Back in January when I was (once again) on my “soap box” preaching the value of investment discipline, I shared with you a quote from Leo Tolstoy describing how human beings engage in destructive behavior, even in the face of overwhelming evidence that the behavior will be destructive.
Just this weekend I read an article explaining why human beings behave this way. The article was not about investing but an analysis of why Health Secretary Kathleen Sebelius launched the website for Obama Care knowing full well it was not ready.
Psychologists call such blinkered thinking, “motivated reasoning.” Human beings are primarily emotional, not rational, so we engage in “confirmation bias”: We start off with what we want to be true, look for evidence that supports our hopes, and screen out that which does not. There are an infinite number of high profile examples illustrating the disastrous effects of such reasoning. The decision Bush made to invade Iraq. John Kennedy Jr. knowingly flying a single engine aircraft into a foul storm etc., etc.
I have been stating for years that we all, investors and investment advisors alike, have an opinion (forecast) about where the market is headed. And we listen to those “experts” who support our view of the future while ignoring those who disagree. Acting on that forecast usually ends up being destructive to our financial health. Recognizing this, (by looking at our past experiences), should be enough to convince us that emotions have no place in the investment decision process.
As an investor you need to get your emotions out of your investment strategy. The emotions of fear and greed are very powerful enemies of the successful investor. If you remain rational, you will see that the evidence supporting a disciplined investment strategy is overwhelming. But I fear that most investors (and way too many advisors) still have a long way to go before they become rational. If you can, (and that includes getting you ego out of the process) you will be successful, if not, you will be a “loser.”
If you are an advisor you have an enormous responsibility. Keeping your clients disciplined is always the biggest challenge you will ever face. But if you succeed, your value to them is “priceless.”
It’s been a great year for investors but with the market at an “all time high” shouldn’t we wait for the inevitable “correction” before putting more money into the market? Or worse yet, perhaps investors should get all of their money out of the market. Are we seeing another bubble that is about to burst? After all we have reached the dreaded “Triple Top.” (If you look at a chart of the S&P 500 you will see what I am talking about. “Chartist” believe they can predict the future by looking at the past, wouldn’t that be nice.)
The year-to-date return from the S&P 500 is a little over 25%. Wow, perhaps investors should tread carefully. But if investors look at this with a long-term perspective they will not find this alarming. The historical annual return for the S&P 500 (as far back as we have data-1926) is a little over 10%. The annual return over the past 13 years is a little over 1%. The lowest return for a 13-year period since the great depression.
Market indices such as the S&P reflect the increases and decreases in wealth generated by the global economy. If you believe that the global economy has come to a perpetual halt, then an investment in the equities market makes no sense for you. Find a cave and prepare for the “end.” Or—if you believe there is a future and you can “time” the market, you are a fool! But if you are a disciplined investor with a long term perspective you are on the right path.
Advisors, and investors alike, need to always keep things in perspective; something the media and the peddlers of financial products fail to do. The media needs for investors to watch their “Cramers” and to read their daily forecast to make money. The financial services industry needs investors to change course frequently for the same reason. A proper perspective for investors is always “long term.” All the “noise” created by the media and the financial services industry may be interesting for speculators, just as a tip sheet may be interesting for those playing the ponies. But by keeping a proper perspective you will be able to see clearly through all the “noise” and you will have a successful investment experience.
Warren Buffet was interviewed this past weekend and it is always comforting to hear the “Sage of Omaha” give the same message over and over again. “Stay disciplined, diversify with passive funds, and keep costs low.” (Here is the link should you care to read it: http://usat.ly/1bovELt .) What is sad is that no matter how often people hear this “message,” most people still “don’t get it.” If you are an investor and you do “get it,” you will have success. If you are an advisor, you need to help those who don’t. They need you!
What game? Johnny Manziel’s Texas A&M Aggies vs. Alabama on September 14th. Returning Heisman Trophy winner vs. the defending National Champion, what a fabulous draw for CBS and the SEC. Now that the Manziel autograph “scandal” has been dealt with we can all relax, grab a beer and watch some great football in Prime Time in a couple of weeks.
Was there ever any doubt that the NCAA would stand in the way of this unique match-up? CBS is paying the SEC over a half billion dollars for the rights to broadcast Prime Time SEC Football over the next 10 years, and you better believe they intend to make a profit. College Football is one of the biggest media draws in the entertainment industry today and no one wants the NCAA, with their archaic rules, to screw it up.
The time has come for the Major Conferences and Universities that want to be in the entertainment industry to withdraw from the NCAA. The NCAA is an impediment to the players, the fans, the coaches and the Universities who want to see a great “product” on the field. The NCAA was never intended to be the overseer of a huge entertainment business. The Major Conferences already negotiate their own Media contracts.
As we have seen, over the past few years, the revenue generating capabilities of each school (business) determines how the conferences organize themselves to maximize their profit. Thus we see Texas A&M in the Southeastern Conference, Boise State in the Big East etc. etc. It’s a business and they should have the freedom to take the actions they deem necessary to maximize their profits. All the parties, except one, have this freedom, and of course that is the players.
In a world without the NCAA each Conference would be free to establish their own rules, and the players would decide which school best meets their needs. If the player’s primary goal were to get an education, he would perhaps choose a school that guaranteed a scholarship for 4 or 5 years. If the goal were to develop the skills necessary for a career in professional sports they could choose a school with a great coach. Each Conference would establish its own rules recognizing the vested interest of all concerned, including the players.
In summary, the players deserve a “seat at the table” and a share of the benefits being created. The current situation is not sustainable and it’s time for a change.
No, I am not talking about the end of the world. I am far to optimistic about the future to embrace that idea. To the contrary, we may be about to witness the end of “indentured servitude” for college athletes. About that, I am optimistic.
The NCAA (often referred to as the owner of the plantation) is facing a situation in which may be about to lose one of it’s most prized and profitable assets, Heisman Trophy winner Johnny Manziel. Why? He sold his autograph, but according to the NCAA, his autograph is their property. Only the NCAA can sell Johnny’s autograph.
What to do? What to do? Mark Emmert, the Chief Executive of the NCAA, must not be sleeping well these days. If he declares Johnny ineligible he exposes the NCAA for what it really is, a multibillion-dollar entertainment business built on the exploitation of those who actually play the game. As I have written before, the coaches and administrators are “living large” while the players live with rules guaranteeing them a poor standard of living. The rule broken by Johnny Manziel is just one of those rules that ties the athletes down.
I have never understood how coaches making millions can live with themselves without taking a stand for these young kids they claim to care about. Is it peer group pressure, fear of being “black listed” by conference administrators, or just the joy of being an “exploitor” rather than an “exploitee?”
Johnny may end up being the guy who “knowingly” or “unknowingly” brought about the demise of the NCAA, as we know it today. And in my opinion, it is long overdue.
I am among those who are very troubled by the “not guilty” verdict leaving George Zimmerman unpunished for taking the life of Trayvon Martin. However, what troubles me is the “laws” in Florida that gave George Zimmerman the right to carry a concealed weapon which he used to murder Trayvon Martin.
Laws define what is legal or illegal in our country. But the word “legal” is not a synonym for the word “ethical” or the word “moral.” Those who made the laws governing the outcome of this case must share some of the guilt for this murder.
Throughout history we have had laws that condone unethical and immoral behavior to the detriment of many innocent people. In our short history we have had many laws discriminating against innocent individuals based on their gender, race, sexual orientation and economic standing. None of these laws would today be considered ethical or moral rules for society. Of course “immoral and unethical laws” are not the sole province of our country. Throughout history we see a plethora of unjust laws making it legal to carry out horrendous crimes against innocent victims.
Those with power put laws in place and they are used to exploit those with little or no power. Those committing immoral and unethical crimes always defend their actions by stating that they have done nothing illegal. Apparently they have no conscience. But I am hopeful there is a “higher court” somewhere that will hold George Zimmerman accountable.
Filed under Life, Politics
My only experience with the Government budgeting process was my last year in the Marine Corps. On my return to the U.S., I was stationed in Barstow, California and put in command of the NCO School and the Rifle Range. When it came time to submit my budget request for the coming year I was given only one requirement by my Commanding Officer; “just make certain your budget request exceeds the current years budget.” I didn’t really think about the implications until just recently when the howls of protest about the Sequester and the mandated cuts of 2% across all government departments approached. A 2% cut would seem reasonable to most people, I think, but when you have grown accustomed to an ever increasing budget, it’s difficult to hit the (-) on the calculator. All we hear is that a 2% cut threatens our ability to defend our Country even though we spend more on defense than the rest of the worlds’ governments combined.
I am not an expert regarding the Defense Budget but I have a suggestion as to how the Pentagon might save more than a few dollars of the taxpayers’ money. The retirement benefits (including medical benefits) are a growing part of the Defense Budget. Politically it’s easy to gain support for these benefits because these people “laid their lives on the line to defend our country!” That is true for some military retirees, but how many? Anyone who has ever been in the Military knows that it is a very small percentage of military personnel who are ever in “harms way.” The vast majority, have jobs similar to every other government or private sector employee. My recollection from my Vietnam experience was that it took 7 personnel in the “rear with the gear” (the REMFs) to support one combatant. And of course a huge number of military personnel were in the U.S. and in other non-combat zones around the world. In todays high tech military the percentage of military personnel “laying their lives on the line” is smaller than ever. Even those flying the deadly drones in the Middle East, are based here in the U.S.
In my opinion, our Military should be increasing the care and retirement benefits dramatically for those who have been “in harm’s way,” but for those who have never been shot at, taken “incoming”, flown a plane, or walked through a mine field, they should no longer be allowed to retire with the same benefits as those who have. Unfortunately, it’s the non-combatants who make all the spending decisions.
It must give meteorologists satisfaction knowing that their track record forecasting the weather, while not that good, seems to be far better than government economists. As the stock market continues to move ahead and economic indicators roll in showing the recovery is gaining strength, we are no longer hearing about the coming “bread lines” and the forecasted spike in the unemployment rate. As I have recently said (well not that recently), maybe government budget cuts are giving businesses and individuals more confidence in the future.
With all this positive news about the economy, Paul Krugman (and his colleagues who continue to call for more government stimulus) must be at a loss for words. (That must be particularly difficult for Krugman, who I always think of as the “Jim Cramer” of the Economics profession.) So far the best they can come up with is; “the news would be even better if we had more spending of the tax payers money.” They should be celebrating the recovery but my guess is they would be a lot happier if the unemployment rate had spiked to 8.5% and the economy had fallen back into a recession.
As the recovery gains momentum President Obama will be distancing him self from all the dire forecasts, and find a way to take credit for the recovery. That’s fine with me, “always better to be lucky than good.” Perhaps one day he will realize that “government” does not have all the answers.
As I watch the NBA playoffs, I can’t help but think that the government’s role is analogues to the officials who are there to enforce the rules. The officials are not there to control the outcome. Fans would become very frustrated and angry if the officials started dictating strategy to the coaches and players in the belief that they know what is best for the fans. Our government also has a set of rules which they are supposed to follow, it’s called The Constitution and when politicians begin to bend the rules because “they know better” our democracy is in trouble.
Note for Advisors: Mark Hebner, one of the early advisors to use DFA, is building a web based investment library. He is searching for Matrix books for the years prior to 1999 and any investment books written by advisors. The entire library will be accessible to the public. If you are interested Mark’s email is firstname.lastname@example.org. I think it is a great idea.