Throwing A Hail-Mary With Your Money

"Fund managers like these guys who are underperforming are going to want to make themselves look good for the rest of the year and make up for lost ground. There's going to be an effort to pull out the year in the last month."

So says a recent CNBC.com article. 

It seems to me that you should be the key person in your investment relationship. 

It would seem fair and appropriate I think, that your goals, and your interests should be the ones first served. 

The statement from CNBC.com seems to portend that active investment managers now know what had escaped them for the first eleven months of the year, namely how to make money in this market. 

That would of course, beg the question, "what changed?" Since the only real change is the focus of your investment manager, you might ask, how many boundaries will get crossed, how much additional and unwarranted risk will get taken, and how many "policies" will get overlooked in the interest of "pulling out the year?" Are those actions that are being taken something that you signed on for? Are they policies that you approved? Are they risks that you agree with? Doesn't seem to matter does it? No, because this isn't about you, its about them. 

If you're investing (not gambling) then contrary to their belief it's ALL about you. It should be about your willingness to take that risk, your willingness to minimize unnecessary transaction costs and taxes. But in the world of active management, it's much more likely to be about what they want, not what you want. 

We control very little in our lives anymore. We don't get to set economic policy and we don't get to decide on the direction or velocity of the stock market. That being the case, we should control what we can control, namely how our investment professionals respond to the fact that we exist at all. This fact, that it's your money, is something that should never be overlooked or trivialized. 

When the focus becomes "pulling out the year" understand that the effort, while likely doomed to fail before it even starts based on any reasoned objective measure, is being played out with your retirement/college fund/kids wedding money.

So if December becomes the month that a strategy worked, you might want to ask yourself how that happened and what changed? Why wasn't that the strategy employed throughout the year?

If it fails, you might want to consider who'll be harmed when it doesn't work?

Get Off The Wall Street Roller-coaster

Does it ever feel like you're on a roller-coster ride when you look at your the stock market is performing? One day you feel really good as you go up...click...click...click..higer and higher. Then the next day you feel nauseous and sick to your stomach because the bottom just fell out and it looks like you're going straight down?

Did you ever wonder why you feel this way? Is this lack of a "financial planning" perspective at the heart of your emotional roller-coaster ride through volatile markets? We believe that it is. That is why all of our wealth management clients investment decisions are grounded in a personalized financial plan. 

When we work through the entire planning process with a client, we spend a lot of time developing a set of very specific goals and objectives. Careful thought is given to how long you need to be invested to attain a specific goal, as well as how to build a portfolio with an appropriate amount of risk and return so that you can reasonably expect to be successful in your plan for that goal. 

As a back-drop to that work, we talk at length with you about the level of market risk that you feel that you can live with and not give up on the investment path we've chosen. However, talk is not the same thing as living through one of the larger stock market drops. So we have to adjust accordingly along the way. Adjustments are a natural and required component of well thought out plans. Adjustments can take on many forms from changing your goals, adjusting your time frame, adding more money up front, or adding more money through regularly scheduled additional investment. 

The financial planning process provides a context that serves as the foundation of your investment goals. That context is clear, concise and understandable. You know where you are going and through the planning process, you have a strategy to get there; regardless of how many times you go up and down. 

It's our experience that because of that context our wealth management clients are largely inclined to ignore the short-run volatility of the markets. While they still have "concerns" when markets aren't cooperating, their concerns are focused more on whether or not they can still reasonably expect that they will reach their goals. They're comfortable that any adjustments that need to be made will be made to keep them on course to reach their destination. Knowing that they are still on course; our wealth management clients are off the roller-coaster ride of emotional ups and downs. That's not only healthier, but a better way to approach investing in general. 

Being off that emotional roller-coaster will create an environment where you can remain committed to your long-term goals. You're less likely to make some knee-jerk reaction that results in unnecessary "tinkering" with your portfolio, which could lead to even worse outcomes like buying high and selling low. 

It's our belief that investing can be a more reliable and less stressful process when you and your advisor align your investment decisions with your financial plan. If you don't have a plan you will always feel like you're out of control riding the Wall Street roller-coaster. 

"The Optimists Greed"

If you've worked with a stockbroker you're familiar with the phone calls about the next "can't miss" investment. Your optimist mind kicks in and your sense is to "go for it." The rationale behind the investment sounds reasonable and after all, your brokers got access to all that research.

Every trade results in your broker making money, the brokerage firm making money and if you're buying mutual funds or insurance products, there's a company in that profit chain too and they make money as well. But what about you, do you make money?

Just like sitting at the black-jack table...sometimes yes and sometimes no.

When we walk into a casino, everything around us tells us that we can win. Even though we know in our hearts that the odds are stacked against us, the thought of winning big overwhelms our decision making. Advertisers, marketers and slick ad agencies understand this and that's why they spin their message to play on our optimist mind. Optimists trade more stocks/gamble more money, create more commissions and transaction costs/lose more money than pessimists do. Many investors have more in common with gamblers than they think; gambling that they can pick the right investments and someday reach their goals.

So the odds are stacked against us from the start.

As if this weren't daunting enough of a task, let's take the next piece of the puzzle.

We'd like to think that the stock market is a free market. That with expertise and information we can make informed decisions that will win the day. Well, it doesn't work exactly like that. Often times, your investment company has figured out how to profit on your investing even if it doesn't make you any money. The sub-prime mortgage debacle was a classic example and surely not the only time that investment companies have been the direct benefactor of their investor's failures. So now we've come to realize that we're not playing the investment game pitted only against the market as we thought. We're playing against the market and our adversaries. Yes, it's true that there are people out there that are betting against you, betting that you'll lose your money. And they're smart, talented and experienced at beating investors out of their money.

What is an investor to do? Is there actually a way to prosper and "win the losers game?"

First thing is to stop gambling and start investing. Develop long-term goals and then tailor a plan to get there. Part of that plan should include an investment policy designed to help you make consistent progress towards your goals by enhancing your decision making not clouding it. Navigating the world of investing for the uninformed may be treacherous, but for the true investment professional armed with unbiased advice the effort is much simpler.

Second, do some research and find out who you can trust. There are investment professionals that are basing their success and reputation on their ability to put your best interets above all others. That's as opposed to investment professionals who have done everything within their power to fight any regulation forcing them to put any interests above their own and why exactly is that do you think?

This sounds like a lot of work and it is..getting it right takes some real effort. In the end, you'll find all your work worth it, the payoff outweighs the work involved to make the right choices.

In conclusion, optimism is a good thing, but don't let yourself be manipulated by your own positive thinking. Hire a professional who can protect you from yourself and your adversaries.