Monday, July 21, 2014

Keep Your Investment Reality in Check

The stock market goes down too. Since it has been more than 1,000 days since the S&P 500 had a drop of 10% or more (5th longest stretch in the last 50 years), now is a good time to remind ourselves that the market will in fact reverse course and drop in value at some point.

Should we get out now? Consider this: Though we are now just more than 5.3 years into this bull market, the longest running bull lasted 9.5 years, and the majority of its gains came after the 5.3-year mark.

Believing we can “time” a drop is futile, as countless studies have shown. From Eugene Fama, a Nobel Prize winner in Economics, to Warren Buffett, arguably the greatest investor of our time, the consensus is clear: Timing near-term market movements is more akin to betting the roulette table at Vegas than it is to investing.

It is important to have our risk/reward balance correct. This enables us to financially and emotionally handle the fluctuations that will come. Just like a drug that your doctor prescribes, there may be side effects (high volatility or lower growth), but the benefit (more stability or higher growth opportunity) of an appropriate allocation is beneficial to your long-term financial health.

Monday, May 12, 2014

Getting Your Financial Advice from Media Outlets

... is not likely to help your portfolio. Why? Because the media doesn't know you and your specific situation. It doesn't know what the rest of your assets are, what your time frame is, and what risk level you can take before you cry uncle and sell out to cash during the next market downturn.

My New York City comrade (used loosely - we've never met), Joshua Brown, wrote a short piece that is spot on. Rather than repeating what all he said, check it out here: "Can the financial media give investment advice?"

His post includes an excerpt from UNC professor Chris Roush, which happens to be one of the best analogies I have heard on this topic: 
"...when a pundit mentions a stock that he or she likes, there is rarely any discussion about position sizing, intended time frames, or what would indicate to the investor that a thesis has been proven wrong. Therefore, taking advice directly from someone’s opinions in an article or TV segment amounts to trying to follow a recipe with just half the ingredients and none of the necessary measurements."
Have a well-thought-out plan. Execute on it, as you would follow Google Maps to a physical destination. There may be a detour or reroute from time to time, but keeping emotion and water cooler talk out of your portfolio is sure to improve your long-term financial position.

Wednesday, May 7, 2014

Berkshire Shareholders Meeting: Takeaways From Omaha

The king of value investors. The "Oracle of Omaha." Warren Buffett is arguably one of the greatest investors alive today ... possibly one of the greatest of all time. His company, Berkshire Hathaway, has grown from humble beginnings to one of the largest public companies in the country, worth hundreds of billions of dollars. Not bad. The annual pilgrimage to Omaha attracts many like-minded investors. After hearing about the uniqueness of this event a few years ago, I've been itching to attend. This past Saturday I found myself in Omaha – one of many (thousand) in attendance to hear the sage wit and wisdom from Buffett and his trusty sidekick, Charlie Munger.

I'm a Buffett fan, but I learned that I'm not the biggest, or most rabid. I got there around 6:45 a.m., before the doors to the CenturyLink stadium opened, and more than 1.5 hours from the start of the meeting ... which I thought was early. Thousands of people beat me to it though. Yeah, thousands were waiting in lines around the arena, waiting for the doors to open. Nuts.

To help you picture the scene, it is a small sports arena / convention center, with a simple desk situated on one end. Seated at the desk are Warren Buffett and his long-time co-manager and business partner, Charlie Munger. These two play off each other well, and deliver an amazing amount of quote-worthy content. I guess that is one by-product of living to be 83 and 90 years old, respectively. Berkshire Hathaway has a super interesting history, which Buffett touched on briefly. He then quickly jumped into the Q&A session, which would last a good part of the day. Questions came from a panel of financial journalists, as well as the audience, where many microphone stations were positioned throughout.

Saturday, April 5, 2014

Why High-Frequency Trading Isn't Worth Your Time

Hot topic of the week in the financial media: high-frequency trading (HFT). What is driving this story? A dude is selling ... promoting ... his book (which I won't take part in here) about the subject, and because the media has an insatiable appetite for attention-grabbing headlines, regardless of how true/helpful/relevant it is to the general public. What matters is that it sells! Gotta grab eyeballs!

What is HFT?
Trading done using speed that very few of us have access to in order to jump in front of other trades and make a profit doing so. Companies spend billions of dollars to lay special lines connected to special computers that make this possible. They can see what trades are coming in, react, and execute their own trades to take advantage of any bid-ask spread. All of this is done and reaches the final exchange before the orders that were "made" earlier.