I grew up in the 1970s-1980s when there was not a lot of abundance and wealth in most middle-class families. You were happy if you were in the middle class, but you didn’t have much in terms of wealth. Most people were getting by, but working hard to do it. In most families, both parents worked. When something was broken you fixed it, rather than buying a new one. As a child, if you wanted something, you earned money to buy it. Times were good, but people worked hard to keep it that way. There was no “easy” money
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.
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.
The US has gone through 40 years of declining inflation which has created tremendous wealth and prosperity. Now that trend is reversing. This new paradigm shift will change everything that you currently take for granted.
This interview is important if you want to be prepared for this paradigm shift. A lot of wealth will be made by people who understand this new paradigm and lost by people who don’t.
Which one do you want to be?
This interview is very thorough. You may not want to believe everything you hear, but you need to hear it. What you do with this information is up to you.
We will be discussing the major driver of this paradigm change and why it is happening. We will also explain why it will impact every asset class and in ways you may not be aware of.
To listen to this interview Click Here
Financial Markets are driven by emotions: Fear and Greed
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).
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.
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.
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.
“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.
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?
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…
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:
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?
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.
“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
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.
Timeless Wall Street Wisdom: The 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.
“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.
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.
“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.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”
Stock Market Crash 2015 – Should you be scared?
2015 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.
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.
Who would have guessed it? Wall Street’s 2014 predictions for investments proved to be wrong.
2014 was an interesting year for the global stock and bond markets. A lot of large macro events took place which fundamentally changed the landscape of global macro economics and ultimately the performance of markets across the globe.