Blog - Page 48 of 71 - NorthStar Capital Advisors

10 Most Common Behavior Biases of Investors

Robert Seawright with Madison Avenue Securities assembled this list of the ten most common behavioral biases that hinder investors:

Confirmation bias – we gather facts and see those facts in a way that supports our pre-conceived conclusions
Optimism bias – our confidence in our judgement is usually greater than our objective accuracy
Loss aversion – the pain of losing $100 is at least twice as impactful as the pleasure of gaining $100 (causes investors to hold onto their losing stocks too long)
Self-serving bias – the good stuff that happens is my doing while the bad stuff is somebody else’s fault
Planning fallacy – overrate our own capacities and exaggerate our abilities to shape the future
Choice paralysis – we are readily paralyzed when there are too many choices
Herding – we run in herds, latching onto the group think and moving in lock step
We Prefer Stories to Analysis – people love a good narrative and prefer to be swept up by the story rather than work through the definitive numbers
Recency bias – we tend to extrapolate recent events into the future indefinitely
Bias blind-spot – the inability to recognize that we suffer from the aforementioned cognitive distortions!

Weekly Market Review ~ Friday, 11/02/12

Wall Street experienced a rare shutdown on Monday and Tuesday owing to Hurricane Sandy’s deluge crippling parts of the Eastern US seaboard. Trading resumed on Wednesday with an initial rise, but stocks settled near the unchanged mark by the end of day on near-normal volume. Positive consumer confidence, worker productivity, and manufacturing reports sent stocks soaring on Thursday, as investors received encouraging economic news on multiple fronts. On Friday, the previous day’s gains were eventually lost despite a dramatic rise in job growth in October. The national unemployment rate, however, ticked up by a tenth of a percent to 7.9%, possibly indicating that more people have restarted their search for employment.
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Financial Readiness: As Critical as Fully Charged Batteries

In light of the incredible impact of Hurricane Sandy on the East Coast of the U.S. this week, we want to spotlight the following important FTC Consumer Alert:

Home is where most people feel safe and comfortable. But sometimes — say, when a hurricane, flood, tornado, wildfire, or other disaster strikes — it’s safest to pack up and go to another location.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, says that when it comes to preparing for situations like weather emergencies, financial readiness is as important as a flashlight with fully charged batteries. Leaving your home can be stressful, but knowing that your financial documents are up-to-date, in one place, and portable can make a big difference at a tense time.

Here are some tips from the FTC for financial readiness in case of an emergency:

Conduct a household inventory. Make a list of your possessions and document it with photos or a video. This could help if you are filing insurance claims. Keep one copy of your inventory in your home on a shelf in a lockable, fireproof file box; keep another in a safe deposit box or another secure location.
Buy a lockable, fireproof file box. Place important documents in the box; keep the box in a secure, accessible location on a shelf in your home so that you can “grab it and go” if the need arises. Among the contents:
- your household inventory
- a list of emergency contacts, including family members who live outside your area
- copies of current prescriptions
- health insurance cards or information
- policy numbers for auto, flood, renter’s, or homeowner’s insurance, and a list of telephone numbers of your insurance companies
- copies of other important financial and family records — or notes about where they are — including deeds, titles, wills, birth and marriage certificates, passports, and relevant employee benefit and retirement documents. Except for wills, keep originals in a safe deposit box or some other location. If you have a will, ask your attorney to keep the
  original document.
- a list of phone numbers or email addresses of your creditors, financial institutions, landlords, and utility companies (sewer, water, gas, electric, telephone, cable)
- a list of bank, loan, credit card, mortgage, lease, debit and ATM, and investment account numbers
- Social Security cards
- backups of financial data you keep on your computer
- an extra set of keys for your house and car
- the key to your safe deposit box
- a small amount of cash or traveler’s checks. ATMs or financial institutions may be closed.
Consider renting a safe deposit box for storage of important documents.Original documents to store in a safe deposit box might include:
- deeds, titles, and other ownership records for your home, autos, RVs, or boats
- credit, lease, and other financial and payment agreements
- birth certificates, naturalization papers, and Social Security cards
- marriage license/divorce papers and child custody papers
- passports and military papers (if you need these regularly, you could place the originals in your fireproof box and a copy in your safe deposit box)
- appraisals of expensive jewelry and heirlooms
- certificates for stocks, bonds, and other investments and retirement accounts
- trust agreements
- living wills, powers of attorney, and health care powers of attorney
- insurance policies
- home improvement records
- household inventory documentation
- a copy of your will
Choose an out-of-town contact. Ask an out-of-town friend or relative to be the point of contact for your family, and make sure everyone in your family has the information. After some emergencies, it can be easier to make a long distance call than a local one.
Update all your information. Review the contents of your household inventory, your fireproof box, safe deposit box, and the information for your out-of-town contact at least once a year.

Source: Federal Trade Commission

Weekly Marker Review ~ Friday, 10/26/12

The downturn of last week continued into the early part of Monday, as the Dow dipped early by more than 100 points before recovering for a minimal gain by the end of the day. On Tuesday a plethora of weak earnings reports sent the market crashing again, with the Dow registering an almost 250 point loss. The major indexes failed to bounce back on Wednesday, experiencing yet another loss despite encouraging new home-building and home sales reports. On Thursday stocks earned back a small fraction of previous days’ losses after mixed economic and job-related reports. The major indexes finished the week on Friday with another tiny gain, despite the fact that the third quarter GDP rose by 2.0%, more than expected by analysts. However, investor excitement was tempered by yet more disappointing earnings reports.
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Guessing at Retirement?

Here are some startling facts when it comes to retirement planning:

75% of middle-class Americans say their estimates of their retirement needs are based on “some sort of guess”.
Middle-class American believe the median cost of their out-of-pocket health care in retirement will be $47,000 when the actual number according to the Center for Retirement Research is $260,000.
On average, middle-class American expect to withdraw 10% of their nest egg annually in retirement. Most experts recommend annual withdrawal rates of only 3% to 4%.
34% of middle-class Americans expect to live off of 50% or less of their pre-retirement income. Since the median household income is ~$50,000, these folks are planning on living off of less than $25,000 per year.

Are you playing the guessing game or have you done detailed calculations of your retirement needs?

Source: New York Times

Weekly Market Review ~ Friday, 10/19/12

Stocks opened the week on Monday with a nearly 1% gain following a positive US retails report, the third monthly gain for this important economic indicator. On Tuesday, the market tacked on an additional percent as investor sentiment over the US economy and Spain/Greece seems to be improving. The Dow had its fourth consecutive winning day on Wednesday despite disappointing earning reports from heavyweights IBM and Intel. An encouraging September home construction report lends further evidence that a housing recovery is underway. A disappointing earnings report from Google sent stocks down on Thursday, although the losses were minimal. Friday marked the 25th anniversary of Black Monday, the day in 1987 when the Dow dropped almost 23%. While not nearly on the same scale as Black Monday, stocks fell hard on renewed concerns over corporate earnings.
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Home Building Surges as Confidence Grows

Residential construction picked up momentum in September and now is running at its highest level in four years, a turn that could have a positive effect on the jobs market and the broader U.S. economy.

Source:
Wall Street Journal

Weekly Market Review ~ Friday, 10/12/12

The major indexes fell modestly on Monday as investors prepare for the upcoming earnings seasons, which is expected to be a disappointment. On Tuesday the Dow fell over 100 points after the International Monetary Fund reduced its outlook on economic growth for 2012. Another steep decline followed on Wednesday as gloomy earnings from Alcoa seemed to indicate that the overall third quarter earnings concerns are valid. On Thursday the Dow had its fourth consecutive losing session of the week, although losses would have been worse if the initial weekly jobless claims report had not been much better than expected. The Dow barely avoided an 0 for 5 week on Friday by eeking out a small gain. However the NASDAQ suffered its sixth straight losing session.
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Rich Dad, Poor Dad, Bankrupt Dad?

You’ve probably heard of Robert Kiyosaki through his best-selling book series, Rich Dad, Poor Dad. Kiyosaki holds himself out as a self-made wealth guru who is happy to share the secret money-making strategies of the wealthy.

The tactics that he has advocated range from silly to illegal and include things like insider trading, buying multiple real estate properties for no money down, and buying stocks on margin via unfunded brokerage accounts.

Now add bankruptcy to Kiyosaki’s highly questionable list of strategies. One of Kiyosaki’s businesses, Rich Global LLC, filed for bankruptcy protection in August after it was ordered to pay a $24 million settlement. Kiyosaki will not be putting any of his personal fortune toward the settlement.

There is no evidence that Rich Dad, the man who allegedly imparted all these money-making secrets to Kiyosaki, ever existed. Nor is there any evidence that Kiyosaki amassed any significant wealth before the publication of Rich Dad, Poor Dad in 1997. Nonetheless, Kiyosaki is now reportedly worth $80 million!

In all likelihood, Kiyosaki did not get wealthy using the schemes he pushes in his books, but through proceeds of his book sales and personal appearances. He got wealthy selling the dream and illusion of get-rich-quick schemes.

source: Forbes

Weekly Market Review ~ Friday, 10/05/12

The fourth quarter of 2012 began on Monday with renewed optimism among traders, with gains registered by the Dow, S&P 500, and NASDAQ. An unexpectedly favorable manufacturing report seemed to be the cause for the uptick. On Tuesday stocks bounced up and down considerably to settle near the unchanged mark after the Spanish prime minister cast doubt on an imminent Eurozone bailout of the country. The market was little changed again on Wednesday despite a report showing that private-sector job growth diminished less than expected in September. On Thursday the major indexes had solid gains once again even in light of a report finding that weekly initial jobless claims increased. Such a gain a was somewhat surprising considering investors’ tendency to be cautious on the day before the monthly unemployment rate is updated. The much-anticipated September unemployment rate report did not disappoint, as the unemployment rate dipped below the 8% mark for the first time since January 2009 at 7.8%. Still, the major indexes did not finish strongly on concerns about more Eurozone woes, this time regarding Greece’s chance to receive additional aid.
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