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What You Shouldn’t Do Now

  • August 22, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Uncategorised

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We sent the following note to clients and friends after stocks slumped world-wide this week, with U.S. and European markets off more than 5% and the Shanghai Composite Index losing more than 11%.

————

August 22, 2015

The natural inclination after the stock market falls sharply like it did this past week is to take action. Do something! But here’s the rub. You own stocks to achieve long-term goals. So unless your objectives have changed in the past few days, it’s probably not prudent to abandon your investment strategy based on a market gyration.

In today’s Wall Street Journal, Jason Zweig provides an excellent description of how NOT to react:

Don’t fixate on the news.
The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you even though short, sharp declines of 5% to 25% are common. The U.S. stock market has, in the past few years, been extraordinarily placid by historical standards. Even the sudden drops of the past few days are well within the long-term norm. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals.

Don’t be complacent.
You should use the latest turbulence as a pretext to ask yourself honestly whether you are prepared to withstand a much worse decline. Did you make it through the epic bear market of 2007-09 without selling all your stocks? Are you extremely well diversified, with plenty of cash, some bonds, and with large and small stocks from markets around the world? Then you can probably weather a further decline. But if you sold in earlier bear markets or you are heavily concentrated in a few stocks or sectors, you should consider raising some cash or diversifying more broadly to protect against the risk that you will take even more drastic action at the worst time.

Don’t think you — or anyone else — knows what will happen next.
After a market drop, or at any other time, no one knows what the market will do next. The one thing you can be fairly sure of is that the louder and more forcefully a market pundit voices his certainty about what is going to happen next, the more likely it is that he will turn out to be wrong. Stocks could drop another 10% from here, or another 25% or 50%; they could stay flat; or they could go right back up again.

Diversification, patience and, above all, self-knowledge are your best weapons against this irreducible uncertainty.

If you want to read a different version of this evergreen advice, check out Ron Lieber’s article in today’s New York Times, Take Some Deep Breaths, and Don’t Do a Thing.

It’s normal to worry a little, but if your investments are positioned properly for long-term success, you shouldn’t lose sleep over blips in the market. I invite you to give me a call anytime at 704-350-5028 if you want to talk more about this.

Enjoy the rest of your weekend.

Chris

—
Chris Mullis, Ph.D.
CEO


Managing Your Portfolio: One Father’s Advice

  • August 20, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Personal Finance

Writing letter to a friend.Arthur Zeikel, president of Merrill Lynch Asset Management, sent his daughter a letter teaching her some investing basics.

Enjoy!

———

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

I hope the following advice will help:

A fool and his money are soon parted. Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

There is no free lunch. Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

Don’t put all your eggs in one basket. Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

Never overreach for yield. Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun (Ray DeVoe).

Spend interest, never principal, If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

You cannot eat relative performance. Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

Don’t be afraid to take a loss. Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best, but is also usually the smallest.

Watch out for fads. Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

Take the long view. Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

Remember the value of common sense. No system works all of the time. History is a guide, not a template.

This is all you really need to know.

When this article was originally published in 1995, Arthur Zeikel was president of Merrill Lynch Asset Management in New Jersey.

Source: Forbes


20 People You Don’t Want to Invest With

  • August 6, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Fiduciary, Scams & Schemes

20Identifying what does NOT work is often a great process for narrowing your list of options of what you should do.  In that spirit, here’s Ben Carlson’s list of 20 people you wouldn’t want to invest with:

1. People that are unwilling or unable to admit their limitations.

2. People that are consumed by ideological or political beliefs when making investment decisions.

3. People that are unwilling to say “I don’t know.”

4. People that don’t learn from their mistakes.

5. People that blame external forces for their failures.

6. People that are unable to effectively communicate their process.

7. People that make guarantees about the markets in the future.

8. People that are more interested in selling you a product than creating a beneficial long-lasting client relationship.

9. People that try to invest in the markets as they “should be” instead of how they actually are.

10. People that are more worried about what others are doing instead of focusing on their own process and goals.

11. People that take the markets personally and let their emotions drive their decisions.

12. People that assume “trust me, I got this” is good enough in terms of explaining their strategy.

13. People that believe in conspiracy theories and think the system is out to get them.

14. People that are more worried about sounding intelligent than actually making money.

15. People that obsess over the market’s short-term movements.

16. People that would rather take you golfing than help you solve your problems.

17. People that make you feel like they’re doing you a favor by letting you invest your money with them.

18. People that try to dazzle you with 200 page pitch books.

19. People that are more worried about gathering future clients than taking care of their current ones.

20. People that tell you what you want to hear instead of what you need to hear.

Source: AWOCS


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