Philosophy

Don’t Make THIS Huge Mistake!

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Most endeavors in life can be as complicated as you want to make them, or quite simple. The difference is in how you approach them.

We’ve been privileged to know some great coaches and mentors through the years, as well as less-gifted ones. The most effective ones focused on the few things one must do to be successful—not the infinite number of things one must not do.

A positive instruction is complete in itself; negative instructions never end. A softball coach might say “keep your eye on the ball.” That is simple and complete. “Don’t watch the butterflies” can be one of a thousand things to NOT watch, on a list that can never be complete.

We consume vast amounts of ideas and information in our work. But an article with a headline like “Twenty Retirement Mistakes to Avoid” or “Seven Investing Traps” is obviously incomplete. There are, after all, a thousand or a million retirement mistakes or investing traps out there. Knowing about seven or twenty of them cannot be enough.

Instead, we search for those crucial, simple things that are vital for success. For example, our faithful followers know we believe in three principles of investing. Avoid stampedes in the markets, seek the biggest bargains, own the orchard for the fruit crop—there you have it, in a single sentence.

An old-time peddler we knew in our youth had a motto: “Dazzle them with diamonds, baffle them with bullsheet.” Needless to say, that isn’t us. We work diligently to present our ideas clearly and simply, in a fashion that you can work with.

When people tell us they do not understand their advisor, we always wonder whether they’ve been dazzled or baffled. If you would like plain talk about your situation or question, please call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Two Ideas About Time

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Two ideas about time affect our plans and planning when it comes to investing. There is conflict between these ideas, so we need to examine them more closely.

The concept of compounding wealth over time is alluring and powerful. Something that doubles every eight years would be sixteen times the money in thirty-two years!

What does thirty-two years mean in the context of planning for a lifetime? It is the distance between age 30 and when people begin to retire. Of two people at age 60, one of them might reasonably expect to be alive thirty-two years later. You may think that thirty-two years sounds like a very, very long time. But 62 year olds will tell you that age 30 seems like yesterday. Thirty-two years clearly is a pertinent time frame for life planning.

This is key because long time horizons are generally tied to long term investment results.

The other idea about time rests in one of the ultimate truths of our existence. We may think about the past, or plan for the future, but where we live each second is RIGHT HERE, RIGHT NOW! The survival of the human species in earlier ages probably required us to be vigilant of potential threats and lurking dangers at all times. There was nothing to be gained by thinking about tomorrow if a lion was going to eat you today.

So human nature has a bias toward focusing on the present. This manifests itself in unhelpful ways in modern society. We tend to think that current trends or conditions will persist—even when they are unsustainable. Some of us seem to believe there will always be time later to take care of longer-term priorities or goals. We have trouble picturing future changes.

The focus on the present also may explain why so many lack the context and background that history can provide. We have heard people say “This has never happened before” about many things that are a recurring feature of our history. By not understanding challenges overcome in the past, today’s problems may trigger an unwarranted sense of danger.

The focus on the present is in conflict with the idea of compounding wealth over time. Our role is to try to make sure that people have what they need for the present, have a cushion for emergencies, and keep a long term focus for their long term investments.

In other words, balance is key. Call or write if you would like to talk about the balance in your plans and planning.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Meaning of Life

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If you ask Google “What is the meaning of life?” you’ll have more than 25 million search results from which to choose. We cannot answer the question for you, but the question and its answer influence your plans and planning.

Whether we think about “the meaning of life” or not, each one of us has fundamental values and principles that shape our words and deeds and lives. If we are to rely on one another, we probably need some common ground on these values and principles.

We say this because strategy and tactics in planning and investing arise out of our values and principles. If there is some agreement on values and principles, then our strategies and tactics will likely make sense to everyone involved. But if we have completely different ways of looking at the world, then we would probably have different ideas about strategies to deal with opportunities and risks as they arise.

We work with a diverse clientele, people from all walks of life in every kind of circumstance, across the country. You have your hopes and dreams; our object is to understand them, and figure out what role we might play in making them more likely to happen. You may understand ‘the meaning of life,’ or perhaps like us you’ve concluded that life is a journey on the road to understanding. Either way, aren’t we all trying to make sense of it?

Whatever one might think about the meaning of life, it is certain to be better if we listen to one another, respect the intentions and plans of the thoughtful people around us, and help each other get where we are trying to go.

Although it may not look like it, that last sentence is our business plan. It isn’t like the ones you might find in a business school textbook. There aren’t any numbers or growth objectives or profit goals. Simply put, the better off our clients are, the better off we are likely to be.

That has meaning in terms of the resources we need to serve you, personnel and training and equipment and facilities. It shapes how we spend our time, researching markets and managing portfolios and talking to you and communicating in other ways. And it is a big factor in making our practice sustainable.

What is your fondest wish? What are your major objectives? What is the meaning of life? If you’d like someone to listen to your answers, please write or call. It’s what we do.

The Melting Pot Matures

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A few weeks ago the Nobel Prize Committee announced the latest round of Nobel laureates for 2016. Seven Americans were named to this high honor—and six of the seven were immigrants, born outside of this country.

Immigration is frequently a hot topic during an election year, this one perhaps more than most. On the one side, we are told that immigration is costing us jobs, lowering our wages, and causing more crime. On the other side we are given a moral argument, that we are a nation of immigrants who should welcome others into our melting-pot culture as we have welcomed those who came before.

We set aside the moral side of this debate; while we occasionally dip into moral philosophy, this blog concerns itself chiefly with practical matters of economics. And as a practical matter, there are very good reasons why we should appreciate the value that immigrants bring to our country, above and beyond whatever Nobel prizes they may win.

As a country we are facing a demographic crisis. Since the 1970s, we have been having noticeably fewer children per family than we did previously. As our generation reaches retirement age, record numbers of Americans are leaving the workforce. I still plan on working until I’m 92—but many of my contemporaries have other plans. As we leave, there are more openings left behind than we have children and grandchildren to fill.

This demographic wall creates a major drag on the economy: we want to grow our economy faster, but we simply don’t have enough workers to do it. For the past year we’ve seen the unemployment rate hovering at 5% and below. Even as the economy recovers and we start to add jobs, there’s going to be a very real question as to who will be filling them. The workers simply aren’t there. To some extent this is a regional issue—some of our employment woes could be fixed by having job-seekers move from economically depressed areas to thriving areas where jobs are being created too quickly to fill. But not everyone can uproot their lives for work, and where people cannot or will not relocate, the only alternative is to import workers from elsewhere.

Ours is not the only country facing this demographic crisis. We need only look at Japan, Europe, and other parts of the developed world to see what happens when an aging population is not replaced. Many first world countries have a lower birth rate and lower immigration rate—and, not coincidentally, lower GDP growth. We would do well to learn from their example what not to do.

This is not to say that we endorse open borders or encourage illegal immigration. We are a nation of law. We should have sensible laws that are enforced in a fair and even-handed manner. But to suggest that we should slam the door shut on immigrants is to ignore the economic reality we face. One of the best and surest ways to expand our economy is to add new people to it—and we will need to, if we wish to continue growing at a reasonable rate.

The opinions voiced in this material are for general information only.

Are You Getting Your Piece of the Pie?

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The Federal Reserve provides us with a quarterly report of household net worth. The latest number is $89 trillion, up 59% from the financial crisis year of 2008. I don’t care who you are, that’s a lot of wealth—and a nice increase.

The distribution of our wealth from person to person is the subject of some political debate, which we will leave to the politicians. It always has made sense to us to focus on the things within our control; let’s see what we can learn from the numbers.

Our $111 trillion of assets includes homes, pensions, stock, money in the bank, mutual funds, small business ownership, and bonds.

We owe $22 trillion, most in the form of mortgage debt but also including consumer debt like auto loans and credit cards.

Net worth is simply the value of our assets minus our liabilities, or what we own minus what we owe. $111 trillion minus $22 trillion is our $89 trillion in net worth.

Here are the pertinent points, as we see them:

1. Having wealth in different forms is a good thing, a form of diversification. We the people have money in the bank, different kinds of investments, homes and businesses.

2. Debt can make sense when it helps us own assets of enduring value that we can afford to pay for over time. $22 trillion is a lot of debt, but it helps us to own $111 trillion worth of homes and businesses and other assets.

3. Since debt or liabilities are subtracted from assets to determine our net worth, it makes sense to minimize debt over time. One who pays off a car loan and then keeps putting the payment amount in savings each month might get by with a smaller loan the next time a vehicle is purchased.

4. Because assets are the starting point for determining net worth, one should seek to invest effectively for growth and income over time. Money does not grow on trees, but it may grow over time.

Our $89 trillion net worth is a very large amount of wealth for us as a society. The decisions we make play a big role in determining whether or not we each get our piece of the pie. We have written about Four Habits for Financial Success which might help, and we encourage you to call or email if we can be of service.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Nattering Nabobs of Negativism

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Once upon a time in America, a sitting vice president was investigated for extortion, tax fraud, bribery and conspiracy. In a plea bargain deal, he pled no contest to a tax charge and resigned. Although historians judge Spiro Agnew as perhaps the worst vice president in history, he did bequeath us the memorable phrase in our headline.

We begin our essay this way for two reasons. First, although some believe the current times are the worst ever or the most this or the least that, there probably are no new things under the sun. Second, the pervasive rotten mood of the country has reached fairly extreme levels.

As contrarians, we believe the times of greatest danger in the markets are when optimism reigns and it seems like clear sailing ahead. Think 1999.

Conversely, the times of greatest opportunity are when the mood is in the toilet. There was a lot to be negative about in 1974, when Nixon resigned and the Arab Oil Embargo meant there was no gas at the gas station and inflation was heating up. And 1982, when mortgage interest rates hit 15% and businesses paid 20% interest and the economy slipped into a double-dip recession. And 1990, with war in the Mideast and falling house prices and the fallout from a huge financial crisis in the S&L’s…same thing. And 2002, when we were dealing with recession and the aftermath of 9/11 and terrorism.

Following each of those episodes, major gains ensued in the stock market. Why is this pertinent today?

Contrarians have to be delighted with the pervasive pessimism of the public. (Or the nattering nabobs of negativism, if you prefer.) LPL Research strategist Ryan Detrick has documented a variety of sentiment measures that have reached multi-year or multi-decade extremes. Gallup reports the most prolonged negative poll readings for the question of whether the country is on the right track or wrong track. You can learn in any barber shop or café that we are going to hell in a handbasket, just listen.

Warren Buffett stated our view more concisely when he wrote, “Be greedy when others are fearful.” If you would like to know more about how this relates to your situation, call or write.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Scorecard: 1,000 to 2

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The Savings & Loan Crisis of the late 1980’s resulted in over a thousand felony convictions of executives for wrongdoing, after a third of the institutions went broke. The FBI had a thousand agents on it, and the government was determined to find and punish thieves. The New York Times wrote extensively about this.

Thoughtful people all across the ideological spectrum are incensed that there have been only two felony convictions related to the 2007-2009 financial crisis. The recent crisis had a far greater impact on the economy, workers, families and retirees. Yet far less was done to investigate and prosecute the bad guys.

Naturally, many people of all political persuasions are concerned and upset. Corruption, incompetence, or both? No one knows. It clearly violates the social compact on which our society is based.

Now, get ready for another astonishing shock. In lieu of sending criminals to jail, various agencies of government have been soliciting multi-billion dollar settlements from the large banks. But whose money is this? Yours and mine—shareholders. It is as if the government is collecting ransom from thieves which they are paying from our pockets.

If you think we are being melodramatic, consider that the Justice Department recently asked Deutsche Bank for $14 billion to settle allegations of wrongdoing. This figure is more than two-thirds of the bank’s net worth, as measured by the value of its shares in the market. In our system, the presumption was that a company is owned by its shareholders. Now we find out that the government thinks it is entitled to more than half the net worth of this company—instead of doing its job and prosecuting wrongdoers.

In our opinion, the system worked better and more fairly when thieves went to prison and shareholders enjoyed the rights to their property without impairment by arbitrary government action. One of the worst aspects of this situation is how little attention it is getting; this article is intended to help rectify that. Please spread the word by sharing and linking and emailing your representatives.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Fruition, What a Wonderful Word!

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We’re inspired by recent conversations with clients and friends whose plans, as they say, have come to fruition. Fruition—the realization or fulfillment of a plan or project—scarcely begins to describe the satisfaction and joy we’ve seen.

The recent retirees after downsizing to a maintenance-free home, going to art festivals instead of pulling weeds, having more dinners with their descendants, seeing more ball games… people going on that Alaska cruise or the tour of Italy… hobbies becoming true avocations. These are some of the plans we’ve seen come to fruition for people we are close to.

A wise person once said that a plan is a dream put into writing. We are in the business of trying to make the arithmetic work for people who would like to try to make their dreams come true. We’ve written before about the best way to retire and the point is, dreams are personal. What are you trying to do? Where do you want to wind up?

One of the privileges of long experience in our work is seeing the realization or fulfillment of plans made long ago. But life sometimes throws curve balls. So we’ve also seen adaptations and adjustments made by people who would have preferred to avoid the need for adjustments. Not everyone we love lives as long as we wished, health may be fleeting, and circumstances often present a mixed bag. The point is, sound plans usually put us in better shape to deal with the unanticipated.

Money is not the most important thing in the world. But it is also true that resources give us options we might otherwise not have. Wealth may free up our time, and time is what life is made of. Dreams and arithmetic working together may make the best things more likely. If you would like to discuss your dreams and plans in greater detail, please write or call.

Paved with Good Intentions

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Picture a stretch of a busy highway. The speed limit is a moderate 65 miles an hour, which most commuters follow comfortably. Occasionally a maniac driver speeds through doing 80 or more, and may or may not be caught. No one particularly minds, until a series of high-profile crashes creates a public outcry about the speeding problem. The department of roads resolves to crack down on speeders and adjusts the speed limit down to 55.

Commuters might grudgingly slow down a bit, but because the road is built for traveling at 65 miles an hour, it doesn’t make sense to drive at 55—so most drivers don’t, and traffic continues to travel at 60 mph or so. The highway patrol, seeing that everyone’s just matching pace with traffic, turns a blind eye to this insignificant “speeding” and continues to work on catching the big offenders. For the most part, the change in speed limit does not have much impact.

However, while the stricter speed limit may seem “harmless”, it actually has a very chilling effect. Suppose one day a trooper wakes up on the wrong side of the bed and decides he doesn’t like the look of a particular driver, so he pulls them over for speeding—an open and shut case, since they’re speeding like everyone else. It is hardly fair or just, however, that one speeder among many should be singled out for punishment based on an arbitrary whim. All that the lower speed limit accomplishes is giving enforcement officers discretion to punish normal driver behavior at will—it does not actually make it any easier to catch or punish the original problem speeders, since it is just as illegal for them to drive at 80 in a 65 zone as it is in a 55 zone.

We’re not writing about this to complain about law enforcement officers. Rather, we use this example to illustrate a broader failing of regulatory efforts. When enforcement agencies find themselves frustrated they often resort to casting a wider net, writing new rules that make normal and honest behavior illegal. Often, these rules are made with no malicious intent—they’re still only after the big fish, and they figure any small fry that get picked up along the way can be released with no harm. But by giving themselves their pick of targets, they substitute their own discretion for the rule of law.

This is no way to run a free country. We want regulators to catch the criminals as much as anyone does—more than most, since our reputation suffers when fraudsters are allowed to run free. But passing stricter rules and making everyone into criminals is absolutely not the right answer. The next time you hear someone calling for tighter regulations, listen with a critical ear to what they’re saying: are they proposing to catch bad guys, or will they end up targeting everybody?