Around the office this morning many of the conversations revolved around Seahawks offensive coordinator Darrell Bevell’s questionable play that lost them the Super Bowl. I got to thinking about the lesson he learned, and how it and a few others could be applied to investment strategy.

Don’t Get Fancy. Down by 4, on the 1 yard, with 25 seconds left in the game, Seattle tried to surprise the Patriots with the unexpected. Instead of using their powerhouse running back to punch through, they opted for a difficult slant pass hoping to catch the defense off guard. We all know what happened next. I see the same trickery in the financial industry. It’s built on the idea of outsmarting the opponent, known as the benchmark. There are all kinds of products designed to outperform, avoid loss, or guarantee whatever… Sounds good, but little to no evidence exists supporting long term validity of these new fancy strategies. It’s true that some investment managers actually outperform, but their outperformance is typically short lived. Evidence continues to suggest outperforming over the long term is impossible.

Be A Contrarian. Last year the Seahawks gave Denver a beat down in the Super Bowl. Their mid and long range defense crippled Peyton Manning, forcing him to throw little dinky tosses. The result was a game of Bronco turnovers and little yardage. So when everyone expected New England to try something new, what did they do? They didn’t change a thing. They went against conventional wisdom, and executed the same strategy that failed one year ago. In the financial industry, investors are lured into funds based on short term performance. It’s what the investing industry sells us! But when one examines the results of picking investments based on past performance, we learn that conventional wisdom doesn’t always work. In fact, yesterday’s winners turn out to be tomorrow’s losers!

Don’t Give Up. We all saw undrafted Patriots rookie Malcolm Butler read the pass and then outmuscle Lockette for the interception. This was awesome! However, what’s AMAZING was Butler’s resolve in the face of near certain devastation as the clock ticked down. The Patriots were visibly dejected, and many thought Seattle would score. Not Butler. He continued to play as hard as he knew how until the end. It’s hard not to give up when the going gets tough. Like the Patriots defense on that drive, financial markets have faced scary situations. Investors who give in and bail out typically do so at the worst times. The most successful investors are the ones that stay committed, even when it’s hard. A patient stock investor should see an average annual return of around 10% (the S&P 500 has returned 10.1% from 1926 – 2013).

This appeared in my firm’s January newsletter, which came out on Monday. The recycled content (improved grammar, spelling, and verbiage at least somewhat) was too good not to pass on to everyone!

Thanks for reading!

– Greg Lessard, CRPC^®

I’ve been in the financial services industry for two and a half full market cycles, and I’ve learned something about investor behavior during that time. When the market is generally going up, investors are overconfident in their ability to handle investment volatility. It’s when the market declines over a period of time (that we actually notice) or if it drops very quickly is when our long term game plan gets tossed out the window. The current bull market will turn 6 years old less than 2 months, but it hasn’t been all rainbows and unicorns getting here. From April 2010 to July 2010, the S&P 500 lost over 12%, from July 2011 to August 2011 the S&P 500 dropped 14%. More recently, January 2014 saw a 5% dip and October 2014 saw a 9% decline, the latter occurring in less than a week. Just last week the Dow dropped 0.75% and 1.8% on Monday and Tuesday, respectively. Ok ok, enough, I’m convinced nothing is ever tidy and smooth. So what is an investor to do?

When Markets Decline, Your First Move

Is not to trade anything in your portfolio. If you’re uncomfortable with something you hear in the news, call your financial advisor and ask for their thoughts. A good financial advisor will discuss the long term results of sticking to the plan. Here’s a tip: if they say something like “Yeah, I saw that CNBC story too. I agree cutting our exposure to stocks is a wise idea, I’ll take care of it in your account right away.” you should immediately begin shopping for a new financial advisor. Or, if you don’t think you can do it yourself just hire the same monkeys (yes, real monkeys. like, the animal kind…) that beat the pros.

Why Volatility Is Happening

In some ways, the increase in volatility in recent weeks could be just as much a reflection of the fact that volatility has been very low for some time. Investors in aggregate were satisfied in 2013 with a low price on risk, but now they are applying a higher discount rate to risky assets. So the increase in market volatility is an expression of uncertainty. Markets do not move in one direction. If they did, there would be no return from investing in stocks and bonds. As to what happens next, no one knows for sure. That is the nature of risk. In the meantime, investors can help manage their risk by diversifying broadly across and within asset classes. We have seen the benefit of that recently as bonds have rallied strongly in the 4th quarter of 2014.

For Those Still Anxious, Here Are 7 Simple Truths To Help:

1. Don’t make presumptions. Remember that markets are unpredictable and do not always react the way the experts predict they will. When central banks relaxed monetary policy during the crisis of 2008-09, many analysts warned of an inflation breakout. If anything, the reverse has been the case with central banks fretting about deflation.
2. Someone is buying. Quitting the equity market when prices are falling is like running away from a sale. While prices have been discounted to reflect higher risk, that’s another way of saying expected returns are higher. And while the media headlines proclaim that “investors are dumping stocks,” remember someone is buying them. Those people are often the long-term investors.
3. Market timing is hard. Recoveries can come just as quickly and just as violently as the prior correction. For instance, in March 2009—when market sentiment was at its worst—the S&P 500 turned and put in seven consecutive months of gains totalling almost 80%. This is not to predict that a similarly vertically shaped recovery is in the cards, but it is a reminder of the dangers for long-term investors of turning paper losses into real ones and paying for the risk without waiting around for the recovery.
4. Never forget the power of diversification. While equity markets have turned rocky again, highly rated government bonds have flourished. This helps limit the damage to balanced fund investors. So diversification spreads risk and can lessen the bumps in the road.
5. Markets and economies are different things. The world economy is forever changing, and new forces are replacing old ones. This applies both between and within economies. For instance, falling oil prices can be bad for the energy sector but good for consumers. New economic forces are emerging as global measures of poverty, education, and health improve. A recent OECD study shows how far the world has come in the past 200 years.¹
6. Nothing lasts forever. Just as smart investors temper their enthusiasm in booms, they keep a reserve of optimism during busts. And just as loading up on risk when prices are high can leave you exposed to a correction, dumping risk altogether when prices are low means you can miss the turn when it comes. As always in life, moderation is a good policy.
7. Discipline is rewarded. The market volatility is worrisome, no doubt. The feelings being generated are completely understandable and familiar to those who have seen this before. But through discipline, diversification, and understanding how markets work, the ride can be made bearable. At some point, value re-emerges, risk appetites reawaken, and for those who acknowledged their emotions without acting on them, relief replaces anxiety.

Lesson From Aspen Leaf Partners Message To Investors

Investing is simple, but not easy. It’s simple because it’s the basic concepts of diversification, low fees, and committing to the long term that make for the most sensible investing. Investing is difficult because everything I just mentioned isn’t what conventional money management offers. Even with professional help, the investors I regularly speak with still lack proper educational framework and long term portfolio expectations. I’ve seen how easy it is to succumb to the temptation of getting out of the market when it’s nerve wracking as well as buying into the allure of trying to outperform the market. The result of this behavior is an investment account balance usually far below what it could be. 

In 2015, I’ll be focusing more on portfolio expectations with clients in my practice. It’s vital to match an investor with the most appropriate amount of portfolio risk in the context of their goals. If you’d like an educational framework on what to expect for a given level of investment risk, feel free to reach out to me. Thanks for reading a have a great day!

– Greg Lessard, CRPC                                                                                                                                                                                                 Founder & President

1.‘How Was Life? Global Well-Being Since 1820’, OECD, Oct 2, 2014. http://www.oecd-ilibrary.org/economics/how-was-life_9789264214262-en.

It’s cliche to initiate conversations about fresh starts this time of year. I’m going to do it anyway, but with a twist. Before I ask you to share what you’re going to do different, I think it’s only fair I discuss what I’m going to do different.

First, I’m not going to check emails and voicemails after I leave the office at the end of each day. I think I have a bit of OCD wiring where I feel compelled to return voicemails and emails as fast as they come in. While I won’t abandon responding in a timely manner, I’m going to try my best to use my evenings for family.

Second, I’m going to stop assuming clients are freaking out about a financial challenge. This happened to me 3 times since I started my own company. Something that I assumed was going to be a point of contention with clients wasn’t actually a big deal to them. I will commit to not getting hung up on stuff that clients have already committed to overcoming.

Last, I’m going to focus my company recruiting efforts better. In the past I’ve brought on advisors and staff that had different philosophies and approaches to portfolio design, the financial planning process, or general work flow. I found that advisors and staff who don’t operate like me or believe what I believe can be challenging. This robs everyone of time we could have been using on other tasks. I’m committing to changing my inability to say “no” to folks who want to join Aspen Leaf Partners. Not everyone is a good fit, and I know exactly what I’m looking for now.

Ok, your turn! I’ve shared how I’m going to make my business life better. Now you share how you’re going to make your financial life better. Here are some ideas to help get you started:

1. Inventory all your investment and bank accounts so you have idea of where every dollar is. What you’ll find is you probably have more money than you thought. Most times (I SAID MOST), you’ll feel better about your financial situation as well as more organized! You could create a free account at Mint.com. Mint allows you to create a budget (uggggg hate those…), set up alerts so you don’t overspend, and track your bank / investment accounts. Thumbs up on this service!

2. Get clarity on your goals and values. Our goals are the tangibles like “I want to buy a boat next year”. Values are more of the “why” behind the goal. For example, “It’s important to me to have a boat because it will make my neighbors jealous while bolstering my ego”. Obviously having fun with this, but you get the idea. Once your goals and values are clear, financial decisions are easy! I can help with all parts of this, so call me if you get stuck.

3. Execute on the financial tasks you’ve been putting off. Do you need to change your 401K investment selections, save more, or restructure an insurance policy? What’s been the holdup? Do you need confirmation from someone else? Do you need a reminder? Our reasons for not doing things we know we should are usually addressed and overcome with much less pain than we thought. Relating this to finance; having a financial plan is a start, actually doing the stuff you need to do is what makes the difference.

Whatever you decide is important to work on in 2015 is commendable. Pat yourself on the back! However, if you share your intentions with someone it becomes very powerful! So here’s where I’ll call you out. Decide on what you’re going to change and share it with someone! It could be a friend (meh, ok), a spouse (really good), a colleague (nah, too easy to let yourself off the hook), or me (I’d love to hear from you). So now that you have some framework, what are your financial resolutions for 2015?

Thanks for reading. Have a prosperous and healthy New Year!

– Greg

We’re often told the more effort and energy we put into something, the better the result we’ll get. This couldn’t be farther from the truth when it comes to investing. Hyperactivity in investment attention is not well correlated with a high sense of investor control. Most of us could benefit from letting go of our negative habits of trying to stay plugged into financial media. This doesn’t mean that we shouldn’t do anything. What it means is you should have a general understanding of long term market trends, how your portfolio is constructed, and why your investments make the most sense for your big picture financial goals.

The Media Effect On Investor Behavior

This Businessweek cover is probably the most widely made fun of prediction for being so silly and wrong. This issue came out in August, 1979 about a few days before I celebrated my 1st birthday. Once the issue arrived at my parent’s house and I had a chance to glance at the cover, I immediately placed a call to my broker to sell my entire stock portfolio.

You’re probably chuckling at 1. the hilarity of this hypothetical scenario, and 2. that I actually had a photo on my 1 year birthday in which I’m holding a phone. While I make fun of this situation, it illustrates a valid point. If I actually had any invested money and reacted to this headline, I would’ve missed a whole lot (like, a real lot…). If I had stayed out of the market the 12 months following my stock sells, I would’ve missed a 14.76% gain. If I had stayed away five years, I would’ve missed a 51.94% gain. If I had stayed away until I was old enough to buy beer (legally like I should’ve) I would’ve missed a 1,073.35% gain. Had I never became a financial advisor or ever invested again, I would’ve missed a whopping 1,791.29% gain.

Why It’s Imperative You Don’t React To Media Garbage

Since that fateful issue the financial media continues to pepper us with a constant barrage of attention grabbing headlines. Look at these valuable (sarcastically rolls eyes) recent headlines illustrating how absurd their timing is.

We have to remember two important lessons. First, the media is designed to capture our attention so it can continue to receive sponsorship dollars from advertisers. What they recommend or say should rarely be taken as valid investment advice. Second, any headline, advice, or strategy touted by anyone who isn’t your financial advisor is usually just entertainment. It’s extremely rare that what they recommend or say should ever be taken as valid investment advice (had to say it twice and in bold for effect)! 

How To Increase Your Long Term Investment Success

Want to know the secret? Focus on what you can control. Here are 3 things you can control:

1. Understand risk. It’s important to understand the historical ups and downs of the market so you can pick a risk appropriate portfolio. Having knowledge of how a certain portfolio is likely to behave helps define your performance expectations, and it certainly helps keep you invested even when it’s hard.

2. Diversify broadly. A mix of US stocks, bonds, international investments, real estate, and other asset classes can drastically reduce risk. Also, remember to let go of your US investment bias. 72% of the world’s bonds and 51% of the world’s stocks are based outside the US!

3. Reduce Expenses. Higher fees don’t always correlate with better performance. In fact, most of the time the opposite is true. It’s not like buying a car where you’ll get more if you buy an Audi versus a low end Hyundai (sorry Mom, I know you love your Elantra). Investment dollars not siphoned off to investment expenses or tax inefficiencies add up over time.

Thanks for reading this post. I enjoyed researching and writing this blog “Why You Should Avoid The Financial Media”. If you have questions regarding your personal investments or how market events reported by the media should influence what you do, please reach out to me!

Here’s To Turning Off CNBC This Holiday Season,

Greg Lessard, CRPC^®

^{Founder & President}