Our View Today

What is our view of the world today, as the stock markets worldwide have concluded the month of May with signficant declines for the month?

The short answer would be, the same that it was on May 1.  While many things have occurred in the world that we cannot control, we have remained focused and worked with our clients on the things that we can control.

Over the next month, I hope to write more frequently, to share in more detail our thoughts and our philosophies.

We have had conversations with clients in recent weeks, which have primarily focused on their concerns regarding various economic and political situations, such as the European fiscal crisis, and the US debt and tax policy matters, which remain unresolved (and likely not to be addressed in a significant manner until late December, 2012).

During these conversations, similar themes have reappeared. Our clients have concerns, which we are quite empathetic with.  However, as the conversations evolve, our clients recognize that we have structured an investment plan, or asset allocation strategy, that is appropriate for them. They recognize that the stock markets will have periods of decline, and these conversations help them to be prepared for such occurrences.

For the stock portion of our clients funds, we are not investing for the next month or even the next year. For those short-term time periods, that is what the fixed income allocation of their portfolio is for. For the stock portion of their portfolio, we take a much longer view, which is years or decades. We know that in the long term, the stock market has provided significant gains, despite many problems and crisis that companies and countries have faced.

We are more confident than ever that our approach to investing, our philosophy and the way we mange our clients' portfolios and work with them (in discussions, in tax loss selling and planning, and other matters), are the correct approaches and are truly in our clients' best interest.

The stock market and the economy provides many lessons and on a frequent basis. I look forward to expanding on these thoughts during the month of June, in future blog posts.

Regardless of the month-to-month volatility of stocks, we remain focused on providing our clients with a greater sense of comfort and security.

Remarkable Experience. Worthy of an Encore.

What makes something remarkable? Memorable? Have impact? Worthwhile?

What inspires 200 people to travel from all over the US and 3 separate continents for 2 days to listen to a number of speakers?

I returned Saturday evening from a remarkable 2 day conference, which was sponsored by Bob Burg, author of The Go Giver and a number of other books.

Each one of us who attended took a risk, not knowing whether the time we would be spending away from our families and offices would be worthwhile. As I have learned from attending two different events, this year and last, great value can be obtained by attending these types of events. I trusted the person organizing it, Bob Burg, and was confident that he would gather an outstanding group of presenters. He delivered and exceeded my expectations.

This was not an investment or financially related conference (which we attend a lot of). Will my firm and our client's benefit? Absolutely! We recognize the value in continually learning, being exposed to new and different ideas from many different sources. This helps us to continually review our practices and procedures, to renew our energy and strive to improve.

I heard (and interacted with) very diverse and knowledgeable speakers. They addressed topics ranging from leadership, service to our clients, marketing, social media and “personal development” (for lack of a better word).

There were numerous takeaways for me and my firm. Some of the themes which were emphasized were the importance of deepening and maintaining relationships (even in a social media world), how to create even more value for our clients, being resilient through the ups and downs of life and a business, and the benefits of working with others in mastermind groups (like peer learning groups, which we have done for years). Another reminder was to have fun and add more humor to our lives. As with all events like these, the keys are to follow through and our ability to be disciplined and implement ideas from the conference.

One of the speakers, Mark Sanborn, wrote a book titled Encore Effect, which discusses how to create something remarkable, and to be able to have the discipline to deliver it at a consistently remarkable level. He is encouraging us to create a performance, or a business, that is worthy of an encore, a standing ovation.

By attending events like this, by making the time and effort, we are continually striving to improve ourselves and create a firm that others will feel is worthy of the term, an "Encore Effect."

From Lottery Tickets to Real FInancial Planning

Except for three lucky lottery ticket holders this weekend, for the rest of us, real financial planning and wealth management is still a very important priority.

Our goal for our clients is to help them achieve a sense of financial comfort and security. For each client, this may mean something very unique and different.  Our objective is to assist them in making good financial decisions, allocating their investments properly and working with them over time, so that they will be able to handle the volatility (the ups and downs) of the stock market.

While winning hundreds of millions of dollars Friday night sounded great, the reality is that your financial success will be the result of a few key decisions that you make over the course of your lifetime.  Note that I did not state many decisions, but a few key decisions.

These key decisions may include:

• Having a proper team of advisers, including a financial advisor and an estate planning attorney.
• The spending decisions you make, particularly on how much to spend on your house, cars and vacations. Are you living within your means and saving money on a regular basis?
• Deciding to stick with an investment plan, or jumping in and out of the stock market, because you are scared or can't handle the ups and downs in the short term. For example, if you got out of the stock market during 2008 or 2009, or during the summer of 2011, those may have seemed liked good decisions at the time. However, they were probably not decisions that in the long run were in your best financial interest. 

Some of the benefits that our clients receive, or they have told us they have received, are:

• Less financially related stress, as they know that they have a good long-term investment plan in place and a team of advisers they can talk to.
• An investment plan that includes minimizing your taxes in a very effective manner.
• A real understanding of the high costs of their investments. When we begin to work with clients, many are very surprised about the true cost of their previous investments, which they were not fully aware of. We can almost always reduce this cost.
• A lot less mail, and thus, less time that they have to spend dealing with their investments.
• Knowing that they have a wealth management firm that has the client's interest as a priority, which comes ahead of the firm's financial interest (we actually have a legal obligation to put the client's interest first, which not all financial advisory firms can say or do).

So as the first quarter of 2012 ends, with the US stock market up a very surprising 12%, and international markets up even more, please take a moment to consider your investment decisions.

Are there any key decisions you could make today, other than buying a lottery ticket, that will have a significant impact on your financial life, 10, 20 or 30 years from now?

What We Learned in January 2012

• Markets continue to surprise analysts, which is why we do not think that Wall Street forecasters add value. The major US markets were up in January, 2012, with their best January in 15 years. Few people would have predicted these gains. As we focus on the long term, the stock allocations of our clients benefited.

• Foreign markets did better than US markets in January 2012. This is the opposite of what occurred during 2011. This further shows that stock markets cannot be accurately forecasted on a consistent basis.

• During numerous meetings with prospective clients, we saw examples of portfolios that were not even close to being properly diversified. We also saw many illiquid holdings, where these people could not readily access their funds. Other brokers had placed them into investments which may take months or years to get their money. We have never recommended such investments. Liquidity and flexibility are important.

• Almost 60% of the US large companies that have reported earnings in 2012 have exceeded their forecasts. The economy and companies continue to be resilient, despite ongoing world economic problems and political uncertainty.


• We continue to learn in many ways, both live and through technology. Keith attended a national conference in Arizona. Via Twitter, Brad closely followed many of the sessions that were held during the AICPA Personal Financial Planning conference.

• Watching the movie "Moneyball" reminded me of when I read the book, when it was first published. The theme of both the book and movie, as well as our investment philosophy, is that it is hard or impossible to predict which baseball players (or stocks) will be successful in the future. Acquiring baseball players that few want (they are like out of favor stocks) can be cheaper and can provide a greater return on your investment. Moneyball is the baseball equivalent of "value investing," which is a key component of our investment philosophy.

Book Review: The Behavior Gap

The Behavior Gap, by Carl Richards


If a picture is worth a 1000 words, then the sketches drawn by Carl Richards are certainly valuable. Richards' newly published book, “The Behavior Gap,” is even more valuable and highly worthwhile reading.

Richards has created a very unique and elegantly simple way of conveying financial thoughts by drawing sketches, using a Sharpie pen. These sketches are featured in weekly blog posts in The New York Times. Richards is a financial planner based in Utah.

In The Behavior Gap, Richards has done an excellent job of combining numerous sketches with a very forthright narrative of financial topics and life lessons. The book is well written and full of excellent advice, a lot of which is much deeper and more meaningful than they initially appear.

Richards clearly writes about topics ranging from the importance of the process of financial planning, as opposed to getting a thick financial plan, to happiness, money, and great conversations, and how all of these are so interrelated.

Richards writes: “Simplicity is both beautiful and functional. And yet, people are often disappointed when I propose a simple solution to their investment or financial planning problems. Such solutions can often be reduced to a simple calculation on the back of a napkin… Our attraction to complexity distorts the way we approach our financial goals. The simple options that have the largest impact and your financial success require discipline, patience, and hard work.”

We have a number of Carl's framed prints in our office already. This book will be a valuable addition to accompany those sketches.

How a Financial Advisor Can Add Value

These are some of the ways that we provided value for our clients during 2011:

• Listened. We have listened and talked with them, to help them handle the volatility of the stock markets. As a result, they have been able to maintain their investment plans, which will benefit them in the long run.

• We have adhered to our cornerstone investment fundamentals: recommending globally diversified stock portfolios, holding very high quality fixed income investments, focusing on asset allocation, and the use of Investment Policy Statements.

• We have rebalanced our client portfolios throughout the year, focusing on the discipline of buying asset classes when they are low and selling them when they are higher. Similarly, we have done tax loss selling throughout the year, as applicable, not just at year end.

As we have strong CPA backgrounds, we have provided financial advice about many topics to our clients, such as:

• We have advised numerous clients on various aspects of their mortgage refinancing decisions, so they could take advantage of historical low interest rates.

• Made recommendations for our clients’ 401(k) plan investments, as we consider those retirement assets part of their overall investment portfolio.

• Assisted clients with college tuition planning, which ranged from evaluating section 529 plan decisions and investment options, to advising grandparents who wanted to make major prepaid contributions.

• Advised a number of clients on significant Roth conversions, which will have huge long-term benefits for these individuals, as well as future generations of their families.

• Helped a number of clients with charitable planning, including the planning, establishment and investing for charitable family foundations. These will benefit both the families now, as well as numerous charities in the future.

• Required minimum distribution planning, for clients who are older than 70 ½, who are required to take distributions from their various retirement accounts.

Other things we have done, which benefit our clients:

• We have attended numerous national conferences, as well as participate in biweekly peer group phone conversations with fellow advisors, to learn, share ideas and become better advisors.

• Read. We are voracious readers, of everything from the Wall Street Journal and the New York Times, both in paper and digital forms, as well as trade publications, books, blogs, Twitter and podcasts. We are continuously reading and learning.

• Blogging and Twitter: this will be the 28th blog post that I have written during 2011. Writing blog posts is a great way for us to communicate our thoughts and views on a timely basis, which we hope is valuable to our clients and prospects. Brad is also very active on Twitter, which is a terrific way for us to communicate with others, both in terms of sharing information that we find valuable, as well as connecting with numerous people throughout the country that we learn from every day.

Part of our core investment philosophy is recognizing that we do not have a “crystal ball” and cannot predict the future. We focus on what we can control, to the best of our ability, on behalf of our clients.

• As financial advisors, our guiding principle is to provide our clients with a greater sense of comfort and security, so they can enjoy and focus on the other aspects of their life.

We are truly appreciative for our clients and the many referrals that we have received in 2011, as our firm has continued to grow. We hope that you and your family have a very enjoyable holiday season and that 2012 brings you good health and happiness!

11 Wealth Management Tips for 11/11/11

1. Have a written investment plan, based on your need, willingness and comfort to take risk. It does not have to be fancy. But it is extremely important.

2. Regularly rebalance your portfolio. Be disciplined about this. It will help you to buy low and sell high.

3. Evaluate your portfolio performance against a set of benchmarks, at least annually.

4. A significant part of your stock portfolio should be invested in international and emerging markets.

5. Recognize that you do not have a crystal ball and cannot predict the future. Recognize that no one else can predict the future either. If you are using an advisor, and he or she regularly makes predictions or "bets," you may need to make a change. Do not focus on past performance, as it is not an indicator of future performance.

6. Diversification. Always. For everything. You should own large and small companies. Growth and value companies. In many countries and industries. Understand the reason to own smaller and value companies.

7. Know when it makes sense to own municipal bonds. Know which municipal bonds sectors to avoid, due to higher historical default statistics. If you own municipal bonds, they should be diversified across many states, not just the state you live in.

8. If you have significant fixed income investments, like bonds or CDs, you should not own bond funds. And definitely not long term or low credit quality bond funds.

9. Focus on what you can control. Focus on costs and your asset allocation. You cannot control or influence any company, industry or the stock market.

10. Review your estate plan documents and retirement plan beneficiary designations, to make sure they reflect your wishes and are accurate. If you have a revocable trust, make sure that it is actually funded.

11. Use a fee-only financial advisor. Their interests will be aligned with your interests. Find an advisor that can provide many benefits and value. They can help you plan for the future. They can listen to you, so you can handle volatile markets and prevent big mistakes. They can save you time, improve your investment experience and provide your family a greater sense of comfort and security.

I hope this list is helpful and provides you with real value. If there are items on this list that you are not familiar with, or would like to discuss further, please contact us.

Dieting, Exercise and Investing. What's the Lesson?

How do you succeed at dieting, exercise and investing?

Are these unrelated? Not really.

Success at all three requires discipline, consistency and a program that you can stick to over the long term.

So how does this relate to investing? As advisors, we have adopted an investment philosophy that can be adhered to over the long run. It is rational, and provides our client’s with peace of mind, so they can stick with it.

In the past few weeks, the financial world has provided further evidence of why our approach makes sense, which gives us even greater confidence in our long term philosophy regarding stock investing. The markets have been very volatile since July, and our clients with stock investments have incurred losses, as have most others. But there is a distinct difference in approach.

We recognize that we cannot predict the future. We do not believe that we can identify which fund or money managers will do the best over the long run. Thus, we have adopted a philosophy which recognizes this.

A few weeks ago, Fidelity Magellan replaced the manager of this very large mutual fund, after years of underperformance. Over the last 10 years, this fund, once the largest in the world, ranked in the 95th percentile (1 being the best), trailing its benchmark and the S & P 500 by approximately 2.7% per year.

Fidelity, and this manager, have vast resources and a huge, global staff to assist in the research and stock picking for this fund. Despite all these resources, Fidelity’s staff was unable to outperform or come close to its target benchmark on a consistent basis, or even a majority of the time. The lesson: it is hard to pick a good money manager, in advance, that will outperform its respective benchmark, on a consistent basis over a long period of time.

The second example has been a number of reports of hedge funds reporting huge losses or funds that are simply shutting down, due to underperformance or dissatisfied investors. John Paulson, a hedge fund “titan” was an investment hero in 2008, as he placed huge bets against mortgage and financial stocks, and he was right.

Now fast forward to 2011. The WSJ reported today that two of his funds are down 32% and 47% for the year, far worse than market averages. He has placed huge bets on Bank of America, Hewlett-Packard and China’s Sino-Forest Corp. He has been very wrong in 2011. His funds have also lost billions on investments in gold and gold related stocks. Many of his clients are impatient and not willing to wait for his next great idea.

The lesson: There are many. Making huge, concentrated bets are risky. Sometimes they work, sometimes they don’t. When they don't, and your bets are very concentrated, the results can be horrendous.

Diversification, and not making concentrated bets and predictions, does work, which is why that is one of our core philosophies.

Our next post will further explain our investment philosophy.

Sources: Morningstar, for Fidelity Magellan; WSJ for Paulson information, 10/11/11 online