With only a short time left until we select the 45th President of the United States of America many investors are in a state of panic. Many believe the market is waiting for the outcome and if the "correct" candidate is selected the stock market will immediately surge on the news. Or, if the "wrong" candidate is selected the market will tank the next day. Fortunately, history provides a guide on this matter and it suggests that, when it comes to U.S. Presidents, the market is a true Independent.
The IRS just announced inflation adjustments for 2013. These rules affect many things such as your retirement plan contributions, gift tax exclusion, and the "kiddie" tax. Make sure to bookmark this link as a handy reference.
The last siren call of investment managers is an appeal to your ego. This is how it goes:
“Yes, we know most managers fail miserably to outperform the market after they pay themselves hefty fees, but those guys are for the small accounts. You have a million dollars! This will get you access to the next level of managers. The really good ones.”
Or: “Oh, of course, accounts below a million dollars are better off investing in asset classes, but you have 5 million dollars! We have proprietary research just for you. Our investments trounce the market.”
Or: “Well sure, if you only had $5 million it might make sense to keep expenses low. But you have 10 million dollars! You can pay for our quantitative algorithm that picks the best stocks based on how loud Jim Cramer yells the ticker symbol.”
Joking aside. The trend is clear and you can see the allure. At every wealth level it seems you have just enough to get you access to the real managers. So how do you know how much you really need to get the best managers? Maybe there is a way to find out. Maybe there is an investor out there so large that they trump every other investor and truly have access to the very best managers. And maybe this investor makes their returns public so you can see exactly how well their access to the “best” managers turned out for them.
Mark Cuban recently was quoted in a Bloomberg article reaffirming his dislike for the stock market. He restated his view that most people should keep their investments in cash and "keep your money anywhere but the stock market." While Mark is not a world renown stock picker he does have high visibility in the news and for some reason keeps popping up with investment advice. As it turns out it appears that Mark has an uncanny ability to call market reversals. Unfortunately he has historically made the OPPOSITE call.
The Princess Bride can teach us a valuable lesson about investing.
I never imagined I would make such a statement until recently when I was pondering the futility of market participants trying to predict the next market downturn or pick the next big stock.
For me it brings to mind the movie The Princess Bride. One of my favorite scenes is the Battle of Wits between the characters Wesley and Vizzini. For anyone who has not seen the movie the Battle of Wits is structured as follows: There are two wine glasses on the table. One of which has been poisoned by Wesley. Vizzini does not know which glass has been poisoned and must deduce which glass is deadly. Once Vizzini selects a glass they both must drink their wine and the loser will die.
Just about three weeks ago the market was in another panic. It was a situation very similar to August of last year. Job numbers were concerning and the markets were reacting dramatically to every headline. The same point we made then applies this time around. These numbers are a distraction and will only reveal something in hindsight.
Another well-written blog was recently posted by Dan Wheeler concerning the recent market pullback. Click Here. The main idea of this great perspective can really be summed up in two points:
Kendall King, a partner and advisor here at Legacy Financial Group, linked to a great article on Financial Advising today on his twitter feed.
By Eric Burkholder
David Booth of Dimensional Fund Advisors does a great job of explaining market cycles. There is no evidence that current investor sentiment has predictive power for future returns. A case can actually be made that investors are usually wrong and we should expect higher than expected returns in the years to come.