What Would You Have Done?

She was sobbing hysterically in the luggage claim area of the airport. All by herself. No one helping her.

I realized I had seen her a few minutes early, at 7:30 pm in the main terminal, begging an airport staff person to help her. "I lost my cell phone. No one is helping me."  Assuming she would be helped, I just kept walking.

In luggage claim, she needed help. I stayed with her. I kept asking a nearby airport visitor information volunteer to call security, the police or EMS. "I can't find my license. I can't find my cell phone. I have no boarding pass. How can I get back through security?"   She was young, scared and overwhelmed. She was having a panic attack. She looked like she was going to pass out. I bought her a bottle of water. The volunteer said he made phone calls but no officials appeared.

"I have friends at gate 5a. They have my carryon. I don't have my medication. I need medication."   She would calm down, then another panic attack would overwhelm her. I could not leave her. She found her boarding pass. I got her first name, her mid-20s age. I got the name of a friend at gate 5a, but no one from the airport was contacting them. She could not remember her mom's phone number. She was flying from California to upstate New York. She finally found her drivers license.  She finally remembered her dad’s phone number. She couldn't breathe. She couldn't stand up. She needed help. What should I do?

I stayed. I helped.

I was returning from the 2013 BAMAlliance National Conference and BAM Masters Forum meeting. I had been in St. Louis for 5 days and was tired and needed to meet my wife to take her for a medical test. But I needed to stay. This young woman needed help. So I stayed, as she needed me more than Felicia did at that moment.

Speakers at the conference talked about relationships, authenticity, trust, doing the right thing, taking chances, showing up, giving first and without the expectation of anything in return. Seth Godin. Jerry Greenfield. Dr. Robert Cialdini. Carl Richards. Jason Womack. They were all different, but essentially their messages had a common thread. Care. Be present. Do the right thing. How could I just walk away and ignore her?  She needed help.

 She could get through security, but she was not physically able to get up. She kept collapsing. "Where are the police?," I asked the volunteer. “Can you get EMS?  She is close to passing out” I kept repeating.

Finally, after almost 30 minutes, one police officer arrived. I gave him the information I had written down on a yellow sheet of legal paper. Her name. Her friend’s name. Where she was going. Then another officer arrived. They said I should go. They would handle it.

So I left. Worried. Would she be OK?  Would she be physically able to make her 9:25 pm flight to NY state?  I got on the shuttle bus to get my car. The only other person on the bus worked at the airport. “Is she OK?”  he asked. I was startled.  What was he talking about? He said he had seen me with that woman in the luggage area. He said he saw the whole thing. “Did I know her?”, he asked. No, I said. I was just trying to help her.

As I drove from the airport to get my wife, thoughts flew through my head. Why did the airport employee I talked to on the shuttle bus, who watched this all unfold, do nothing? Why didn’t he try to help?  Why didn’t the people in the Delta office help? Or just make a phone call?  Why did it take so long for the police or other emergency people or even security personnel at the airport so long to respond?

Today, the next day, I feel good that I tried my best to help this young woman. I didn’t even think about it. On Monday morning, in the calm of a beautiful hotel, surrounded by colleagues and friends, Seth Godin said to do what our gut tells us to do. Be vulnerable. Take chances. (And to write more). Last night, on Tuesday evening, I wasn’t thinking about Seth Godin’s speech. I was just trying to help another human being who was going through a crisis situation. 

I can’t get her out of my mind. I don’t know if she was able to overcome the panic attacks to make her flight or if she needed further medical treatment. I’m worried about her. At some point in this 30 minutes with her, I wrote down my cell phone number for her on the back of my business card, if she needed more assistance. 

I hope I hear from her. I just want to know that she is OK.

Nobel Prize in Economics, Our Firm and You

“The envelope please.  And the winner of the 2013 Nobel Prize for Economics is…”

We’re quite sure that not many of you were glued to your TV for this announcement at around 7 am Monday morning. However, one of the 3 winners has had a significant impact on our firm, our investment philosophy, and thus, your investments and your life.

Who is Eugene Fama and why is his research important?          

Eugene Fama was awarded the 2013 Nobel Prize in Economics for his research that attempts to pick stocks and time the markets were often fruitless. This research led to the development of index funds and our approach to investing. Fama is widely recognized as the “father of modern finance” for his academic work in developing this “efficient market hypothesis.”

Fama was the principal scholar whose groundbreaking research inspired the founding of Dimensional Fund Advisors (DFA), the mutual fund company through which we primarily implement our stock investment philosophy. DFA is now one of the top 10 mutual fund companies in the US, managing over $300 Billion. Fama serves on Dimensional’s Board of Directors and its Investment Policy Committee. Fama has been a professor at the University of Chicago Booth School of Business since 1963.

What does this mean for stock picking?

Fama was selected for his research beginning in the 1960s which show that stocks prices are “extremely hard to predict over short (time) horizons.”  As stock prices react so quickly to any new information, he argues this leaves little opportunity for profitable efforts by actively managed mutual funds and hedge funds.

At a conference in September, Fama said that since markets are efficient, he challenged the Wall Street notion that investment managers such as high-fee hedge funds could outperform market returns. His advice “…would be to avoid high fees. So you can forget about hedge funds” and other high cost mutual funds.

How has our firm incorporated Fama’s research into your investments?

We believe in the thesis of Fama’s research, which won him the Nobel Prize for Economics. To extend his research, we do not feel it is possible to identify in advance investment managers that will consistently outperform a respective benchmark over a long period of time. There is a significant academic research which supports this position, especially if fees and trading costs are considered.

Thus, we adhere to an index or “passive” philosophy, which minimizes your costs and invests in a particular asset class. We have chosen to primarily utilize DFA’s mutual funds to implement this strategy based on their performance and very low costs.

Fama has continued to play a major research role in the investment approach of DFA.  Further research developed the strategies to tilt towards small and value companies, both domestically and internationally, as they have greater expected returns.

Conclusion

It is our role to be independent, intellectually curious, and advise you in the manner that is best for your interests. We are pleased that Professor Fama has been internationally recognized for his research that has led to such a rationale and successful investment approach. His continued guidance and work with DFA is truly valuable. Keith and I have each heard him present at conferences in the past and look forward to this even more in the future.

Note: This is the letter that is accompanying the third quarter, 2013 statements being sent to our clients.

Federal Shutdown, Investing and Your Planning

The Federal government is again on the brink of another self-imposed "crisis" brought on by political dysfunction. The impending Federal government shutdown is the result of Washington being unable to govern in an effective manner.

It is not our role to point fingers and assess blame. As we often say, we focus on things which we can control. We cannot control or affect Washington (thankfully!).

What are the implications of the Federal shutdown and how should investors react?

We do not believe that investors can accurately time the market on a day to day basis. We focus on the long term. As the Federal shutdown continues, it is possible or likely that the stock market may decline. When the matter is resolved, it is likely that the market will rebound. We do not advise selling investments with the intent to repurchase them when you anticipate that the Federal shutdown will be resolved. You have to be right twice; timing when to sell and when to buy. Also, you have to know the information before others do, as the markets react immediately.

The lesson from similar government situations in recent years is that patience is generally the best strategy. While it may not feel good during a crisis, you should recognize that "doing nothing" is an important decision. While others may react and try to trade on the daily volatility of the markets, most will not do it successfully. You will be more successful over the long term by adhering to your investment plan.

Do you have an investment plan?  Have you reviewed it recently? Have you tracked your investment performance against appropriate benchmarks? If not, maybe the lack of planning in Washington is a good reminder that you should have a well developed investment plan. We can't help Washington, but we can help you.

A Great Book and a Not So Good Op-Ed Piece

Reading a book can have a lasting impact. It can educate.  It can provide new and vivid perspectives, even to events which have recently occurred.

The outstanding book The Alchemists, by Washington Post writer Neil Irwin is one such book. The Alchemists, Three Central Bankers and A World on Fire provides insight to the challenges that the world's central bankers faced during the financial crisis since 2008 (and still face now). Irwin explains how they dealt with the non-stop issues, how they interacted with each other and how they developed new and innovative approaches to economic challenges.

I read and closely follow financial matters on a daily basis, through many types of print and electronic media. Still, I was amazed by how much I learned by reading this book. Irwin's work reflects how perspective and information can sometimes only be gained through reading a book.

What did I learn from this book?  How will it benefit my clients, as their financial advisor?

Irwin started the book by attributing central bank actions (or inactions) in previous time periods as causal factors to economic depressions and worldwide instability, such as wars. Irwin vividly showed that Bernanke and the other world financial leaders needed to be brave and take actions that were often "wildly unpopular."

Bernanke's academic background as a student of The Great Depression, his ability to build consensus and develop creative responses to unpredictable events helped to prevent further economic catastrophe. While some may disagree with the central bankers' policy decisions, I agree with Irwin's conclusion.

Will this book help me to predict the future of interest rates?  No.

Will this book help me predict who the next Fed chairman will be? No.

Will this book help me to explain economic events more clearly to my clients?  Absolutely yes. And that is one of our roles as their financial advisor, to provide clarity and explanations of complicated topics.(Note: Chapter 20 on the Chinese economy and their banking system are particularly worthwhile, as were sections on regulatory legislation after 2008-09.)

Having just completed this book, I was quite surprised to read the August 20th Op-Ed column in the New York Times titled Wanted: A Boring Leader for the Fed, by Amar Bhide, a professor at Tufts University. He said "we need to return the Fed to dullness and the chairman to obscurity."  Further, the author wants to "scale back what we can expect of" the Fed.

After living through the turbulence since 2007 and reading The Alchemist, I cannot disagree more with Bhide. While one can argue about specific decisions that the Federal Reserve and Bernanke have made, I do not want in the next Fed chairman to be boring. Boring is defined as monotonous, tedious (which implies dull slowness), tiresome, humdrum (commonplace, trivial, or routine) and uninteresting.  

The Fed chairman should be the direct opposite of boring. The chairman needs to be strong, bold, innovative and a leader willing to take risks that he or she feels are necessary for the good of the country and world. While Bhide calls for the Fed "to return to dullness" and the chairman relegated to "obscurity," the opposite is necessary.

The Fed chair has to rapidly deal with unexpected events, such as the collapse of Lehman Brothers and AIG, as well as set monetary policy. The Fed chair needs to effectively interact with world bankers, fellow Federal Reserve governors and staff, politicians and the media. 

The Fed needs to continue to clarify and improve its communication to the financial markets. The financial markets react negatively to uncertainty. The chair needs to act with decisiveness and be willing to speak publicly, as Bernanke has done by adding press conferences after certain Fed announcements. 

The term of Federal Reserve Chairman Ben Bernanke ends in January, 2014. President Obama's naming of Bernanke's replacement is surely one of Obama's most important decisions. I hope it will be an effective and experienced appointment, who can lead with consensus. But not a boring choice. 

What if something happens to your Financial Advisor?

Do you work with a financial advisor or stock broker? Do you work with one person, or do you have a relationship with a team of financial advisors?

What if something unexpectedly happens to him or her, or the team?  Have you planned for this? Has your advisor thought how this would impact you, as his client? We have thought about this and we did something about it.

We have a fiduciary responsibility to plan for our clients as well as ourselves. We want our clients to plan and be prepared. They should expect that we would do the same. And we have.

Our firm uses a team approach, so that my partner and I generally meet with most clients. We are both familiar with our clients and their investment strategy. We work together, as it benefits our clients to have both of our input.

If something happens to both of us simultaneously, as unpleasant as this is to consider, we have made arrangements to provide continuity for our clients. We recently completed an agreement with our back office firm, BAM Advisor Services, for them to immediately take over our practice if this were to occur.

While this scenario is very unlikely, this is an example of the kind of forward thinking and coordination we have with BAM. We want to ensure that our clients are provided for in the future. We have confidence in the long term benefits of our investment strategy. We have confidence in BAM, as our partner, that they would take excellent care of our clients.

We have planned for the unexpected, so that our clients can be confident of their future and sleep well at night. Isn't that what you want from your investment advisor?

What are the key factors in selecting an investment advisor?

When you are deciding to work with an investment advisor or financial planner, what should be the key factors? 

Trust and connection:  Do you trust the advisor and firm? Do you feel a connection and bond with them, so both you and the advisor can be open and honest?

Investment philosophy: Do you understand the firm's investment philosophy? Do they have a good track record? Do they have a "reproducible" methodology that is not based on market forecasting and guesswork?

Fee structure:  Does the firm have an easy to understand and transparent way of being compensated?

• Is the fee structure designed so the advisor is only making recommendations with your best interest in mind? 
• We are fee only advisors. We do not accept commissions or other forms of compensation for the advice that we provide. We have a fiduciary duty to only act in our clients' best interest. 

Other factors:

·         Does the financial planning firm provide advice on other important matters in your life, beyond just investments?

·         Can they assist you to move forward with your estate planning? Do they provide creative ideas and work as a team with your estate planning attorney?

·         Will they provide advice with your retirement planning and college funding?

·         Are they comprehensive planners, so they can function like your family's CFO?

·         Do they really help to minimize your taxes?

These are just some of the factors you should consider when retaining an investment advisor. The experience and credentials of the advisor and firm are also important.

Does it matter where the investments are held? Is that a key factor?

In real estate decisions, location matters. In insurance, if you hire an Allstate Insurance agent, they are going to purchase Allstate Insurance for you. We are different. We make investment decisions based on what is in your best interest and consistent with our investment philosophy, not based on the custodian (where your assets are held). In working with an investment advisor, as long as the custodian of your assets is a well known and reputable firm, the actual “location” (custodian) should be a secondary factor.

As independent investment professionals, we have selected Fidelity Investments or Charles Schwab as the custodian of the assets that we manage. This is the place where your assets are securely held.

When a new client begins to work with us, we generally move their assets to one of these two custodians. We prefer Fidelity, as they provide our clients with the best combination of low costs, efficient service, easy to read monthly statements and a website that is secure and user friendly.

Think of the custodian as the holder of your assets. As we are independent advisors, we can recommend and purchase nearly any mutual fund, bond or CD that would be in your best interest. Because we recommend to custody your investments at Fidelity does not mean we recommend primarily Fidelity mutual funds. Far from it.

Our investment decisions are completely separate from the decision of where to custody (hold) your assets. Doesn't that make sense? 

"August can be a very tricky month. Be Careful."

As I drove to meet my son for lunch on Monday, a Wall Street analyst on CNBC made the above comment, which I heard while listening on Sirius radio.

Is this a realistic comment? Is this the kind of advice you want from your financial advisor? Is it really helpful?

Do you want planning and recommendations for the long term?  Or do you want investment advice focused only on the next month?

Do you want a financial advisor who will advise you with your investments, as well as assist with your estate planning, retirement planning and reducing your taxes?  Or do you want predictions and guesses?

Do you want a financial advisor that utilizes a rational investment philosophy that is understandable and provides you with comfort, peace of mind and security? Or do you want an advisor that tries to time the market with unproven forecasts?

We do not know what August will bring. We don't know what will happen in any future month. Do you?

We do know that we can provide you with comprehensive financial guidance and advice that will be valuable to you and your family. We do know that it will be more valuable years from now than a prediction for the month of August, 2013.