German Shepherd

Doc Brown, Plans, Getting Punched in the Mouth

No ‘How Bout That Market’ post this week because everybody was on vacation last week.  The most interesting thing that happened was something that didn’t happen – the Dow didn’t hit 20,000.  Here are a bunch of random thoughts to start the year off: Back to the Future I keep coming back to the movie Back to the Future.  The Cubs won the World Series (Back to the Future II was only off by a couple of years).  Japan is the largest foreign holder of US government debt, reminding me of when it was all but carved in stone that Japan would rule the world.  There was even a gag in the third movie where 1955 Doc Brown and 1985 Marty discuss Japanese quality.  What really pulls me back to this series, though, is Doc Brown’s demand of Marty to prove he’s from the future: “Tell me, future boy, who’s President of the…

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HBTM: 12-27-2016 Dow 20,000 Edition

How ‘Bout That Market?  This is a question I hear at social gatherings often enough that it makes sense to make it a regular entry on this website. The Market The last week of the year is usually pretty sleepy.  This year’s final week is book-ended by holidays which means a terrific drive in to work for me as everyone takes advantage of long weekends.  I don’t usually expect financial news this week, but this year the Dow Jones Industrial Average is bumping up against 20,000 which is a MAJOR MILESTONE/PSYCHOLOGICAL BARRIER.  Will we hit 20k?  It wouldn’t take much, but it really wouldn’t mean much either. 20,000 is just a number.  Don’t forget that the DJIA is just 30 stocks and the index is price-weighted rather than market cap weighted.  This means that even though Apple is the largest public company on the planet, eight other stocks have a…

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HBTM: 12/12/2016

How ‘Bout That Market?  This is a question I hear at social gatherings often enough that it makes sense to make it a regular entry on this website. The Market The stock markets have been going up since the election.  Is this a Trump rally?  I hesitate to say so as the election still looms large in the rear view mirror.  It’s also worth noting that this gets filed under Obama’s record.  The markets seem to be adjusting quickly to what they expect under a Trump administration.  There is a shift in sentiment from the tech sector to what I’d call Make America Great Again (#MAGA) stocks (industrial and manufacturing – financials, too).  This makes sense from the standpoint that the President-elect focused on these types of businesses during the campaign, but if protectionist policies are implemented, I would expect a negative impact on these companies.  But really, who knows?  What’s…

Filthy Casual

Filthy Casual

I am a gamer.  I like role-playing games like Fallout and Final Fantasy as well as real-time strategy games like Starcraft.  However, according to the internet, I play these games all wrong.  I like to take my time and get lost in the story.  This is not the fastest or most efficient way to beat a game which puts me dangerously close to being a ‘Filthy Casual’ in internet-speak.  That is, my goal is not to optimize my playthrough like a ‘Hardcore’ player might.  It could be worse.  I could be a n3wb. This really does tie back to investing, I swear. There are countless blog posts dedicated to crafting the most efficient portfolio.  Finance Twitter is full of people who will argue asset allocations past the decimal point.  Advisor forums are almost toxic with folks who belabor semantics, dredge up endless white papers, and worship at the altar of Modern…

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This post is not about investing.  It will not have witty anecdotes.  Feel free to skip this one if you’re looking for that stuff today. Fidel Castro is dead. It can feel like this is a news blurb about a place so far away about a people who are not like us.  Why is this such a big deal?  Not everyone’s family was as lucky as mine.  On the way out of Cuba, my great-grandfather merely suffered through the indignity of having a soldier paw through his bag, keeping anything that looked valuable.  Others risked the open water.  Some didn’t make it off the shore.  It’s not my place to tell their stories, but I can tell you the short version of my family’s tie to Cuba and why Castro’s death is a big deal to me. I do not look Cuban.  I don’t speak Spanish.  My grandmother was born there,…

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When to Change Plans

One of my favorite bits of wisdom comes from a Fairway client, “Change your plans because of the weather, not because of the forecast.”  He was referring to boating, but it applies to investing as well.  The political winds have shifted, potentially changing the economic and investing climate.  Don’t get caught up in blanket statements about how things should turn out according to an expert’s model.  The markets never behave the way they should.  Likewise, we have three or four false alarms of snowpocalypse every winter and besides, a snow forecast for northeast Ohio means one thing if you live in Westlake, but something else if you live in Chardon (and something completely different if you’re in Naples for the winter!). Have a very happy Thanksgiving.  I hope you get to spend it in the company of family and friends. Matt    

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Certain Predictions

I’m tired of hearing the predictions. The people who were certain Brexit would fail were certain Trump couldn’t get elected President.  These same people are certain of how the market will move going forward.  Paul Krugman pulled the fire alarm the night of the election when market futures were down huge saying the market would never recover.  Citigroup and Goldman Sachs predicted the possibility of every scenario except the one that happened (a market rally post-election). These folks wear their authority like a crown and revel in lording it over the masses.  Perhaps once upon a time this authority derived from real, actionable knowledge, but today that crown has been pawned in exchange for pageviews, CNBC appearances, and perfect hindsight.  They are desperate for your cash, but even more desperate for your attention.  There is a fear underlying the headlines.  It is not fear of political change or market turmoil….

Donald Trump

Donald Trump is President-elect of the United States of America.  This election reminded me of the Brexit vote across the pond earlier this year.  An entrenched power bloc assumed it had already won, but woke up the day after the election to a powerful reminder of the world outside of their ivory towers.  I voted and I hope you did, too. So What Does Donald Trump Mean For The Markets? It means the uncertainty over who will be President is over.  No kidding, right?  It is cliche by now, but the market does hate uncertainty and knowing who will be in the White House allows companies to eliminate a variable from their business calculus.  You don’t need to be a genius to navigate your portfolio through an election cycle; you need patience and informed optimism.  Even smart people screw up and overreact to short-term blips.  Nobel laureate Paul Krugman of the New…

Passive Investing

Active Versus Passive in a Down Market

The Wall Street Journal has been publishing articles about passive investing recently.  Many of these articles look like they are pro-passive, but are written by active management shops looking to damn passive with faint praise.  My last post addressed the ‘settle for average returns’ fallacy.  The second argument I often see in support of active management is that it outperforms in down markets. I’m not sold on the data behind this assertion, but let’s assume it’s true and active managers outperform during down markets.  Maybe they aren’t completely invested and hold cash or maybe they just pick the stocks that don’t go down as much.  Whatever the secret, CONGRATULATIONS!  YOU BEAT THE MARKET DURING DOWNTURNS!!! Now you just need to know when the next downturn starts and ends so you can go active at the right time.  That’s where the argument starts to break down.  It’s difficult/impossible to predict what…

Why Settle for Average?

With the recent flood of Wall Street Journal articles about passive investing, now is a good time to review the space.  Money is pouring into firms like Vanguard and iShares, the leaders in the indexing revolution.  Investors are seeing that despite perennial declarations of a “stock-picker’s market”, active managers consistently trail their benchmarks and charge large fees for the privilege of doing so.   You’ll see below that I am an advocate of passive investing, but only when it’s done correctly.  There are plenty of opportunities to use passive incorrectly or to get ripped off by a non-fiduciary product seller. What is passive?  A passive investment is just a rules-based strategy.  Technically, there should be a corresponding index.  For example, if the rule is to weight the investment based on the number of vowels in the company’s name, there should be a high-vowel index that the strategy would use as a…