Opinion

The Classic Bear Bottom

As I toasted a bagel in the kitchen at Fairway this morning, I heard a talking head on TV describe the Christmas Eve market drop as a “classic bear bottom”.  A couple of the show’s co-hosts nodded sagely in agreement, but one pressed him.  You recognized this as the bottom?  Seriously?  And of course he did.  Market breadth, IPOs, and the Federal Reserve all pointed to a “typical” bear bottom. Don’t Believe It The idea that you (or anyone else) can recognize turning points in the market is poison.  The conversation’s casual tone is noxious.  If this guy has figured out how to time the market, why is everyone yawning?  Financial professionals recognize this guy is just bullshitting for the cameras, but civilians might think he’s serious.  They might be tempted to ask their “money guy” why he doesn’t invest based on market breadth, IPOs, and Federal Reserve pauses.  The truth…


An Entire Sleeve of Oreos

As the first waves of taxes get prepared, many are finding that they are not getting as large a refund as they expected.  This is often due to reworked withholding tables as the IRS tried to make it so fewer taxpayers gave Uncle Sam an interest-free loan this year.  This is rational, logical, and surprisingly proactive.  People are losing their minds about it.  There are two main critiques: 1) an assumption that taxes went up 2) this messed up a savings vehicle.  My initial response was that the people complaining about this are unreasonable since most people’s taxes didn’t go up.  Then I remembered something very important. I Cannot Trust Myself I simply cannot trust myself to eat a responsible amount of Oreos in one sitting.  The serving size for Oreos is three cookies.  Three!!!  Double Stuf Oreos have a serving size of two freaking cookies.  This is completely insane. …


Tidbits and the Hardest Thing About Investing

2019 has been great for investors as the S&P 500 gained 8.86% so far (through 2/4/2019) in reaction to the release of my investment philosophy.  Ok, maybe there were other factors at play.  If you missed the posts, portfolios should be Risk-Aware, Focused, Elegant, and Realistic.  There were also some investing concepts that just didn’t fit in this framework, but deserve mention.  Each of these could be a post of their own, especially the hardest thing about investing. Time as a Factor Factor investing tries to identify characteristics of stocks that move up to gain an edge over market-cap based indexes.  Factor investing has gained traction over the past few years, beginning with dividend and low volatility funds.  Now most investment firms have agreed on four factors – value, size, dividends, volatility, quality, momentum, revenues, profitability, and liquidity.  Yes, that’s nine factors, but most product sellers use a maximum of…


Realistic

This is the fourth in a series of posts about my investing philosophy – Realistic.  Investors should be realistic about their expectations and the nature of the markets. No one can predict the future. After hearing 10 years of “The easy money has already been made”, it’s clear that most can’t even predict the present. It sure didn’t feel easy at the time. While no one knows the returns or risks in advance, investors with a reality-based approach to investing can craft a long-lived investment process. Realistic Market Expectations Expect markets to go up over the long term. This is not optimism or a leap of faith. It’s realism. Humans will continue to innovate and seek to put their capital to work. Not every asset class will go up at the same time forever, but that’s what diversification is for – to eliminate the need to predict what asset classes will go…


Elegant

This is the third in a series of posts about my investing philosophy – Elegant.  The investment process should be elegant, efficient, and low-friction. Before diving into what that means, Tadas at Abnormal Returns has collected posts that remember investing legend Jack Bogle, founder of Vanguard, who recently passed away.  If you’ve invested money in the last 40 years, you have more money in your pocket than past investors because of Jack Bogle.  Skim the headlines and pick a couple to read.  It will be worth the time. Elegant If you were to build your portfolio from scratch today, would it look like what you own right now? Are the investments in your portfolio pieces of a larger financial plan or accumulated trinkets of an investment collection? When tempted to overthink a portfolio, I remember an urban legend from the space race. While NASA spent $1 million developing zero-g pen. the Soviets…


Focused

This is the second in a series of posts about my investing philosophy – Focused.  It can be difficult to keep an eye to the big picture without getting distracted by all the different ways to invest.  Focus is about maintaining perspective, understanding why we invest and measuring the success of those investments. Think Left of the Decimal Spend more time/energy on the things that have a true impact and less time/energy on low-impact items. It’s worthwhile to examine whether your portfolio should have a 60% or 70% allocation to Equities, but if you’re torn over adding a 0.5% exposure to a single country ETF, you’re overthinking things. This goes for all things investing. Get the big things right. Avoid errors caused by forgetting what you are really trying to do. You don’t have to be a great investor, just don’t be a bad one. Marginal Utility Understand when you’ve won the…


Dry Powder

I’ve got some dry powder set aside for a situation just like December.  During a bear market (when the market drops 20%), the plan is to deploy half of it into equities.  The S&P 500 fell 19.4% from September through Christmas Eve.  It was chaos on CNBC.  This was the big one…  And I turned up my nose because it was half a percent short of a formal bear market.  I was not ready to buy until that last 0.6% bled away.  It didn’t hit the magical 20% number.  Since this bear kiss, the S&P 500 is up 9.6%.  Oops. Eddy Elfenbein of Crossing Wall Street (great follow on Twitter) has a quick hit this morning “What if the Bear Market is Already Over?” that is a great reminder that the market doesn’t care about our arbitrary mindsets.  Usually, I think about this in relation to the calendar.  The market…


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. …


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…