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Providence Day School Commencement Address

  • May 31, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Personal Finance, Saving Money

PDS-CommencementThe following is the commencement address by Dr. Chris Mullis to the graduating class of Providence Day School on May 31, 2013.

Good morning.  Thank you, Mrs. Hinson for your kind introduction.  It’s hard to believe more than a quarter-century has passed, but I still have great Providence Day memories and, in particular, three distinct Bobbie Hinson memories: #1 dissecting pigs in your biology class, #2 the time you were injured by a sea urchin in Puerto Rico during our science fair trip, and finally, #3 the day you showed up at school vividly dressed up as Dolly Parton. Great memories! I’m certain our graduates have their own Providence Day memories being replayed in their heads on this special morning.

I want to thank the Commencement Committee for allowing me to address and celebrate Providence Day’s Class of 2013. I am deeply honored to be here. A few weeks ago I had the pleasure and opportunity to meet with Head of School and your class officers to learn more about the spirit and the accomplishments of your outstanding group of 135 scholars.

  • This fall you will be fanning out across 20 states and the District of Columbia to attend 63 institutions of higher learning.
  • 76% of you have been offered merit scholarships and honors programs
  • These include the prestigious Morehead-Cain Scholarship, the Goodnight Scholarship, the Presidential Merit Scholarship, and the Centre Fellowship
  • You collectively earned $5.9M in scholarships funds
  • There are 4 National Merit Finalists and 7 Commended Scholars amongst you.
  • 27 of your class will play NCAA intercollegiate sports in football, basketball, baseball, golf, tennis, field hockey and track.

I am impressed by the depth and breadth of these and your many other accolades.  To each and every one of you I say well done and congratulations.

I want you to recognize the incredible milestone that you have achieved today and yes bask a bit in that well-deserved glory.  But I want you to also reflect on how you got here.  Look up in the stands at these people all around you. Think of the countless hours your parents have spent shuttling you to and from school and extracurricular activities.  Think of the financial sacrifices that your parents have made to give you the Providence Day opportunity.  You don’t know how truly special this gift is now, but you will grow to understand this in the decades to come.  Class of 2013, please rise up and show your appreciation by giving your parents, your grandparents and the rest of your family a round of applause for their love and support.  This is their moment too.

Finally I want you to think about a group of exceptional professionals, many of whom are seated directly behind you. I want you to recognize the extremely dedicated and talented educators who have worked with you every step of the way over the years – some of you for 13 or 14 years here at Providence Day.  Class of 2013, please stand and honor the excellence of the faculty, staff and administration of Providence Day School.

When Mrs. Gill reached out to me with the invitation to speak, my first thought was, I’m no Scott Carpenter. Scott Carpenter was a NASA astronaut…in fact one of the original 7 Mercury astronauts…the ones lionized in Tom Wolfe’s book and the movie, “The Right Stuff”.  Scott Carpenter was the 2nd American to orbit the Earth, the 4th American to go into space, and a trailblazer toward putting man on the Moon.  Carpenter was also Providence Day’s commencement speaker for the Class of 1990, the year I graduated!

As an astrophysicist, I’ve had the opportunity to launch experiments on the Space Shuttle, collaborate with Nobel laureates, and use the largest telescopes on Earth and in space to probe the boundaries of the Universe.  But those obviously pale in comparison to the historic achievements of a person like Scott Carpenter. So what can I offer you, the members of the Class of 2013?  The rationale exercised by the Commencement Committee for inviting alums like myself is the fact that you and I are walking down the same path of life and have spent our foundational years growing in the same environment of excellence.  You, I, all of us are the ultimate product of this community of learning that we call Providence Day. We are part of the same extended family. We have been shaped by many of the same great educators. People like,

  • Bobby Hinson
  • Jeff Lucia
  • Sam Caudill
  • Debra Wilhoit
  • Phyllis Gill
  • Roberta McKaig
  • Roy Garrison

These are 7 of the distinguished faculty here today that span our generations at Providence Day, having taught the Classes of 1990 and 2013.

My intent for a few short minutes is to share some perspective as someone that’s just a little further down that path that we share.
One of the most defining decisions that you will make in the next few years is your career choice.  I want to urge you to optimize passion before paycheck in making that decision. Notice my choice of words, “optimize”.  I’m not saying totally disregard the economics of your career choices, but rather put more weight on the profession that resonates most with your heart instead of the one that most fattens your wallet. My premise is that you will go farther, contribute more to society, and have more happiness by putting passion ahead of paycheck.

I wrestled with this career decision relatively early in life.  It was during my senior year at Providence Day.  I felt a calling toward astronomy, loved doing the research and was already publishing papers.  There were many mornings that I would struggle to show up for school because I had stayed up the previous night collecting data at the telescope. This was my passion and the only option for me in my mind.  Of course my parents were very supportive, but I’m sure my father, a successful business owner, had some reservations about the modest compensation associated with an academic career.  My astronomy mentor, Gayle Riggsbee, was characteristically much more direct.  He in no uncertain terms advised me to do astronomy as an avocation and not a vocation.  He said to go out and get a good-paying job and do astronomy as a hobby.  It was with great trepidation that I respectfully disregarded his guidance and barreled full on into professional astronomy.   That decision to follow my passion yielded 17 incredibly rewarding years of service through science.  It took me places, physically and metaphysically, and forged friendships with people around the world that I would have never experienced had I followed a more traditional career path.

Now if you do some fast math around my career advice, you may conclude that the recommended trajectory will make you wealthy in life experiences but may impede your financial success.  My second piece of advice will more than compensate for that potential shortcoming.

Over the years I’ve flown on countless commercial jets. There was a time when I was simultaneously working in both science and finance. If my neighbor on the plane asked about my line of work, sometimes I would say astronomy and sometimes I would say finance.  When I disclosed my astronomer persona, it invariably led to a long and lively discussion on black holes, the Big Bang and similar topics.  Whereas, when I went with the finance guise, the conversation wrapped up rather quickly. It’s a shame that we don’t have more in depth discussions around personal finance. Managing your money is not a sexy topic but doing it well will have a profoundly positive impact on your life and the lives of those around you.

At my investment advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios.  But the basic steps you to need to take to manage your own money well are deceptively simple. First, live within your means and avoid being caught up in rapid lifestyle inflation.  You will not live like your parents when you first start out. Second, save and invest your money wisely.  Let me elaborate on this point.

Wealth accumulation depends on three factors: how much you save, the rate at which your money grows, and how long you save.  That last factor, time, is very, very important.  There’s an urban legend that Albert Einstein once said that compounding interest is the most powerful force in the Universe.  That quote is likely misattributed but the message is spot on.  If you save $5,000 a year for 40 years and earn 8% annually, you will eventually have $1.3M.  But if you delay starting for merely 5 years, your results after 35 years will be only $860k.  That 5-year delay preserved $25k of short-term capital but ultimately cost you >$400k in the long run.  Time is the most powerful lever in the machinery of investing.  Nothing else comes close to it.

So what do you need to do? Start saving and investing right out of high school regardless of how hard you think it hurts or how unpleasant the tradeoffs.  Even if you set aside only 5% of your paycheck starting out, do it to get into the habit of saving.  Delaying getting serious about investing until my 30s was a significant financial mistake on my part.  No one ever sat me down and explained how important it is to start investing early. Now that we’ve had this little talk, you’ll never be able to say that no one told you.

Now on the remote chance you’ve drifted away from us over the last few minutes contemplating your post-graduation vacation, this is the time that you’ll want to tune back in for the CliffsNotes version of my speech. These are the key takeaways: follow your career passion and take charge of your financial security by being a young and informed investor.  With the excitement of the moment I know that most of my words may wash past you.  I sat where you sat 23 years ago and unfortunately have zero recall of what astronaut Scott Carpenter told the Class of 1990. But our relationship is different.  We share a common bond as fellow alums walking the same path.  If you need any help recalling my suggestions or if I can be of any service to you on your journey, please don’t hesitate to reach out to me, a fellow Charger.
Let me leave you with these final thoughts:

  • Seek out opportunities to live overseas to continue to develop a global perspective that appreciates different ways of thinking and living.
  • Continue to develop your critical thinking skills and apply them in your daily life and in your contributions to society.
  • Maintain your passion for learning; the truly successful are lifelong learners.
  • And finally, do great things with the gifts that Providence Day School has nurtured in you.

Class of 2013, congratulations on your achievements and good luck on your future endeavors.

Thank you


Self-Destructive Investor Behavior

  • May 9, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior

Over the 20-year period from 1993 to 2012, the S&P 500 returned 8.2% annually, while the average stock investor in the U.S. earned only 4.3%.  This great divide between the two results is called the “investor behavior gap” because the majority of it is the result of individual investors making bad decisions.

Fear, greed and other emotions drive negative behaviors such as:

  • Dumping money into the latest high-flying fund or asset class with the expectation that the outperformance will continue.
  • Actively avoiding areas of the market that are down and out of favor with the mindset the beleaguered investment will never come back.
  • Disregarding your investment plan by attempting to time the market.

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” — Benjamin Graham (“Father of Value Investing”)

 


What’s Wrong with the Financial Services Industry?

  • April 25, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : 401(k), Behavior, Fiduciary, Seeking Prudent Advice

According to Barry Ritholtz, the big problems that plague the financial service industry are the following:

• Simplicity does not pay well: Investing should be relatively simple: Buy broad asset classes, hold them over long periods of time, rebalance periodically, get off the tracks when the locomotive is bearing down on you. The problem is its easier in theory than is reality to execute. And, it is difficult to charge excessive fees for these services.

• Confusion is not a bug, its a feature: Thus, the massive choice, the nonstop noise, confusing claims, contradictory experts all work to make this much a more complex exercise than it need be. This is by design.

• Too much money attracts the wrong kinds of people: Let’s face it, the volume of cash that passes through the Financial Services Industry is enormous. Few who enters finance does so for altruistic reasons. There is a difference between normal greed (human nature) and outright criminality. This is why strong regulators and enforcement cops are required.

• Incentives are misaligned: Too many people lack the patience to get rich slowly. Hence, not only do the wrong people work in finance, and some of the right people exercise bad judgment.

• Too many people have a hand in your pocket:  The list of people nicking you as an investor is enormous. Insiders (CEO/CFO/Boards of Directors) transfer wealth from shareholders to themselves, with the blessing of corrupted Compensation Consultants. 401(k)s are disastrous. NYSE and NASDAQ Exchanges have been paid to allow a HFT tax on every other investor. FASB and Accountants have doen an awful job, allowing corporations to mislead investors with junk balance statements. The Media’s job is to sell advertising, not provide you with intelligent advice. The Regulators have been captured.

Source: The Big Picture

 

 


Education Still Matters If You Want a Decent Paying Job

  • April 4, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Economy, Seeking Prudent Advice

Click for larger view

Data: BLS, FactSet, J.P. Morgan Asset Management. Source: Census Bureau, J.P. Morgan Asset Management;  Unemployment rates shown are for civilians aged 25 and older.

Source: JPM Morgan Guide to Markets, Q2 2013


Money Lessons From “Downton Abbey”

  • March 14, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Seeking Prudent Advice

We’re big fans of “Downton Abbey”, the television show that follows an aristocratic British family in the early decades of the 20th century.

Over the three seasons that the show has graced PBS’ “Masterpiece”, a number of money lessons have been showcased — mostly what NOT to do!

For example, don’t bet the family fortune on a railroad thousands of miles away (i.e., massive lack of diversification).  A professional advisor working in concert with the Earl of Grantham probably would have prevented him from concentrating so much capital in a Canadian railway!

Downton’s money lessons include financial and estate-planning disasters, bad investments, messy trusts, and inadequate business succession plans.

Here are some key takeaways and tie-ins:

  • Spell out control and ownership when passing the baton of a family company
    (the generational transfer of Downton Abbey from Robert to Matthew)
  • Use trusts to protect the family fortune
    (to protect Robert Crawley’s from his own poor decisions)
  • Make a will before giving birth
    (think of Matthew Crawley’s untimely demise)
  • Set up a medical directive
    (the terrible struggle of how to handle Sybil in childbirth)

We can’t wait for more Dowton Abbey and money lessons in season four!

 


Running in the Wrong Direction (CHART)

  • February 14, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Mutual Funds

Click to zoom

The S&P 500 has more than doubled since March 2009 but individual investors have been selling stocks almost the entire time!

In January 2013, equity funds took in $19.6 billion. This was the largest inflow since ICI started tracking the data six years ago. During the prior 4 year rally, outflows exceeded $435 billion.

This is a very visual example of how emotions can wreak havoc on an investor’s ability to build long-term wealth.  Investors allowed fear to control their investing behavior and entirely miss this 4-year bull run.

This negative behavior is nothing new. Over the 20-year period from 1992 to 2011, the S&P 500 returned 7.8% annually, while the average stock investor in the U.S. earned only 3.5%. 

Source:
David Wilson

Chart of the Day, February 14, 2013
Bloomberg


Six ways our brains make bad financial decisions

  • January 31, 2013/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Retirement, Seeking Prudent Advice

Click to zoom

Our brains are hard-wired to choose short-term payoff over long-term gain. Duke University professor of psychology and behavior economics Dr. Dan Ariely has a great article on this subject. Here are six common mistakes investors make – and how to avoid them.

  1. SAVING: What’s more important: buying a new iPad nowor saving that moneyfor the future?
  2. RETIREMENT PLANNING: How much money do you think you need for your retirement, assuming you plan on maintaining your current lifestyle?
  3. INSURANCE: Why do we make such bad decisions when it comes to insurance?
  4. SHOPPING: Why do we invest in extended warranties?
  5. MORTGAGES: Why do we buy mortgages from the same old suspects?

Read Dr. Ariely’s article here and learn how to avoid these bad decisions.

 


10 Most Common Behavior Biases of Investors

  • November 8, 2012/
  • Posted By : admin/
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  • Under : Behavior, Seeking Prudent Advice

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

  1. Confirmation bias – we gather facts and see those facts in a way that supports our pre-conceived conclusions
  2. Optimism bias – our confidence in our judgement is usually greater than our objective accuracy
  3. 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)
  4. Self-serving bias – the good stuff that happens is my doing while the bad stuff is somebody else’s fault
  5. Planning fallacy – overrate our own capacities and exaggerate our abilities to shape the future
  6. Choice paralysis – we are readily paralyzed when there are too many choices
  7. Herding – we run in herds, latching onto the group think and moving in lock step
  8. 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
  9. Recency bias – we tend to extrapolate recent events into the future indefinitely
  10. Bias blind-spot – the inability to recognize that we suffer from the aforementioned cognitive distortions!

Investors Continue to Avoid Stocks Despite Strong Performance

  • October 4, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Market Outlook, Mutual Funds

The recent buoyancy in the stock market hasn’t won over mutual-fund buyers. August marked the 16th consecutive month in which investors pulled more cash out of U.S.-stock mutual funds than they put in.

The painful bear market of 2007-09 has left investors with a skewed view of U.S.-stock performance. In investor surveys conducted in early 2010, 2011 and 2012, at least 48% of respondents each year said the stock market had been down or flat in the preceding year. In fact, the Standard & Poor’s 500-stock index was up strongly in 2009 and 2010 and eked out a 2.1% return (including dividends) in 2011.

source: Wall Street Journal


Are You Better Off? Take a Look at the Stock Market

  • September 14, 2012/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Economy, Market Outlook, Performance

Are you better off now?  This is not meant as a political question.  We’re actually trying to make an important point regarding investor behavior.

As of September 14, the S&P 500 index with dividends is 87% higher than it was on inauguration day, January 19, 2009.

This fact shocks many people because it’s just hard to believe given the financial fallout of the Great Recession and the ensuing slow recovery.  As humans we tend to be backward looking.  The pain we experienced collectively and personally persists.  However, the stock market is focused on the future and investors judge the long-run prospects of the entire U.S. economy to be strong.

Bottom line:  Your personal experience, economic opinions, and intuition are often a poor guide to managing your investments. 

For example, is your stock portfolio up 87% as well or did you invest emotionally and cash out at the depths of the Great Recession?

 

 


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