Over the last few years the battle over the fiduciary duty of financial advisors has been fought at the federal level, but now New Jersey, a state that is home to many financial firms, is opening a new front in the war. New Jersey's governor wants to force financial firms registered in New Jersey to adopt a fiduciary standard. I encourage all investors to find advisors held to a fiduciary standard, as it's the only way to ensure an advisor has the clients' best interests in mind. Other advisors held to the much lower 'suitability standard' could be more willing to fill their clients' … [Read more...]
Dead or Alive? The Future of Long-Term Investing: Part III
“If the phone doesn’t ring it’s me” -- Jimmy Buffett It’s funny how time heals temporary temptations and laps of reason. I wrote the piece below on October 16, 2014. Then the Dow was down from a recent peak and investors were scared. But those who followed their long-term investment plan and didn't panic, made it through. Yesterday the Dow closed at 26,157.16. Investors who panicked and sold missed all that. Tomorrow markets could drop again, but if you prepare yourself with a diversified, income focused portfolio and the determination to stick to an investment plan that avoids risk whenever … [Read more...]
Two Strategies to Avoid Outliving Your Money
In July 2007 there was a sense of unease in the markets and I was warning investors to prepare themselves with a low draw on their portfolios. I also gave investors two ways to help prevent outliving their money. Read here: At the start, retired investors and investors saving seriously for retirement (76 million boomers will begin retiring next summer) must answer two basic questions: (1) What is the proper mix of stocks and bonds? (2) How much money can be drawn annually from an investment portfolio? I have used Ibbotson data and examined 20-year rolling time periods from 1926 on. I have … [Read more...]
The Yield Curve Inverted: Time to Panic?
If you have been reading the financial papers or watching CNBC, you have seen the news that the U.S. yield curve has inverted. Typically, this is a sign of a coming recession, and that could be the case today. If, though, you have been following my advice, there is no reason to panic. Have patience and rely on the diversified, counterbalanced portfolio you have built for generating dividends and compound interest. In August of 2013 I explained the power of counterbalancing in your portfolio: Managing a common stock portfolio takes— above all else—patience. Your goal should never be what to … [Read more...]
The Arithmetic of Losses: A 68% drop this Century
In his April 2000 issue of Dow Theory Letters, the late-great Richard Russell wrote about the arithmetic of losses noting that Nasdaq had dropped about 68% from the previous year’s peak. To get back to even, he noted, Nasdaq would have to climb more than 170%. As many of you know that didn’t happen for a long-long time. “Note that CNBC,” explains Russell, “and many other sources continue to talk about a stock’s climb in percentages. But this can be misleading and frustrating. Example: you buy a stock for $50. In the bear market it drops to $2—you’ve lost $48 plus commissions. Then you … [Read more...]
Bad Blood
If you want an inside look into how money is lost then read Bad Blood by John Carreyrou. It reads like fiction about blood testing start-up Theranos and its founder Elizabeth Holmes where high profile billionaires and investors with “access” lose every penny invested. Read extended excerpt from Wired here: ALAN BEAM WAS sitting in his office reviewing lab reports when Theranos CEO and founder Elizabeth Holmes poked her head in and asked him to follow her. She wanted to show him something. They stepped outside the lab into an area of open office space where other employees had gathered. At … [Read more...]
Don’t Get Kicked Out of the Game
One of the biggest mistakes an investor can make is to imagine that the market will perform the same way year after year. Last year’s winners are often this year’s losers. I warned investors against this mistake in July 1992, writing: How many investors—not you I hope—buy mutual funds keyed to recent performance ratings? These are usually the funds not to buy. Have you ever heard of Frank Russell Co.? These folk do a really good job of researching vital investment info. In a recent Pension & Investments article, the following item was of vital importance to you. A new study by the Frank … [Read more...]
You’re in Charge: Act—Don’t React
Thirty years ago this month, I was working hard to explain to investors like you the simple power of having a plan. An investment plan is the reliable engine that keeps your investment train on its track. I told readers they shouldn’t make investments without consulting their plan, writing: Am I clear on this? Sit back, take a deep breath and repeat after me, “I will have a plan; I will not be a reactionary investor; I will practice diversification.” Still with me? You see, I want you to lower your financial blood pressure. If an idea is sound today, it must be sound tomorrow. I learned … [Read more...]
High Barriers to Entry Make for Safer Investments
I have written many times through the years about the benefits of businesses with high barriers to entry. Those barriers often include protection by government regulations, including rights of way, monopoly power, and intellectual property. In November of 1996 I explained the value of intellectual property and how difficult it is to generate. I wrote: Have Mercy!... Back in the spring of 1964, XERF was the most powerful commercial radio station on earth. With a thunderous quarter-million watts of energy pumping from its massive transistor deep in the Mexican Coahuila Desert south of the … [Read more...]
How to Avoid Wall Street’s Unshakable Attachment to Earnings
Back in December of 1997, I explained Wall Street analysts' fixation with earnings, and more specifically, earnings guidance. I wrote: Forget Wall Street’s Myopic Attachment to Quarterly Earnings It’s important for you to grasp the primary control force of short-term market action. The control force is quarterly earnings reports versus Wall Street projections. Companies that fail to meet Street projections face utter carnage. However absurd this senseless, myopic concentration on quarterly earnings may be, it is reality. The gyrations brought on by earnings’ hits and misses confuse and … [Read more...]
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