Friday, February 24, 2017

Do You Have Timin'?

Singer Jimmy Jones had a catchy song at the top of the charts in 1960 titled “Good Timin’”.  It included lyrics that went something like this:

“Who in the world would have ever known, what Columbus could do,
If Queen Isabella hadn’t hocked her jewels in 1492?
But she had timin’….”

I thought about that song after reading a recent Wall Street Journal article about billionaire hedge fund manager George Soros losing nearly a billion dollars in the stock market in the aftermath of the presidential election.  It seems that Soros bet against the stock market rising; but in fact, the stock market rose 9% in the weeks right after the election.  It should be noted that Soros gave millions of dollars to pro-Clinton and pro-Democratic party political action committees (super PAC’s) in the run-up to November 8.

I don’t think 2016 was his year.

Fortunately for you, you didn’t have your money invested with Mr. Soros.  While his personal investments lost big bucks, even his company’s more diversified portfolio only eked out a 5% gain for the year.  The S&P 500 (a broad representation of the total stock market and a benchmark for general stock market performance) was up nearly 10% in 2016 and probably more like 12% if dividends were reinvested.  And you could have made a similar gain on your own investment by just having your money in an S&P 500 index fund that cost you as little as a couple of tenths of one percent of your invested money.  I think it’s safe to say that investing in Soros Fund Management comes at a somewhat higher cost.

So what do we learn from this:

Lesson 1: The experts aren’t always right.  Enough said there.

Lesson 2: “Timing” your investing is typically a losing strategy.  Yes, it’s possible to win big; but it’s equally probable that you will lose big.  And investors like you and I don’t have the financial cushion to lose big. 
If you are invested in a 401k account, you’ve likely heard the adviser from the firm in which your money is invested talk about “dollar cost averaging”.  Without expounding on details, the gist of that strategy is to invest consistent amounts of money at regular intervals.  It’s akin to the “buy and hold” approach that I prefer:  select a few high quality mutual funds (or other investment vehicle of your choice), invest in them regularly, and don’t go switching them around whenever you get spooked by something in the news.  You may recall that on election night the stock market futures (supposedly predictive of the next day’s stock market activity) lost hundred of points.  If you had panicked and moved out your investments you would have missed the market rally.  Even if you got out, then saw the market was going up, and decided to leap back in, you would have lost out on the critical early gains that would have jump-started the growth of your investment.

Lesson 3. Maybe you should leave your politics in the voting booth.  Did Mr. Soros’s political views and hopes sway his investment decision and perhaps blind him to other factors that would have led him in a different direction?  Possibly.  Consider this: His former assistant made beaucoup bucks in the stock market after the election.  He supported the Republican ticket.  Are you willing to bet your financial future on what voters in Wisconsin do in November?

So what does history tell us about Queen Isabella’s timing of her “investment” in discovering America for Europe?  Well, she had actually invested in what was supposed to be a venture to find a shorter, all-water route to Asia and its spices and other riches.  That didn’t quite turn out—not unlike some investments you and I may have made in the past.  On the face of it, the investment was a failure.  But if Spain had held on to some of the land she claimed from Columbus’s (and others’) ventures, the initial investment would have paid off handsomely.  Can you imagine what Florida would be worth today?  An extreme version of “buy and hold”, huh?

And yes, lesson 4:  song lyrics are worthless as investment advice.

Till next time,


“God makes everything happen at the right time.  Yet none of us can ever fully understand all he has done, and he puts questions in our minds about the past and the future.”  Ecclesiastes 3:11 (CEV)

Tuesday, February 21, 2017

Follow the Money

Who can you trust these days?

“You should….”, “Why don’t you…?”, “You ought to…”. 

There’s no shortage of free advice.  In fact, there appears to be a huge surplus of people who want to give others—family, friends, and strangers alike—directions on what to do and how to do it.  That’s not necessarily a bad thing IF you are able to screen out the worst advice, the uninformed advice, the misguided advice, the just plain stupid advice.  Do that, and you might be left with a few nuggets of wisdom for whatever area of life in which you are needing some guidance.

How about advice on handling your financial life: earning, spending, saving, and investing money?  There, too, advice abounds; and it’s not always free.  There are financial advisers and “wealth management” firms that want to invest that money for you—for a fee and/or a commission.  There’s nothing inherently wrong with that.  You don’t know how to fix a leaking faucet, you call a plumber.  You are clueless how to invest for retirement, you engage the services of a financial adviser.

The real question becomes “How do I know I’m getting the best advice and that the adviser is looking out for MY interests?”

Certain advisers have what is called a fiduciary responsibility, a regulatory duty to act in the client’s interest.  Personally, I think application of the rules can be subjective.  One adviser, for example, might think a certain investment is appropriate for a client, another adviser given the same client and set of facts might recommend another option.  And they both could be within the fiduciary guidelines.

I have my own caution for sorting through the financial advice:  Follow the money.  The premise of this phrase, popularized in the movie “All the President’s Men” about the 1970’s Watergate scandal, is that the trail of money leads to the heart of the truth.  To illustrate, a police detective could trace drugs and find users and small-time dealers.  But if he follows the money to the person in whose pocket it ends up, he nets the kingpin, the ringleader. 

So how is “following the money” useful in distinguishing between good and bad financial advice?  Simply this: figure out if or how the person offering the advice stands to profit if the advice is followed.  Therein you may find the possible motivation that puts his own interest above yours.

Is that wealth management firm investing your money in funds that have high fees and which pay high commissions to your adviser?  That might be justifiable if the return on your investment consistently nets you enough to outweigh its costs and still beats other, cheaper investment options.  The odds (and the market research) say it likely does not.

How about that “financial guru” being interviewed on the morning news? He’s trotting out charts and graphs that supposedly show the stock market is predicting a major crash and you had better move your money NOW, likely into some investment scheme he is pushing.  In his case, I think it’s wise to keep in mind that famous quip by Nobel prize-winning economist Paul Samuelson:  “The stock market has predicted nine of the last five recessions.” 

Charts and graphs are useful but not always predictive.  That talking head might just be trying to be the loudest voice of doom.  And if he is, and if he’s right, then he will be the next financial genius, making a fortune in speaker’s fees and book royalties.  And if he’s wrong…well, he’ll get smaller speaker's fees and sell fewer books, but there will be no real punishment for calling it wrong.  Collectively we quickly forget the wrong predictions.

Or perhaps you have a friend with new-found wealth he wants to share.  I’ve yet to meet someone who became wealthy through some fortuitous investment who then wanted to help make me rich by sharing his investment knowledge.  (Even if he did, that particular gravy train will have probably left the station long ago.  It’s the first people into a winning investment that reap the big rewards, not the latecomers.)  The occasional friend who has wanted to let me in “on the ground floor” of some investment opportunity truly wanted me on the ground floor—doing the work to earn profits that mostly took the escalator to his bank account.  Can we say “Ponzi scheme”?

So when you are presented with investment advice, don’t act hastily.  Take time to ask some questions, to probe a little, and to just use some common sense to determine who stands to win, who stands to lose.  And while I call this strategy “following the money”, it could just as easily be called “saving your money”.

Till next time,


“To show partiality is not good—yet a person will do wrong for a piece of bread.” Proverbs 28:21 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
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