Monday, October 13, 2014

Invest for You

Financial pundits are everywhere. We all get hit up with various ways to invest our money. It comes from the media, our friends, our families, print ads, TV ads, social media ads, and online search ads – a never-ending assault that can be dizzying. 

We have NO relationship with Invesco, but appreciate the point made here.

When we pull back the curtain, we realize that the media is tasked with bringing in eyeballs, with the purpose of selling more valuable advertising space. Their stories, therefore, need to be more attention grabbing than informative. Obviously, every ad you see is also a bit biased. Friends and family can hopefully be trusted, but how reliable is their financial advice? Does it come from actual historical data, or is it based on recent fads or speculation? 

At times, we just want to throw our hands up in light of this deluge of info. Maybe the best thing to do is to invest like Warren Buffett or an elite endowment fund like Harvard's? Copying either of these models would be better than many, but it may not be right for YOU. 

While impressive over the long term, and an investing icon to many, Buffett has lagged the S&P 500 over the last five-year period. And, while the S&P 500 has hit numerous new all-time highs this year, the Harvard Endowment Fund still has not made it past its prerecession levels (6+ years ago). 

Investment allocation is a fascinating topic and is key to successful long-term investing. What is right for Harvard, Buffett, or your uncle, may not be right for you. Depending on your stomach for volatility, your future potential earnings, your desired retirement picture, etc., your plan likely won't mirror Buffett's or Harvard's. That is very much OK! 

Don't think your plan should mirror anybody else's. Your investment plan should complement both your personal situation and your mindset. If it doesn't align with your situation, you are doing your future self a disservice; and if it doesn't align with your mindset, you probably won't stick with it.

Invest for you. Invest well! 

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.