Knowing When To Let Go

Sticking With It...Or Not

A couple of weeks ago, a friend asked if I had watched the most recent season of House of Cards. I responded that I had stopped watching partway through the 5th season because I was no longer enjoying it. My friend and his wife were slogging through the final season, determined to finish it even though they too weren't enjoying it.

Over the past few years, I have become much less likely to continue reading or listening to books, watching TV shows or movies, or playing video games that I wasn't enjoying. Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari? Set it aside after it kept putting me to sleep. The Walking Dead? Stopped watching after season seven shambled on what seemed like forever. Far Cry 5? Deleted from my PlayStation 4 after growing tired of boring fetch quests.

As I've gotten older I've become more conscious, and more protective of, my free time. Call it the Marie Kondo Effect: Why waste precious time on something that doesn't bring me joy?

We all love instant gratification, but not everything has to bring you instant or constant joy. Sometimes challenging things are worth it. The Count of Monte Cristo is one of my all-time favorite books, but parts of it drag. Still totally worth it.

Buying...Or Selling

I know this will shock you, but I often relate things to investing. The decision about whether or not to stick with something that no longer brings us joy is similar to what happens when we invest. Sometimes we hold on for too long; sometimes not long enough.

Hopefully, the decision to buy or sell an investment isn't based on emotion, such as joy. Instead, the decision should be made based on logic and quantitative measures, such as price, expenses, and the need for diversification.

Sadly, as I've written previously, investing is hard. Humans are emotional creatures and we're often lousy at making rational decisions. We buy high and sell low. We take on more risk than we need to.

My advice: Try to reserve your emotional decisions when choosing things like books, TV shows, movies, and video games. And, if you've given something a fair chance and you aren't enjoying it, don't be afraid to let it go. Unless it's The Count of Monte Cristo. You need to stick with that book.

When it comes to investing, check your emotions at the door.

Ten Years!

It's difficult to believe that ten years ago this month the S&P 500 finally hit the bottom. Check out the chart below to see how it has bounced back.

S&P500 10YR.jpg

Reading / Watching / Playing

Here's what has my attention right now:

Stay Calm And Focus On Your Plan

Volatility and Anxiety

As of today, December 7, 2018, the US market (as measured by the S&P 500 Index) has fallen about 6% over the last three months, resulting in many investors wondering what the future holds and if they should make changes to their portfolios. While the S&P 500 Index may still be in positive territory for the year-to-date, it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself.

Reacting Impacts Performance

If one was to try and time the market in order to avoid the potential losses associated with periods of increased volatility, would this help or hinder long-term performance? If current market prices aggregate the information and expectations of market participants, stock mispricing cannot be systematically exploited through market timing.

Translation: It is unlikely that investors can successfully time the market, and if they do manage it, it may be a result of luck rather than skill.

Further complicating the prospect of market timing being additive to portfolio performance is the fact that a substantial proportion of the total return of stocks over long periods comes from just a handful of days. Since investors are unlikely to be able to identify in advance which days will have strong returns and which will not, the prudent course is likely to remain invested during periods of volatility rather than jump in and out of stocks. Otherwise, an investor runs the risk of being on the sidelines on days when returns happen to be strongly positive.

The following chart helps illustrate this point. It shows the annualized compound return of the S&P 500 Index going back to 1990 and illustrates the impact of missing out on just a few days of strong returns. The bars represent the hypothetical growth of $1,000 over the period and show what happened if you missed the best single day during the period and what happened if you missed a handful of the best single days. The data shows that being on the sidelines for only a few of the best single days in the market would have resulted in substantially lower returns than the total period had to offer.

Market Declines and Volatility - Unbranded.jpg

The Takeaway

While market volatility can be nerve-racking for investors, reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful. By adhering to a well-thought-out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.

In other words, stay calm and stick to your plan.

Diversification: The Avengers of Investing

This week, the creator of Marvel Comics, Stan Lee, passed away. In case you aren't familiar with Lee's work, he created or co-created some of the world's most popular comic book characters: Iron Man, The Incredible Hulk, Thor, Spider-Man, Dr. Strange, and Black Panther are just some of his creations. In honor of Lee's work, it seemed appropriate to revisit a basic principle investing, diversification.

You're probably wondering what comic book characters have to do with investing. Consider The Avengers, a team of superheroes who work together to save the day (most of the time). Individually, they can't succeed because each of them has strengths and weaknesses. Put them together and they are nearly unstoppable. Will there be ups and downs? Yes, but in the end everyone is better off working together.

When you invest, the concept of diversification works the same way.

What is diversification?
The short answer is that diversification means not putting all of your eggs in one basket. Iron Man is great. Seriously, who wouldn't want Tony Stark's brains, money, and sweet armor? However, when the fate of the world is at stake, as it always is, the odds of saving the day are vastly improved when Iron Man is assisted by Captain America, Thor, Hulk, Black Widow, and Hawkeye. If Iron Man gets knocked down another member of the team can step up and get the job done.

So how does this relate to investing?
Let's use Apple as an example of how diversification works in the world of personal finance. Apple is a highly profitable tech company. However, owning a portfolio comprised only of Apple stock is not a good long-term strategy. Let's say Apple's stock falls 20% because consumers stop buying iPhones. You won't be a happy camper if Apple is your only investment!

The solution
You need to create your own team of superheroes! Unfortunately, the team you'll create won't feature a giant green rage monster or a Norse god wielding a magic hammer. Instead, your team will be comprised of companies in different categories, such as Wells Fargo (financial services), Exxon Mobile (oil & gas), Pfizer (pharmaceutical), and Proctor & Gamble (consumer products). Why companies in different categories? Because it's impossible to predict which categories will be best from year to year. The following chart shows returns for different investment categories from 1998 - 2017.

I know it's difficult to see exactly what's going in this chart. The different colors represent different categories of assets. For each year, the best-performing assets are at the top of the page and the worst-performing assets are at the bottom. As you can see, it's rare for the same category to consistently be number one - or two.

I know it's difficult to see exactly what's going in this chart. The different colors represent different categories of assets. For each year, the best-performing assets are at the top of the page and the worst-performing assets are at the bottom. As you can see, it's rare for the same category to consistently be number one - or two.

Superhero portfolio assemble!
Okay, we've established why having one superhero (stock) isn't ideal. The following chart shows a hypothetical portfolio comprised of five superheroes (stocks). Please note the stocks referenced here provides a highly simplified illustration of how diversification works.
Spoiler: Instead of a 20% loss, you have a 3% gain.

Screen Shot 2018-11-16 at 9.02.59 AM.png

Congratulations, your superhero stocks have saved the day! Instead of a 20% loss, you have a 3% gain!!

For the average investor, owning a portfolio of individual stocks, such as the one in the example above, isn't practical. Fortunately, mutual funds and exchange-traded funds (ETFs) provide investors with an efficient, cost-effective means of holding large baskets of stocks and bonds.

Key takeaways

  1. Owning one stock (or having Iron Man on your side) is great, but it's risky and could lead to losses (or the end of the world). On the other hand, owning multiple stocks in different categories (or multiple superheroes) typically reduces risk and leads to better long-term returns (or the world not ending).

  2. I've just proven that reading comic books or watching movies based on comic books is not a waste of time. Thanks, Stan Lee!

Image credit goes to my awesome cousin, Bryan Lenning. You can (and should) see more of his work at

Image credit goes to my awesome cousin, Bryan Lenning. You can (and should) see more of his work at

Investing Is Hard

When I say "investing is hard", what I really mean is that staying invested is hard. Especially when the year's gains are wiped out in one day, which happened earlier this week. Or when you are bombarded by non-stop financial information, much of it negative, from many sources. Or when you can log in to your financial accounts anytime you want and watch the value decrease.

For investors of all ages, 2018 has been a difficult year. It has been a long time since investors have seen such wild swings in financial markets. Since 2009, staying invested has been easy. Sure, there have been ups and downs, but mostly ups. And the market always goes up, right? Wrong, but after 10 years we've become accustomed to positive returns.

Check out this chart:

Image 10-26-18 at 6.59 AM.jpg

The chart shows the total annual return for the S&P 500 since 2009. Obviously, 2018 isn't over yet, so there's time for the bar to go in either direction.

The takeaway from the chart is that we've had a great run over the 10-year period shown above.

I could tell you to stop checking the value of your investments, but you won't do that. Technology has made it easy for us to quickly log in to our accounts or receive automated notifications of the balance, performance, etc.

I could tell you to ignore the daily news about the financial markets, but you won't do that. There's information everywhere and it's nearly impossible to avoid.

I could tell you not to listen to talking heads make predictions about what the markets will do, but you won't do that. Like daily news about financial markets, it's almost impossible to avoid hearing from someone who knows what's going to happen in the financial markets today, tomorrow, or next year. Here's a secret: No one can predict, at least not consistently, what's going to happen.

You're human, at least I think most of you are, which means you will worry about your investments, you will be curious about the day-to-day changes in your account, and you will want to know what's going to happen to your accounts in the future.

Do one more thing, the hard thing: Stay invested.

Listening / Reading / Watching

Here's what has my attention right now:

  • Red Dead Redemption 2 by Rockstar Games. It's like Westworld minus the violent, bloody robot uprising! The original Red Dead Redemption is one of my favorite games of all-time, which means I've been eagerly anticipating the sequel. If you're unfamiliar with the Red Dead games, check out the trailer by clicking on the link above. Games have come a long way since Space Invaders and Pac-Man.

Mr. Market's Wild Ride

The Short Version

Greetings! I know you're busy, so I'm going to summarize this post for you:

  1. Calm down.
  2. Markets go up and down. It's normal.
  3. Stop watching and/or listening to what passes for financial news on networks such as Bloomberg, CNBC, Fox Business, etc.
  4. No one knows why markets rise and fall. Anyone who claims to know is a liar.
  5. Stick to your financial plan. Don't have one? Get one. You don't have to be rich to work with a financial planner.

The Parable of Mr. Market

The recent ups and downs in financial markets have seriously rattled investors. Well, the downs rattled investors because no one likes the downs. It's not fun watching one's retirement savings or other investments drop in value. Unfortunately, we're stuck with declines because markets don't always go up. Markets are made by people and people are irrational, greedy, and prone to panic.

The market fluctuations and the subsequent flurry of news, analyses, and pundit-speak made me recall the parable of Mr. Market, which Waren Buffett shared with investors in his 1987 letter to shareholders of Berkshire Hathaway. Below, you'll find an excerpt of that letter, which includes the parable of Mr. Market. I used bold text to emphasize what I believe to be the most important takeaway of Mr. Buffet's story. Have at it.

"Ben Graham, my friend, and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest in him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, “If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.”

Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging, and betas. Their interest in such matters is understandable since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind."


Last week, after the markets started bouncing around, I shared a chart of the Dow Jones Industrial Average index on my personal Facebook feed. I believe it's worth sharing again.

Dow Jones 10 Year.png

The Dow Jones Industrial Average index over the last 10 years.

I don't want to come across as cold and uncaring. Fluctuations in markets can have serious financial consequences depending on how much you have saved as well as the stage of life you're in. The best thing you can do is create - and stick to - a financial plan because no one can predict why or when markets will rise and fall.

Listening / Playing / Reading / Watching

Here's what has my attention right now:

  1. Neverwhere, by Neil Gaiman. In a previous post, I mentioned how much I enjoyed listening to Gaiman's American Gods. I highly recommend Neverwhere, too. Bonus: Gaiman narrates the audiobook edition and his performance is fantastic. I would listen to him narrate the phone book. If phone books were still a thing.
  2. Morning Star, by Pierce Brown. I'm pretty sure Brown's series is considered YA (young adult) literature and I don't care. Morning Star, which is book three in the Red Rising trilogy, is just plain fun. If Greek mythology, The Hunger Games, the Harry Potter series, and Game of Thrones had a baby, it would be the Red Rising trilogy.

Post-Election Thoughts

What Happens Next?

I know many of my friends and clients were surprised by the results of last night's election. Adding fuel to the fire, it didn't help that markets fell sharply as reactions to a Trump presidency spread across the world. The Dow was off over 800 points, more than a 5% decline, and futures trading on the S&P 500 temporarily halted.

The results of the election and its impact on financial markets will be discussed ad
nauseum in the coming days (well, probably weeks). The topic of incorrect polls is likely to come up, which is understandable because, in addition to the US election, polls for the Colombia-FARC peace deal and Brexit were wrong. Just remember that markets calmed down quickly after the Brexit vote rocked financial markets. In fact, it's now about 11:30AM EST and US markets have already stabilized - and are in positive territory.

I cannot predict what will happen over the next four years. No one can. In addition, it's questionable just how much any president can affect the economy. Markets will go up and down, but there's nothing you can do about it.

Final Thought

I coach my nine-year-old daughter's soccer team. The kids often complain the actions of the opposing team or calls made by the referee aren't fair. My response is always the same.

I ask them the following question: "Who can you control?"

They eventually respond with something along the lines of "No one" or, the answer I'm really looking for, "I can only control myself".

Don't worry about the financial markets because you can't control them. Instead, focus on the things you can control. I know that's easier said than done, especially if you're nearing retirement or already retired. What I do know is that my investment strategy hasn't changed since yesterday.

Takeaways From the 2016 XYPN Conference

I returned from San Diego late Wednesday night after spending a few days at The XY Planning Network's (XYPN) annual conference. Here are some of my takeaways:

  • There are a lot of planners excited about improving the financial planning profession. I believe the XYPN had about 100 members in 2015. The network has grown to more than 300. And we will act in our clients best interests. Not because we're forced to, but because we want to. And it's the right thing to do.
  • Student loans are a big problem. There are millions of people who need who need help navigating confusing loan types as well as their repayment and refinancing options. I've started work on a project to address this problem.
  • Robo-advisors, such as Betterment and Wealthfront, cannot replace a human. Sure, they can invest efficiently, but their algorithms can't handle disruptions in financial markets (Brexit) nor can they hold their clients' hands while on life's emotional roller coaster. And a human financial planner augmented with a computer? That's a force to be reckoned with.
  • This next generation of planners is willing to work hard for their clients, but they also want time with their families. The panel I was on, "Full-Time Parent, Full-Time Owner" was well-attended by planner/parents looking for advice on how to juggle work and life. I can't speak for the other planners on the panel, but I don't consider myself an expert on this subject. It's a work in progress. That said, judging by the responses from planners in attendance, I think we are on the right track.*

*True story:
I told the audience my wife and I came to an agreement when I started my firm: She was now the primary breadwinner and working a demanding job at a public affairs firm. Naturally, my income had decreased because I was building my firm. I may not have been able to contribute to the household financially, but I could contribute in other ways. I could drop-off and pick-up the girls from school and take the lead on laundry, grocery shopping, and cooking. So that is what I did.

Later that day, one of the attendees approached me and said he called his wife after attending my panel discussion. He told her that while launching his firm he was going to take over drop-off and pick-up, laundry, grocery shopping and cooking.

Well done, Sir.

Listening / Reading / Watching

Here's what had my attention this week:

  • Loads of great information about all aspects of financial planning.
  • Survivor: Millennials vs. Gen-X. This long-running reality show has become something of a family tradition in our house. The four of us enjoy watching the physical challenges, scheming, and strategies every season. In addition, our nine-year-old has declared that she plans to win when she's old enough to compete. Oh, and that's after she wins American Ninja Warrior. And becomes a professional soccer player.