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When working at DFA I always surrounded myself with individuals who shared my passion for moving investors away from active management and for creating an advisor/investor relationship sans the conflict of interest.  You advisors know most of these individuals, including Sam Adams, who led the “charge,” so to speak, in both Europe and Australia.

Sam, along with many advisors and their clients, is passionate about “sustainability.”  He left DFA recently with a goal of creating a family of “sustainable funds” that advisors could use to deliver the capital market rates of return across different asset classes.  Sam has done a lot of work on how to accomplish this but it is more than I can spell out with this post.

Currently, the market is dominated by expensive, actively managed funds, with multiple “social goals” making proper diversification a challenge for advisors and their clients.  And I agree with Sam that the “environmentalist movement” has the investment message all wrong.  The doom and gloom story is not the way to go.  Market forces and technology will create the solutions.

So here is what I am asking.  Let Sam and/or me know what you think.  We believe it’s a win/win for investors and the environment and we are trying to determine whether or not the demand is strong enough to make the funds themselves “sustainable.”

You can email Sam at: sam@vertasset.com


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Shooting Par

I have commented in the past about my passion for golf and how simple it is to be a successful investor versus the challenges of being a successful golfer. As those of you who play golf know, very few non-professional golfers are able to shoot par. It is extremely difficult. You’ve all heard the expression “that’s par for the course” used to describe a common expectation about virtually any endeavor or situation we might experience. But, when it actually comes to golf, expectations are far less than par. If I went to my golf lesson today and my instructor told me he had discovered a simple way to shoot par, I would be ecstatic and embrace his advice immediately. Unfortunately I know that’s not going to happen.

When it comes to investing however, it’s a different story. For me “par” is the “market rate of return.”  And unlike golf professionals, “professional money managers” find it very difficult to “shoot par.”  Fortunately, you as an investor, can easily shoot par. If you’re not convinced, find an advisor that is “shooting par” and they will teach you.

Before accepting “passive investing” and realizing it would make me a “par investor,” I shot way too many “bogies” using active management. But “Wall Street” wants you to believe they can shoot par (or better) but unfortunately, they are like the weekend golfer, who will continue to shoot bogies no matter how hard they try to make par. Your golf bogies may create a great deal of frustration as they show up on your golf scorecard. But it is nice to know that the “professional money manager’s” bogies are not going to show up on your “investment scorecard.”


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Diversification—“Fidelity’s Buddy”

Over the years I have often quoted Nobel Laureate, Merton Miller, stating that the only thing we know for certain about investing is that “diversification is your buddy,” valuable insight for every investor.  However, diversification can also be used in a manner that can be very harmful to investors.

Last week there was a full-page ad in Bloomberg Businessweek extolling the great long-term performance of their Fidelity Low Priced Stock Fund.  There is no question that an investor in this fund would have done very well.  Hence, Fidelity will invest their advertising dollars to promote the results.

This is where Fidelity’s “diversification strategy” comes into play.  Fidelity manages and offers 185 different funds.  They have funds representing virtually every  “sector” (asset class) of the market.  In other words, they are well diversified with their offerings.  No matter which sector of the market does well, Fidelity has a fund with great performance numbers.

This makes the advertising decisions at Fidelity very simple, “push” the winners.  And, if you have that many funds you will, by definition, have great performing funds to push.  I have to admit it’s a very clever strategy.

It reminds me of the advice I used to give my clients for “cocktail party investment talk.”  When someone starts to boast about owning this or that hot stock, they could always respond with “I own it too.”  Why?  My clients were diversified to the point of owning an interest in virtually every publically traded company around the globe.  All the winners!  (But also, all the losers.  No need to disclose that to anyone.)  So don’t expect Fidelity to spend any advertising dollars pushing their poor performing funds.


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The “Experts” Have No Clothes

I hope you had a great “holiday season!”  No complaints here as we head into 2015 without a clue as to where the market is headed.  I have an opinion regarding such matters but as I always say, “god forbid that I would ever make an investment decision based on that opinion.”  But being clueless doesn’t stop the “experts” who make a living, gazing at their crystal ball.

Once again, they are riding into the new year, wearing no clothes.  It’s the same story every year, but for many investors, the fairy tale about successful active management, never gets old.  For them, the future is simply too scary, without a forecast.

For the past 25 years I have been documenting the failure of these experts and teaching people the “good news” that an accurate forecast is not required to have a successful investment experience.  Back in the beginning I would simply make xerox copies of the annual December articles publishing the experts’ forecasts for the coming year. Twelve months later, usually at our annual holiday party, we would look at the results.  It was a great way to debunk the myth, of successful active management, and to celebrate the superior returns of a simple diversified and disciplined strategy.

Most advisors I know use their own version of this annual ritual to drive the message home and thanks to all the advances in technology, gathering the data is so much easier.  In the past, I had to save copies of all the December issues of each publication in order to document the results each year.  But now there is a very inexpensive app that enables anyone to download past issues.  It’s called Next Issue.  Reading the “Where to Invest In the Coming Year” 12 months after they were published is not only entertaining, it’s very enlightening.

And for those of you who still have faith in the experts to make an accurate forecast, check out what has happened this past few months to the price of oil.   Now go back to the beginning of last year and see what the experts were forecasting.  It doesn’t mean these experts are dumb, it simply shows how difficult it is to know the future.  That is what creates so much uncertainty for investors, and the only way I know to deal with that uncertainty is to be as diversified as possible and to stay disciplined.  It really is that simple.


Filed under Advisors, Investors


As with any other field, technological advances have had a tremendous impact on the Financial Services Industry over the past 20 years.  Machines and software are capable of doing so many things more efficiently and at a lower cost.  The rules for having a successful investment experience have not changed however.  You know what they are:

1.   Build a broadly diversified portfolio with an appropriate risk         tolerance.

2.   Minimize expenses including taxes.

3.   Stay disciplined.

Technology is a fantastic tool for investment advisors, and as a result we are seeing the emergence of what I call the “RoboAdvisor.”  When it comes to building portfolios and minimizing costs, the advantage of using a RoboAdvisor is obvious.  It makes it possible for investors to get a well-structured portfolio at a much lower cost.

But what about Rule #3, the need to stay disciplined?  Every investor is unique with regard to their personality and all the dynamic variables they deal with in their life.  I doubt we will see software anytime soon that will enable a RoboAdvisor to take control of an investor’s emotions.

Advisors know that keeping clients disciplined is by far the most difficult problem they face.  It’s when the market is “tanking,” that advisors earn their fee.  It can be a challenge, but the most successful and valuable advisors are the ones who have the “people skills” to keep their clients emotions under control.

This 5-year bull market has given disciplined investors a great return but as I have mentioned before, it may also have created a false sense of confidence regarding the ability to stay disciplined.  They may believe a RoboAdvisor meets all their investment needs.  But I have my doubts.  RoboAdvisors will not be conducting any “fire drills,”as I suggested back in July, and will certainly not be there to keep you from getting burned by a lack of discipline.

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Investor Stereotypes

Stereotypes are sometimes programmed into us and they often lead to actions that are harmful to all concerned.  I have always believed that having an open mind and not judging others based on their gender, race, religion, or sexual preference is not only morally correct, but it enables us to know one another as individuals.  Although we have a long way to go, I believe that as a society we have made a lot of progress regarding relationships with those who may not be just like us.

As a financial advisor, when developing an investment strategy for a new client, I would always begin by discerning the “client profile.”  Assets, income, dependents, age, risk tolerance etc. were the variables I would use to build their investment strategy.  The client’s race, religion, gender or sexual preference was irrelevant to their needs as an investor.

But the clever folks on Wall Street seem to think that reinforcing the stereotypes that segregate us can be used to make a buck.  According to an article in the New York Times last week, “firms are creating units to serve a variety of ethnic groups, races, genders, and members of the lesbian, gay, bisexual and transgender communities.”  As if the investment needs of each group are unique.  As I read the article, the marketing folks creating these strategies, mentioned, for example, that Chinese like to gamble so they need investments with more risk and African American’s supposedly prefer real estate rather than equities.  And they believe that each individual investor may prefer to work with their own kind.  Perhaps they are right, but for me there is a huge disconnect with what should be the role of an investment advisor, and that is to help individuals have a “successful” investment experience.

As I was writing this I realized that I have my own stereotype to deal with-“Wall Street Bankers.”  I can’t get past my belief that they will always put their own profits ahead of their clients’ interest and sell investors whatever they want, even if it’s not appropriate for them.  I have an open mind but unfortunately, “Wall Street” continues to reinforce this stereotype.


I hope you had a great Thanksgiving!  It was very special for me as my daughter, Leslie, brought a new grandson into the world.  My portfolio is now rather skewed with four boys and only one girl but it works for me.


Filed under Advisors, Home, Investments, Investors


Next week, after the mid-term elections, we have the unofficial start of the 2016 Presidential Race (although numerous Presidential hopefuls have already begun “testing the waters,” traveling the country and watching the polls very closely).  For me, it’s a great time to be writing a blog because there will be no shortage of “subject matter” for the next 24 months.

Thanks to Hillary Clinton’s, big gaffe during her interview with Charlie Rose, “businesses do not create jobs,”  we are off to a great start.  The entire race looks a lot like a NASCAR race.  All the candidates are jockeying for the “poll position” that will give them an early lead.  Just as with the racing cars, it becomes a race of attrition, with the winner being in many ways, the last man or woman standing at the end.  NASCAR drivers have pit crews to get them back in the race when they have a malfunction or they need new tires, the politicians have their “spin control doctors” to get them back in the race when they make their inevitable gaffes.

Sometimes the damage from a crash or an engine malfunction is so great, that even the best pit crews, cannot get the driver back in the race.  It’s no different with politicians.  In the last presidential race Governor Perry, during a campaign debate, could only remember 2 of the 3 departments of the federal government he wanted to close down.  With that one gaffe, he was out, but now he’s back for this race wearing glasses, hoping to look more intelligent.  Sarah Palin was a virtual “gaffe fountain” which earned her my “Jerry Springer” award.

George W. Bush made so many gaffes he engendered the term “Bushisms.”  Joe Biden stated that the middle class had been “buried over the last 4 years.”  The problem was, this declaration was made at the end of the Obama administration’s first 4 years in office.  Al Gore made the ludicrous claim that he invented the “internet.”  But he recovered nicely with a simple power point presentation that won him a Nobel Prize.

Obviously, politicians from both parties continue to give us “well documented” evidence that we are not being led by our “best and brightest.”  Watching Hillary Clinton’s pit crew try to explain what Hillary was actually saying has been entertaining but it is also sad.  Her comment was so offensive that I have serious doubts about her completing very many laps in the coming race.  Even China and Russia came to the realization over the past century that businesses are more efficient at creating jobs than the government.

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