Behavior Archives - Page 2 of 11 - NorthStar Capital Advisors

WCCB TV Interviews Dr. Chris Mullis

Source: WCCB TV / Local Financial Advisors Say “Stay the Course” Following Historic Market Drop

Dr. Chris Mullis, NorthStar’s Founding Partner, did an on-air interview with WCCB TV news anchor Drew Bollea discussing how people should think about their investments in the midst of a global panic induced by the coronavirus. (click image to watch video)

Ironically, this interview was recorded on March 9, 2020 — exactly 11 years to the day since the crescendo of global panic that marked the bottom of the 2007-09 bear market.

Here’s the memo that we sent clients and friends ahead of this interview that elaborates on the points made during the news report:

March 9, 2020

At this morning’s opening level of 2,764, the S&P 500 is down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences — indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%. But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.

As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)

The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in my experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.

Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is — you guessed it again — sell. Indeed, I welcome your inquiries around the issue of putting cash to work along in here.

On March 3, the erudite billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world — and the cash flows it will produce in the future — are worth 13% less today than they were on February 19.” How much more true this observation must be a week later, when they’re down 18%.

Be of good cheer. This too shall pass.

The most valuable holiday gift for 2019?

(Holiday decorations & countdown courtesy of a very excited 11-year-old named Benjamin Mullis)

Let’s face it. Buying meaningful gifts for our family and friends is really, really hard. If you want to give something that has a larger impact long after the holiday season has passed, why not give the gift of financial education and wisdom for living a fulfilled life?

Given the academic background of our firm, I know the following is going to be a big shocker. Here at NorthStar, we love reading books and we love giving books as gifts! Below you’ll find the NorthStar Guide to Gifts That Pay Off. It’s full of our favorite book and money-related gift recommendations for those ages 4 to 94!

So what’s the most valuable holiday gift of 2019? A fun lesson in financial literacy and living your best life!

Happy shopping,
NorthStar Capital Adivsors

2019 NORTHSTAR GUIDE TO GIFTS THAT PAY OFFAges 4 to 10

Money Savvy Pig
The piggy bank for the 21st century!
http://www.moneysavvy.com/assembled/money_savvy_pig.html

Ages 11-16

Cash Cache
The award-winning personal finance organizer for teens!
http://www.moneysavvy.com/assembled/cash_cache.html

Ages 13-18

O.M.G. Official Money Guide for Teenagers
How to turn pocket money into power and freedom
http://www.moneysavvy.com/assembled/omgt.html

What Color Is Your Parachute for Teens
Career guide for teens to help zero in on their favorite skills and find their perfect major or career
https://www.parachute4teens.com/

High School Graduates (plus Recent Retirees and New Entrepreneurs)

5 Book
Where will you be five years from today?
https://www.live-inspired.com/catalog/product/books-by-kobi-yamada/5-where-will-you-be-five-years-from-today/

College Students

O.M.G. Official Money Guide for College Students
Don’t send your student off to college without first tucking this essential reading into their book bag!
http://www.moneysavvy.com/assembled/omgc.html

They Don’t Teach Corporate in College
A twenty-something’s guide to the business world
https://www.alexandralevit.com/books

College Graduates

Generation Earn
Young professional’s guide to spending, investing, and giving back
http://www.kimberly-palmer.com/

Parents with Young Children

Raising Financially Fit Kids
Help prepare your children for a lifetime of smart money decisions
https://www.amazon.com/Raising-Financially-Fit-Kids-Revised/dp/1607744082

The Opposite of Spoiled
Raising kids who are grounded, generous, and smart about money
https://ronlieber.com/books/the-opposite-of-spoiled/

Adults

Happy Money
Are you getting the biggest happiness bang for your buck?
https://www.amazon.com/Happy-Money-Science-Happier-Spending/dp/1451665075

The One-Page Financial Plan
A simple way to be smart about your money
https://www.amazon.com/One-Page-Financial-Plan-Simple-Smart/dp/1591847559

50+ Adults

Life Reimagined
The science, art, and opportunity of midlife
http://www.barbarabradleyhagerty.com/life-reimagined

The Charles Schwab Guide to Finances After Fifty
Answers to your most important money questions
https://content.schwab.com/web/retail/public/book/

Caregivers

Being Mortal
Medicine and what matters in the end
http://atulgawande.com/book/being-mortal/

On Living
An uplifting meditation on how important it is to make peace and meaning of our lives while we still have them
https://www.amazon.com/Living-Kerry-Egan/dp/1594634823

Class of 2019: Financial Advice That will CHANGE YOUR LIFE

The following is a brief excerpt from the commencement address by Dr. Chris Mullis (Financial Planner & Founding Partner at NorthStar Capital Advisors) to the graduating class of Providence Day School on May 31, 2013. The full text of Dr. Mullis’ speech, that includes career advice, financial guidance, and a few pearls of wisdom, can be found here.

At our financial advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios. But the basic steps you 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.

Sir Isaac Newton: Monumental Scientist, Terrible Investor

Most people recognize Sir Isaac Newton as one of the most influential scientists of all time, but did you know he was a horrible investor?

Newton’s experience with the South Sea Company vividly demonstrates the financial perils of chasing hot markets, getting caught up in investment bubbles, and not maintaining a diversified portfolio.

In the early 18th century the South Sea Company was established and given a monopoly on trade in the South Seas in return for assuming England’s war debt. Investors liked the idea of that monopoly and the company’s stock began to take off.

Newton hear the siren call of the South Sea Company, invested his cash in early 1720 and managed to turn a nice profit. But then the stock kept soaring after he had gotten out. So Newton jumped back into the stock with a lot more money than his original investment.

Newton subsequently lost 20,000 pounds, almost all of his life savings! From this terrible outcome, Newton supposedly decreed, “I can calculate the movement of the stars, but not the madness of men.”

No warning on Earth can save people determined to grow suddenly rich.
— Lord Overstone

Source: Sovereign Man

Great Expectations

Expectations are very important. If you know what to expect, you shouldn’t be surprised. And if you’re not surprised, you won’t panic.

Coaching clients on what to expect and how (not) to respond to extraneous events is our defining role as a real financial advisor.

We invest in stocks because of their superior returns. Those historically higher returns are a reward for tolerating volatility (i.e., the “volatility premium”). But what does stock volatility look like in the real world? What pattern of price variability should we expect?

Well, here it is in its most elegant of graphical forms (click image for a bigger view).

Here’s how to read this chart:

The intra-year decline versus the annual return of the S&P 500 are plotted vertically with years running horizontally from 1980 through year-to-date 2019.
The annual return (grey bars) show the calendar year price increase. For example, in 1980 stocks climbed 26% for the year.
The intra-year decline (red dots) is the largest market drop from peak to trough during that year. For example, in 1980 we experienced a 17% drawdown.
Putting these together, in 1980 the stock market dipped 17% before closing up 26% by the end of the year.

It’s not hard to see that short, intra-year declines are the norm.

In fact, the average intra-year drop is 13.9%. But despite these temporary declines, the annual returns are positive in 29 of 39 years (74% of the time). During the charted time period 1980 to 2018 the average annual return was 8.4% This pattern is persistent. If you look back to 1946, the average drawdown is a remarkably close 13.8%, and the price return was positive 51 of the 73 years (70% of the time).

History shows the declines are temporary, the advance is permanent.

Think about how the average person responds to these intra-year declines. The financial media is screaming about the crisis du jour which is consistently characterized as the end of the world (“I’ve lived through some terrible things in my life, some of which have actually happened.” — Mark Twain ). Data shows the average investor, without the support of a caring, empathetic coach/advisor, consistently sells at the worst of times – i.e., during one of these perfectly normal and temporary pullbacks.

Volatility does not equal a financial loss unless you sell.

In our humble opinion, possessing an informed expectation, one that allows you to ignore short-term gyrations to capture long-term gains, is a Great Expectation.

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

What’s Wrong with the Financial Services Industry?

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 done 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

Planting a Tree

Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” It’s planting season and your deadline to act is coming up very soon!

If you have an individual retirement account (IRA) or are considering opening an IRA, 2018 contributions to IRAs can still be made up through April 15, 2019.

Make it a double? If you really want to make the most of the growth potential that retirement accounts offer, you should consider making a double contribution this year: a last-minute one for the 2018 tax year and an additional one for 2019, which you’ll claim on the tax return you file next year. That strategy can add much more to your retirement nest egg than you’d think.

2018 / 2019 Annual IRA Contribution Limits*

Traditional IRA:
$5,500 + $1,000 if you are 50+ years (2018)
$6,000 + $1,000 if you are 50+ years (2019)
Roth IRA:
$5,500 + $1,000 if you are 50+ years (2018)
$6,000 + $1,000 if you are 50+ years (2019)

*Note: Your specific maximum contribution limit can be affected by your taxable compensation for the year and the availability of an employer-sponsored retirement plan.

The savings, tax deferral, and earnings opportunities of an IRA make good financial sense. The sooner you make your contributions, the more your money can grow, and the more “shade” you’ll have to enjoy in the future.

If you have any questions about how to make the most of your IRA savings opportunity, please give us a call at 704-350-5028.

Six ways our brains make bad financial decisions

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.

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

Thirty Years Ago Today…

Thirty years ago to this day, the following words were written:

“We do not have, never have had, and never will have an opinion about where the stock market, interest rates or business activity will be a year from now.”

–Warren E. Buffett, the world’s most admired, least imitated investor, in his annual letter to shareholders 30 years, dated February 28, 1989.

Note:

On February 28, 1989, the Standard & Poor’s 500-Stock Index closed at 288.26. Yesterday it closed at 2,792, fairly close to ten times where it was on the day of Mr. Buffett’s letter. Of course, this ignores dividends.
The cash dividend of the S&P 500 for the full year 1989 was $11.73. For the full year 2018, it was $53.61, a bit more than four and a half times where it was in 1989.
To get a sense of how these increases compare to inflation, note that the Consumer Price Index stood at 122 in February 1989. In January 2019 it was 253, having slightly more than doubled in the interim.

When will we ever learn?
It was never about “timing the market.”
It is always about TIME IN THE MARKET.

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