“This January will be 10 years.”
“The details can be different, but the overriding idea is that you build a well diversified portfolio made up of quality investments and you manage that allocation. By and large, it’s still the same. Some of the nuts and bolts are different, such as the rise of ETFs (exchange traded fund), which as analogous to mutual funds only they trade like stocks. Really it’s no different, there are just more tools in the toolbox to chose from.”
“We’ll see trends come though. Whatever is on the commercials seems to be the hot topic. Advertising still gets people hook, line and sinker. You never want to own anything in a up market that you wouldn’t want to own in a down market. And that’s a big deal because people will have a tendency to try and shed investments, thinking that they’re jumping off the train tracks, but we never know when something is going to stop or start. You don’t want to try timing, otherwise you’re probably going to get hurt. The hot new sector today is going to be the ‘avoid it’ sector of next year. If you’re trying to time that, you’re more betting. And we don’t bet, that’s not how we look at investing. Ultimately fads will come and go. I remember Hypercolor (a clothing trend) in the late 80s and early 90s, but you don’t really see that much anymore. Edward Jones has been around since 1922 and we’ve seen the hot topic come up and then just die catastrophically. If somebody was really betting on that, instead of getting a paper cut they just suffered an amputation — two very different experiences.
The ETFs have been the newer style of investing. It is definitely becoming big with retail or individual investors. There has been a rise of robo advisors which means a computer is essentially doing the investing for you. But people have a hard time trusting in a computer program, they want to talk to somebody. Some of the robo advisors can freeze their customer accounts even if they want to sell or buy, which we did see with the UK Brexit vote. I believe it was Betterment Wealth Management that froze everybody’s account, so even if you needed or had to take money that day, you could not sell. Most individuals, when they’re talking about their money and they’re concerned about portfolios going down, they want to look at somebody’s face. Computers aren’t all that friendly.”
“You see a lot of ETFs that use leverage. What that means, is that a fund or investment will go out and borrow money along with all the assets they’ve pulled from investors. They take the investors assets plus the borrowed money and invest it. In terms of bonds, you can really increase the yield an and investor will see, right up until we see something like 2008 roll through where all of a sudden these monies that are borrowed are now due because the asset size has fallen and that forces the investment firm or investment to pay back some of the loaned money. Instead of just being down what the investment is down, because you borrowed money, it magnifies the downside (and also the upside). There are some positives to it, but we don’t think the positives outweigh the negatives.”
“There are changes, regulation and oversight is increasing. New products that come online that may or may not be in an individual’s best interest — the field is forever changing.”
“A lot of first-time investors, whether they’re young or more advanced in life, somehow seem to think that they need to take more risk or bet big and make up for time that was lost or time that they chose not to invest. That’s probably one of the biggest downfalls people can make, thinking they have to do that. What they forget is that this is not timing the market, it’s time in the market. They need to have something that they’re willing to add to consistently. A lot times, what we will see is someone will invest in something and as it’s going up they’re happy, but when it starts coming back down it’s still the same investment. You’re just seeing a softening on the price. Over time, we expect it to come right back up. Along with taking too much risk right out of the gate, and not being properly diversified, they’ll forget that this is a rollercoaster. We’ll see the ups and downs and the best benefit you can give yourself, is just constantly adding money whether it’s going up or down.”
“I have accounts for people who are still in high school, which isn’t very common. For first-time investors, I would say the average age is probably in the mid-20s. They’re out of college, if they went. They’re seeing their earnings grow and just have that extra cash and are starting to think about the future whether it’s buying a home, investing in their kids education or retirement. By and large, new investors are often in the mid-20’s range, but you see it all.”
“We want build a portfolio that doesn’t take too much risk by getting into one particular area because the investor may be enamored with it. Ultimately you need to have fingers and toes everywhere, because we never know when a flood in one pond is going to happen or drought in another.
We, as a firm, want people to build diversified portfolios of quality investments and you hold that for the long term. That’s the overriding concern whether you’re a first time investor or a well-established investor. The rule doesn’t change. When you spread your risk, you spread your reward but the big side is that downside. I’ve never had anyone call upset that they’ve made money.”
“The investors who are rewarded the most, acknowledge their emotions but they don’t allow their emotions to rule their investment process.
“When politics are hot and heavy, which they definitely are right now, people can really get themselves riled up in things that could potentially happen — not necessarily things that are happening. Seasoned investors realize that not all their investments will all go up forever, they will come down. The reward means owning through thick and thin. We don’t invest in a company when things are going well. We invest in them knowing that there are going to be times when this isn’t going to be the best performer, but we don’t know when those times are or when they are going to start or stop. But if you hold a quality investment through a downturn, you’re going to see it react like a tennis ball. It’s going to come down and hit the bottom, but it will bounce back up. A non-quality investment, when it hits the ground, it’s going to be more like an egg. It just shatters and you’re left with a mess. That’s why we say to focus on quality investments and stay diversified. Some of my best portfolios will go down, that’s a fact of life, but if we believe the market history over the past 200 years, it will come back. It’s no secret, it’s just get into a portfolio, acknowledge emotions as they come up but don’t allow those emotions to guide what you’re going to do next.”
“There’s one family who I had a weekly conference call with through the 2008-09 downturn, one of the biggest market downturns we’ve seen since The Great Depression. In 2008, the market was down about 38 percent in one year. We hadn’t seen that sort of downturn in a year since the 1930s.
And what I was telling people was ‘would it make you more comfortable if we touched base weekly and you could tell me what you’re thinking or concerned about?’ And I can help let you know if that’s going to actually impact your portfolio or if that story was just something to get you not to change the channel.
With one family, it was a weekly conversation. But because I did that, she didn’t sell her investments and she’s had an amazing return from that downturn. Every emotion in her body was screaming get out and shelter your money. But ultimately, if we think that it will come back up, why would we sell? More importantly, if we’re selling, there’s someone on the other side of that transaction buying that share from you.”
“I’m having clients come in or call discussing the emotion around this. It’s somewhat analogous to the 2008 presidential election in that we have someone who is vastly different from the previous administration. It brings me back to that timeframe (in 2008). I’m reminding people that we have checks and balances in our government, and they’re there for a reason so that we don’t get one person at the helm that decides to veer us so far off course that there’s no recovering. It’s perfectly normal to be concerned about this, but the one thing that we can’t convince ourselves of is that “this time is different.” Those are probably the four most fatal words that people or investors can convince themselves of, that this time is different. 2008 was definitely different, but we made it though, and look at where the market has come in that time. People are hearing warning signals, and that’s normal. President-elect Trump will be here for four, potentially eight years, but we’re still going to be here long after he’s gone.”