Wall Street Wisdom

Wall Street Wisdom is a category which discusses the collective wisdom of both Kirk Chisholm and other Wall Street investors who are able to provide insight into how and why Wall Street works the way it does. Whether you work on Wall Street or not, you will enjoy this category of articles.

Career Risk and Herding Behavior

career risk fund manager

The career risk of trying to be different on Wall Street

The financial service industry has a notorious problem which very few people outside the industry are aware of. This problem is generally referred to as career risk. Now, most of you reading this might think, “Who cares if some overpaid fund manager gets fired for not performing well enough?” While having your fund manager keep his job might not be high on your holiday wish list, you should realize that it is an enormous problem at Wall street firms and that it is causing many funds to underperform their potential.

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Top 7 Financial Advisor Designations

financial advisor

“Mistakes are the best teachers. One does not learn from success. It is desirable to learn vicariously from other people’s failures, but  it gets much more firmly seared in when they are your own.”   – Mohnish Pabrai

This is the third post in a series of 3 about the  financial advisor profession, financial advisor designations, and titles of financial advisors. The past two:  Who is your financial advisor? and Top 8 titles used by financial advisors, discuss the different titles by which a financial advisor might be called. This post will detail 7 different  financial advisor designations which require additional training and certification to use them. According to the Wall Street Journal, there are over 208 financial advisor designations^1. However many of them are relatively unknown to the majority of the financial advisor community and the investing public. Also a number of them are for specializations which many not apply for most of the advisor’s day-to-day activities.

I have chosen 7 designations: Certified Financial Planner, Chartered Financial Analyst, Chartered Financial Consultant, Certified Fund Specialist, Certified Investment Management Analyst, Chartered Market Technician, and Certified Public Accountant for this post. A number of these designation are common and well-known designations, but generally are not used by the financial advisory profession. Get to know these designations. If you meet someone with one of these designation, don’t be afraid to ask what they mean.

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Top 10 Investing Myths That You Know To Be True… But Are Not

 

investing myths

Half a truth is often a great lie. – Benjamin Franklin

Do you want to be a great investor… Or do you just want to be average?

I assume you want to be above average or you wouldn’t be reading this. Everyone wants to be a good investor, but not everyone wants to do what it takes to be good. Getting a stock tip from your friend or reading an article online and letting it sway you to invest in some company you know nothing about is not the best path to investing greatness.

Can you imagine Warren Buffett reading the Sunday morning newspaper, finding a compelling article written about some new trendy stock and saying, “this article seems credible, lets put 500 million of my money into it and see how it does…” hard to imagine right?

Does your doctor read about a new procedure in the New York Times and try it out without researching it, practicing, testing etc? If he does, then you need a new doctor.

Doctors go to school for years to become highly-competent doctors. They study under other experts before they even operate on a live person. They do a lot of work before they take your life in their hands. Yet we as investors decide that we are going to compete against the best and brightest in the world and spend 1-3 hours a week reading about investing.

When you are investing, you are competing against Warren Buffett, Seth Klarman, Stanley Druckenmiller, George Soros and more. Yet many investors think they can just open the Wall Street Journal and pick stocks like the best investors in the world.

Silly notion right?

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Correlation Does Not Imply Causation

correlation does not imply causation

 

His argument was presented with data so it must be correct.

I stopped watching the news on TV years ago. I think it was the invention of the 6 box debate on-screen all-at-once. This was around the time that the news became entertainment, rather than news. However, despite my distaste for TV news, I was watching a news show yesterday and I saw a story about how guns were dangerous and should be outlawed. This story was followed up by a story about how the temperature was becoming more erratic, this was due to global warming so we should all drive electric cars. These stories are just one of many, where commentators (frequently not scientists, specialists, or frankly anyone who is remotely qualified to speak on the subject) elaborate how their point of view is correct because of this specific set of data. After studying the data in these and other similar types of issues, I can absolutely tell you that…

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Top 8 Titles Used by Financial Advisors – Is Your Financial Advisor Registered?

 

financial advisors
 

This post is a continuation of the last post, Who is your Financial Advisor? In this post I will discuss some of the more common titles and licenses used in the finance-related profession. These are titles which professionals use to promote themselves. Some of these titles are given to them by their broker dealer, some are titles provided to them by obtaining a license and passing a test for proficiency, and some are self-designated.

Financial Advisors, their titles, and licenses

This is not an exhaustive list. There are many title professionals choose to call themselves. This post is only meant to discuss the more popular ones to help you navigate through all the terminology. Here is a list of the most common used titles for the finance-related profession:

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Proof That Share Buybacks are a Powerful Strategy for Building Wealth

The Curious Case of IBM Share Buybacks

This is an overlay chart of IBM’s stock price and its market cap since 2000. Do you notice anything interesting about this chart?

IBM share buybacks

Look closer…

The stock price and market cap have performed differently. How can that be? Aren’t they the same?

While the stock price and market cap are highly correlated, they are not the same.

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Why are Individual Investors so Bad at Investing?

Individual Investors Need Help

Individual investors as a group have no idea what they are doing. This has been made clear by a recent DALBAR study spanning 30 years all the way back to 1984.1 This period covers a number of bull and bear markets, giving investors a chance to learn from their mistakes. However it is clear that they are not learning the lessons of proper investing.

investors dalbar study

The S&P 500 is one of the most widely followed indices and is considered a benchmark for the US stock market. I would consider it a suitable benchmark for this study. These numbers compiled by DALBAR show that the return of the S&P 500 over the 30 year period ending in December 2013 is 11.11%. They also show that individual investors only measured 3.69% over that same period of time. This is a remarkable 7.42% difference annually. To put this in perspective, if you invested $100,000 in 1984 in the S&P 500 and earned 11.11%, today (30 years later) you would have $2,358,275. If you started with $100,000 and invested it over the same time period at 3.69%, you would have $296,556. That is a difference of $2,061,719. It should be clear from these numbers that individual investors have a problem.

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Investing is Not Gambling… if it is Done Correctly

 

investing is not gambling

“The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.”
-Benjamin Graham – The Intelligent Investor

 

Are you gambling with your money?

Investing is not gambling.

Gambling is exciting. Gambling is entertaining. Gambling can make you rich… or so you imagine, but the odds are against you. That is why it is called gambling. That is why casinos are such profitable businesses.

There are professional gamblers who play Texas hold ‘em for a living and do quite well. But they are not gambling, they are playing the odds, they have a system, and they know the probable outcome of their “gamble”. There is certainly a large amount of skill involved as well. Reading people, remembering prior drawn cards, and concentrating for long periods of time.

This does not apply to all games of chance, like the lottery. A friend of mine likes to say, “The state lottery is a tax on people who are bad at math.” If anyone ever looked at their chance of winning the lottery, they would not waste a nickel on it, certainly not the rent money. According to the Massachusetts state lottery, the odds of winning a jackpot in Powerball is 1 in 175,223,510. I assume those odds don’t account for potentially splitting the jackpot with one or more people.1

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Kirk Chisholm Ranks #7 on The Investopedia List of Most Influential Financial Advisors

investopedia 100
I was recently notified that I was ranked #7 on the Investopedia list of Most Influential Financial Advisors. I am very grateful to receive this honor. It was somewhat unexpected. I have spent so much time trying to help investors that I have not stopped long enough to reflect on the impact I have made in the lives of my clients and social media connections. This award supports that all my efforts to educate investors and help them navigate the uncertain financial markets has not been in vain.

It means a lot to me to be recognized with such a notable group of financial advisors. Investing has always been a passion of mine. This passion started at a young age with small ventures such as a lemonade stand and lawn mowing services. In college, it continued with investing in the stock market. When I graduated, I got my first job at Paine Webber. Almost 10 years ago I co-founded Innovative Advisory Group. Investing and providing financial advice is in my blood.

As my knowledge of investing has grown, so has my desire to help others understand the mysteries of the financial markets. I hope to impart some of that wisdom to you in this post as well as other articles on this site.

Once again, I would like to thank Investopedia for this acknowledgment of my efforts. I also want to thank my clients and social media connections. I would not be where I am today without you.


Top 10 pieces of financial wisdom that can help you invest better​

Investing is challenging, but it doesn’t have to be. It requires some extensive knowledge to become a highly successful investor in the stock market, but there are many ways to invest successfully. I will discuss some different ways to figure out how you can invest successfully below, however you will need to understand these simple concepts if you want to be successful long term.

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30 Top Investment Quotes for New Investors

 

Investment Quotes

 

I like investment quotes. They are snapshots of wisdom. An insight into the minds of genius investors. Many of these quotes individually could be the basis of an entire book.

I have been collecting these quotes to add to each post I write. Unfortunately I have way more quotes than I have posts up on this site. So I thought I would compile this list to provide more bite-sized pieces of wisdom for your enjoyment.

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How Fear and Greed Can Affect Your Investing

Financial Markets are driven by emotions: Fear and Greed

fear and greed in financial markets

Master your investing emotions, or they will master you

The stock and bond markets are driven by four primary motivations. These four motivations are based on only 2 emotions, fear and greed. Investing is scary if you don’t know what you are doing. It is even scarier if you fully understand the risks through your own experience. Fear is a primal and instinctual emotion. Fear has kept our species from getting eaten by sabertooth tigers and jumping off cliffs trying to fly like a bird.

However when it comes to investing, that same primal instinct clouds the judgment of an otherwise rational educated person and causes him or her to make silly mistakes. In order to be successful as an investor, that fear has to be understood and harnessed in a productive way. I find fear to be the trickier of the two emotions because most people don’t understand how it applies to their own psychology.

Fear: The two fears of investing

The emotion of fear when investing can be broken down into 2 subcategories: Fear of losing money, and fear of under-performing the market (or more commonly known as, the fear of under-performing your friends).

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The Wall Street Shuffle

Timeless Wall Street Wisdom: The Wall Street Shuffle

Wall Street Shuffle
The Wall Street mentality is the art of the possible, where optimism rules the day. While bears may be intellectually correct, they are rarely proven so, and they are never invited to parties.

Wall Street is made up of creative people who can find ways to turn a little money into a lot of money: mathematicians, rocket scientists, astrophysicists, and people who can sell ice cubes to Eskimos.

Youth, ego and arrogance quickly turns wealth into wisdom and experience. Wisdom and experience is transmuted back into gold, cash, and reputation… if you can wait long enough.

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2015 Recap: High Yield Bonds, Instability, and Financial Contagion

 
2015 recap

“It’s tough to make predictions, especially about the future.” -Yogi Berra

 

Is this the start of a high yield bond rout that many bond experts have been predicting?

Is the S&P 500 performance this year a good indicator of the overall market?

Will instability in the bond market spread to other asset classes?

What is the blueprint for the next financial crisis?

These are all questions that clients have asked recently and I thought this would be a good chance to discuss these issues as a wrap up of 2015.

Lets start by taking a look at what has happened this year, where we stand today, and try to pass some judgement on what could happen in 2016. Normally I don’t write about “predictions”. Yogi Berra was a wise man. However I think this post is relevant to the nature of the markets and the growing instability that is occurring under the surface.

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38 Images of Investments During the August 2015 Stock Market Crash

 

Investments during the August 2015 Crash

 

Investor Behavior – “You can bury your head in 10q’s and 8k’s and memorize a thousand facts about a company. You can become an expert on a given stock sector and establish relationships with all of the executives who run the show. You can build your own DCF models and outguess the other guessers on earnings estimates and forward guidance. But until you accept that market mood and behavior is as big a factor as the fundamentals, you won’t ever be completely honest with yourself. The E is only half of the PE. No matter how good you are at understanding and predicting the E, you’ve still only got half the story. The P is determined entirely by psychology.”
– (The Reformed Broker)

In August of 2015 the stock markets around the world were once again shocked to see stock indexes drop significantly in a matter of days. The biggest drop happened on Monday August 24th at the opening bell at 9:30am EST.

The total drop in 3 days accounted for 11.7% in the S&P 500 futures. Yes this happened in 3 days.

On Monday the 24th from open to the low of the day the S&P 500 dropped 6.8%. The Dow lost more than 1000 points early in the day.

What did this have to do with earnings? Very little from what I could tell. However, stocks don’t always move based on earnings, or fundamental influences.

So what happened?

I would like to recap those few trading days in August to illustrate a point about markets. They are not always rational, and they move based on more than just fundamental news or earnings.

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13 Yogi Berra Quotes – Learn What the Legend Can Teach You About Stock Trading

 

 

Yogi Berra Quotes

 

 

“It ain’t over till its over.”   – Yogi Berra

For the famous NY Yankee catcher, it is finally over.

The famous “philosopher” and NY Yankee catcher, Yogi Berra, passed away last week at the age of 90. It truly is a sad day for baseball. While Yogi was a famous NY Yankee, he was also well know for his humorous quotes or Yogisms due to their paradoxical and obviously redundant nature.

Even if you are not a fan of baseball or the Yankees (I cannot blame you for that), you might have heard or even said some of his quotes in the past without knowing they were his. In memory of his contributions to baseball and the American lexicon I decided to write this post about his famous quotes and how they apply to the financial markets.

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The Stock Market Crash 2015 – 9 Stock Market Tips to Help You Sleep at Night

 

2015 stock market crash

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”

-Warren Buffett

Stock Market Crash 2015 – Should you be scared?

stock market crash 20152015 has been an interesting year for stock investors. 2015 started out with the S&P 500 opening at 2058.9. From there the index has fluctuated between +3.8% and -4.1%. When investors are accustomed to getting 6 years in a row of positive gains, it is hard to imagine what a down year looks like. In the past week the S&P 500 is down about 10% as of this writing. Should you be scared?

Maybe. But it really depends on what you are invested in and how it is structured. If this recent 10% drop is causing you to lose sleep, then you need help.

Here are 9 tips for helping you bring your portfolio to your sleeping point.

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A Visual History of Income Inequality in the US

Income Inequality in the US

 

Income Inequality in America

NPR put out some great images on income inequality recently. They describe the history of income inequality in the US in a way you might not have considered. Many statistics are hard to interpret, but these aren’t. At first glance you might immediately jump to the conclusion that the bottom 90% of income earners have gotten squeezed since 1970. However if you look at the entire chart, it might put things into a different perspective.

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Who is Your Financial Advisor?

 

financial advisor
 

Professional titles are a great way to distinguish professionals from one another. You wouldn’t confuse Dr. John Smith with John Smith D.M.D., or Col. John Smith with Lt. John Smith. The financial advisory profession is much the same way. However it is a little more cryptic to the investing public as to what the different titles mean in the financial advisory profession due to their lack of uniformity. I hope to dispel some of this confusion right here.

Job “Title” vs Designation

Financial advisors use titles and designations to communicate to their clients and prospective clients who they are and what they do. While titles are a way to communicate to people what their role is, a designation is a way to show people that they have received additional education in certain areas. Unfortunately there is very little regulation or oversight in using different titles or designations from the industry regulators.  This has actually been one of the main causes for the lack of clarity among the investing public along with the rampant creation of designations for different specializations. The Wall Street Journal recently listed 208 designations for financial service professionals on their website.1

This list of 208 does not include designations which are internally given by companies to their brokers or advisors for passing an advanced education exam. For example, I received a Financial Planning Specialist (FPS) designation when I worked at Smith Barney. However, when I left the firm, I could no longer use the designation even though I passed the test. If you see the list, you will realize the runaway problem the financial services industry faces in further confusing the public. Some of these designations are monitored by FINRA and some are not.

How popular is your financial advisor?

As a professional financial advisor with over 15 years of experience, I have spent a lot of time over those years trying to craft the appropriate title to describe my profession, while at the same time trying to distinguish myself. One type of competition I have is with other people who have services which closely mirror my own. The other type of competition is from people who are from a different profession, but use the title of financial advisor. People from other professions who also use this title include: insurance salespeople, mortgage brokers, tax preparers, and more. This leads to a consumer who ends up being confused, and potentially does not get the help they are looking for.

Popular financial advisor designations

As an example of some of this research, I have illustrated the investing public’s levels of interest in the following four designations…

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The Inflation and Deflation Balancing Act

inflation and deflation

“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” – F Scott Fitzgerald

The US has become a two choice society. We are consistently bombarded with the idea that our choices are binary. You have to vote republican or democrat, pro-life or pro-choice, for this idea or against it. Why is it that our choices in life are being limited to only two choices? Neither of which is chosen by us. Two positions in a debate are chosen and we have to choose from which one we like the best, or more commonly which one we dislike the least.

If you watch most news stations, they bring up two people to discuss an issue and usually both are extreme views, and you are supposed to pick a side. When did we become a binary choice society? During the next presidential election, we will have to choose between two people. I cannot remember the last time that I spoke to anyone who “liked” either choice. The conversation always ends up with the phrase, “yes I know he isn’t great… but he is certainly better than the other guy.” I’m willing to bet that the majority of people in the US (whether they know it or not) vote for the lesser of two evils. This means they are not voting for a candidate, they are voting against the other candidate. Really??? Our voting choices really come down to a dilemma? Our choices for the future of this country are based on who we can tolerate the most? It astounds me that more people don’t realize that they do this. But I digress,

The Inflation and Deflation Balance

The balance between inflation and deflation is much the same idea as many of our choices between two opposing ideas. It is a false dilemma. It is not a binary choice. Technically if you subscribe to the theory that inflation or deflation are measured by the CPI, then actually inflation and deflation would be measured by degrees rather than a binary choice. However, this assumes that the CPI method of measurement is an accurate measurement. What if inflation and deflation are not your only choices?

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