Stop Swinging For The Fences!

You don’t have to have your homerun hitters at bat every time to create wealth in the stock market.  A reasonable annual return and time will do the trick.  Swinging for the fences, whether it be concentrating your portfolio in just one or two high-flying technology stocks or buying penny stocks, also increases your chances for that killer loss that will take years to recover.

Indeed, investors who swung for the fences in recent years now wish they had choked up on the bat and slapped some singles.

Remember: The secret of investment success is to continue to set aside money to invest over time, and to generate a reasonable rate of return each and every year while avoiding the big loss. 

That alone is more than enough to make you achieve your financial dreams.

Can Money Managers Add Value To Your Portfolio?

Based on a dismal record of money managers to outperform benchmarks, we have to take the argument that markets are efficient very seriously.  Recent statistics shows that 0.002% of Hedge Fund managers outperform the S&P 500 over a period of 5 years time!

When we go about building our investment strategy, benchmark, style, or passive and active investing, we must consider the overall average performance of each investment class over a period of at least five years.  Doing so, ensures your money has staying power.

In our own practice, we use only institutional-class index funds.  Today it is possible to index almost the entire world.  I think that approach gives us the highest probability of a successful outcome with the lowest risk.  To the extent possible, I want to see predictable results.  I hate underperforming the benchmark more than I would enjoy overperforming.  That makes me pretty much like my clients: risk averse. 

On a side note:

A special thanks to Dr. Karl W. Einolf, Ph.D. of Mount St. Mary’s University for allowing me the opportunity to lecture his Corporate Finance classes yesterday.  It’s truly an honor and I hope I was able to impart some practical knowledge for the students as they go on to graduation and beyond! 

How to Strengthen a Team

I was studying the importance of team work in the Financial Services industry the other day and I realized that too many people are trying to do all the work themselves alone.  At the end of the day, they wonder why they have yet to see any changes in their bottom line. 

Being in a team environment significantly improves your chances of success but once you join or form a team, you need to strengthen it.  There have been many books written about building teamwork, but there are basic elements I have seen that make the most difference.

Align Values

Sharing similar values will strengthen a team.  Examples of values include work ethic, shared vision and goals, compensation of support staff, communication, and investment philosophy. 

Promote Commitment

The best teams are those whose members are committed to the growth of the team, with each member being willing to commit a lot of energy to the team’s success.

Promote Good Communication

Good communication is essential to a team’s success.  As in any relationship, good communication overcomes most problems.  The team should encourage communication by all team members and provide opportunities for team members to share their opinions on how to make the team better.  One of the greatest benefits of a team is the ideas and creativity that can result when the team members are all motivated to improve the team.  All team members should have the opportunity to review and give input regarding all aspect of the team’s activities.

Build In Measurement and Accountability

Every team member should be held accountable for her responsibilities, and team meetings should be held to review accountability.  These meetings motivate all the members to excel, so that they can proudly share their results at team meetings. 

In the long run, working toward parity is best.  If the split is not even, there should be an incentive for all team members to get an equal share as the team’s business grows.

What is Quantitative Easing?

If you follow Financial news, you no doubt have heard of the Fed decision to inject another 600 Billion Dollars into the system by purchasing Treasury Bonds and to “maintain low interest rates” in a strategy dubbed “Quantitative Easing.”

Quantitative Easing (QE) is an extreme monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system.  In short, it is printing money.   

QE can trigger higher inflation or even hyperinflation if too much money is created.  It can fail if banks are still reluctant to lend money to small businesses and households in order to spur demands. 

To put it simply, people who have saved money will find it is devalued by inflation; however those who have debt will see the value of that debt decline.  Those who own homes will see the value of the increase as more devalued dollars are needed to purchase the home.  The value of the debt on that home will decrease as the number of dollars needed to settle the mortgage will remain constant and can be paid with future devalued dollars. 

Before the Fed decided to force this policy on us, maybe they should have taken a popular vote.  Oh wait, voting is a right in democracies not, dictatorships.