.  That is what the Federal Reserve has been doing recently.  I like that the movements have been telegraphed well in advance and that the Fed is reducing its balance sheet.  When the next recession hits, the United States will be better…

Random Task

The Thing to Keep in Mind About Knife Fights

Years ago, I had the opportunity to attend some self-defense workshops put on by military and law enforcement.  One class that changed my outlook on life was a knife course.  We were going to learn how law enforcement treats knives and how to work with a knife ourselves.  “The thing to keep in mind about knife fights is that YOU ARE GOING TO GET CUT.”  Wait, what?  This guy was supposed to show us how not to get hurt!  It turns out that it is just incredibly difficult to wrestle around with someone that has a knife and avoid the blade.  You can train all the disarming techniques you want, but in real life blood is drawn almost 100% of the time.  I’ve found that this is a useful way to view conflict in general.  In any conflict, expect pushback whether it’s in sports, telling your 8 year old to…

Matt jr

Left of the Decimal

Dow Jones has removed General Electric from the Dow Jones Industrial Average (DJIA) and replaced it with Walgreens Boots Alliance.  GE was an original Dow stock and was part of the index for over 100 years.  The Dow is how your parents consume the stock market which is why newscasts tend to report that information in Dow points.  This is a huge deal, right?  Not from an investing standpoint. The DJIA is price-weighted, meaning that stocks with higher prices make up a larger portion of the index than stocks with a lower price.  This is different than an index like the S&P 500 which is market cap-weighted (the size of the actual company).  It’s interesting to note that GE is getting replaced by a company about half its size by market cap so it’s not like GE is getting the boot (pun intended) because of its size, it’s because the…