Category Archives: Advisors


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.


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Robert Shiller: “Yes You Can Time the Market”

I have spent the last 25 years of my life teaching investors to stay disciplined and those who have listened have had a very successful investment experience. But the belief in “market timing” just won’t go away.

Last month, in the Wall Street Journal, there was an article with the above title.  It began with a lot of evidence regarding the failure of market timing and the success experienced by those investors using a long-term “buy and hold” strategy.

The article then went on to claim that there may in fact be a “model” that can enable investors to beat a “buy and hold” strategy.  Most “market timers,” “chartist,” etc. have very little credibility with investors because their failure to time the market successfully is well documented.  They begin with a model that tells them when to get in and out of the market.  (Something every investor would love to know.)  They fit their model to the past performance of the market to show how well an investor would have done, had they followed the model in the past.  But the problem is this; the past is not the future when it comes to investing.

It’s a dynamic world we live in and the pace of change is increasing rapidly.  To look at past market moves and various accounting ratios etc. to predict the future moves in the market is risky, if not dangerous.  History does not always repeat itself.

The Wall Street Journal article was of course talking about Robert Shiller’s “market timing” model.  Just last week, Shiller wrote a piece for the New York times stating how dangerous the market is today according to his model.

Shiller has a lot more credibility than most market timers because he recently won a Nobel Prize in economics and he teaches finance a Yale University.  In my opinion, that is what makes him dangerous.  Investors may believe they have found the “Lebron James of Investing” and follow his advice.

I am always skeptical when someone claims to be able to do something no one else has been able to do.  Especially when it comes to investing.  I then ask a simple question.  If Shiller’s “market timing” model works, why isn’t he a very wealthy man?  Maybe we should call this the “Jim Cramer Test.”


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The “E Booyah Virus!”

You are no doubt aware of the outbreak of the deadly Ebola Virus in Africa that has claimed the lives of over 1,000 victims and the mere presence of this Virus is causing untold economic hardship for those being quarantined to contain the Virus.  It is truly a tragedy for all concerned and we should remember them in our prayers.

The Virus I want to warn you about, I call the “E Booyah Virus.”  It’s a financial virus that has the potential to cause serious damage to your “financial health.”  In case you don’t recognize the name of this Virus, it is the infectious investment advice spewed by Jim Cramer on CNBC, in his newsletter, his investment guides and his daily emails to investors called “Daily Booyah!”

If you “Google” him, you will find that many others have looked at his advice, tracked the returns, and demonstrated that the only one, making money consistently, is Jim.  And I think that’s “Bull Yah!”  You don’t need to track all his recommendations year by year to prove that it is “Bull Yah,” you only need to look at Cramer’s own claims of success.

For the 14 years ending in 1991, he ran a hedge fund claiming an average annual return of 24% (while taking home $10 million a year as compensation.)  Let’s assume that being a smart guy, thinking about his future, he saved 10% of his compensation each year.  (That’s $1 million a year earning 24% a year.)  Fourteen years later (1991), he would have had a nest egg of over $80 million.

Now let’s assume that beginning in 1991 he consumed (spent) all future earnings from CNBC, investment guides etc. etc. Why? He already had a nest egg of $80 million set aside. He boast about his great hedge fund returns so lets assume he has been earning an average of 24% annually (the number he uses to advertise his stock picking skill) on his “nest egg.”  His “nest egg” should be worth well over a billion dollars. But Jim claims that his net worth is between $50-$100 million. The numbers just “don’t add up.”  Looks to me like he has suffered some big time losses along the way. He would have been a lot better off investing his “nest egg” in an S&P 500 index fund which would have given him a net worth in excess of $300 million.

Vaccinating yourself from the “E Booyah Virus” is easy.   Diversify, using passively managed, low cost, index type portfolios and stay disciplined. You will then be immune to the Virus.

Note 1:  Jim will sell you a copy of his current portfolio for $199.95

Note 2:  If you want to follow, I plan to start “tweeting” @wheelerwrites


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“Fire Drill”

It’s times like this that make being an investor, and an Investment Advisor, so much fun, especially for those who “stayed the course” when the “Chicken Littles” of the world were running for cover. The pain of 2008/2009 is a fading memory, if not already forgotten, but therein lies the seeds of a problem, a false sense of security going forward.

Those of you who remained disciplined and continued to invest in 2008 and 2009 are the real heros. You advisors earned your fees many times over and you investors have reaped a huge reward that makes your financial future a lot brighter. Those who did not, well, you paid the price and hopefully you have learned a valuable lesson.

In the past, when speaking with advisors, I would encourage them to periodically have a conversation with their clients about the unpredictability of the market. I always called it the “investors fire drill.” We all experienced fire drills at school as children and at work as adults. The purpose, of course, was to learn what to do in the event of a real fire. It wasn’t for an expected fire but was intended to teach us how to survive and avoid serious injury if, by chance, there was a fire.

The market provides lots of material for this conversation and a serious “walk down memory lane” can be very useful. Ask clients to recall their emotions when the market was headed down with no end in sight. Calculate the lost economic value they may have sufferred with no discipline. And prepare them for the “this time it’s different” feelings they will experience if the market does head south. Point out to younger investors the long term benefit of contuing to invest when equity prices are lower. Give them examples of the cost of sitting on the sidelines when prices decline.

This “talk” with investors should in no way be considered a forecast, just as a fire drill is not a forecast of a coming fire. But having this talk today is so much better than having it when the market is off 30%. And if we have another 2008/2009 market you can immediately refer back to the “talk” you had with your clients and how they were going to deal with all their negative emotions.


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The Growing Wealth Gap

Income inequality and the gap between rich and poor are going to be “hot topics” as we move toward the mid-term elections in November and the discussion will become even more heated in 2016 when we elect our next president.  I believe these are serious issues and we need to find solutions.  Unfortunately, most of the proposed solutions we hear are geared to advance political careers with little thought given to the overall impact on our economy.

But before I speak about solutions I would like to point out what has caused a huge increase in the wealth gap over the past 5 years.  The rich, at their end of the spectrum, have investment capital.  The poor, at the other end, have very little if any investment capital.  With the Stock Market (as measured by the S&P 500) up over 125% during this period, it is obvious why the wealth gap grew dramatically.  However, during the prior 2 years the Market lost 50% of its value, and of course this narrowed the wealth gap.  (A market crash that narrows the wealth gap is not a solution to the problem.)

Capitalism will always favor those who have capital to invest, and unless we come up with a solution that encourages or even demands participation in the capitalist system, the wealth gap will only continue to grow.  I also believe that far too many politicians who claim to be advocates for the poor have an ulterior motive.  They benefit from having a constituency that is dependent on the government for their subsistence and that will always vote to keep them in office.

So how do we go about dramatically increasing participation in the capitalist system, with all the inherent benefits, currently enjoyed by those who have the means to participate?

Believe it or not, government can provide the answer.  Here’s how.  Every employer and employee (roughly 93% of the working age population) would be required to contribute to an investment account run by the government.  This capital would be invested in broadly based, low or no cost, passive index type market portfolios.  Employees would not have control over the investment decisions eliminating all the “emotional” mistakes that have severely damaged many retirement plans.

Wall Street would be against such a program because it would take away their ability to earn fees on what would be a very large pool of capital.  (But perhaps those on Wall Street, who believe they can “beat the market,” would be allowed to participate if they guaranteed that any underperformance would be made up out of their own capital.)   Something tells me there would be few, if any, money managers who would accept such a condition.

The amounts contributed, the allocation to equities relative to participant age etc. etc., would have to be determined but I believe that would not be very difficult.  Basically it would be a program that “enfranchises” most workers, allowing them to participate and benefit from our capitalist system.

A simple idea but it has to be a better way to go than simply redistributing income and/or wealth.

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CEO Primer

Question:  What do you do as a CEO when GAAP (generally accepted accounting principles) doesn’t give you the results you need to impress investors?

Answer:  Make up your own standards and report the results both ways.

Question:  What do you do, when you fail to make a profit over the past four years, to keep shareholders happy?

Answer:  Make promises about the profits to come in the future.  The true believers will hang in there until you can unload your shares at a price based on those promises rather than past results.

Question:  How do you support a high price for your stock when investors begin to question the reliability of your promised profitability?

Answer:  You create rumors about a potential takeover from a buyer with very deep pockets.  It reminds me of realtors always claiming there is another offer coming in.

Question:  How do you gain credibility with investors in our wealth and celebrity obsessed culture?

Answer:  Always make certain that the media puts the word “billionaire” before your name in every report about your company.

Question:  How do you learn to develop “celebrity” status in the business world?

Answer:  You watch the “Iron Man” movies and learn from Tony Stark.

I must admit having a little fun writing this but I am also having flashbacks to the late 90’s when we had a plethora of tech related companies trading at huge “multiples” (whoops can’t say that, because there was no P/E when there was no “E”).  I should say “trading at ludicrously high prices.”

The “bigger fool” theory of investing is back and I just want you to keep this in mind and stay diversified.

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“Confirmation Bias”

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.”


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Keeping Your Perspective

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: .)  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!


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Is It Really That Simple?

I wasn’t planning to write about discipline and diversification again but an article in Bloomberg Businessweek over the weekend caught my eye.  The article (Investor, Heal Thyself) is about CalPERS, America’s largest public pension fund, and how the fund’s total value is back to pre-recession levels.  And how was this accomplished?   According to Joseph Dear, CalPERS Chief Investment Officer, it was “discipline.”  “We believed the markets were going to come back and we held our allocation.”

Give Joseph and his staff the credit they deserve for staying focused on the long-term.  And according to this article, their returns were almost as good as the S&P 500.  So I was thinking, “How many investment professionals does it take to earn the returns of the S&P 500?”  Maybe one part-timer!

Good investment professionals (and you know CalPERS can afford the best) know how important it is to remain disciplined.  What they also know is the benefit of simple “passive strategies.”  But unfortunately for them, it’s a job killer.  Don’t expect that to change any time soon.

But you don’t have to worry about that.  You can get the benefits of both discipline and passive management without anyone losing their job.  (Well maybe your broker/financial consultant.)

It always amazes me how difficult it is to convince people, even while showing them overwhelming evidence supporting this simple strategy.  Years ago an advisor attending one of our London conferences gave me a quote from Leo Tolstoy that helps explain the challenge.  I am passing it along to you.

“I know that most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truths if it would oblige them to admit the falsity of conclusions with which they have delighted in explaining to colleagues, proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives.”

I call it the “foolish ego!”  But isn’t it nice to know you can do just as well, if not better, than CalPERS with your investment portfolio just by getting your ego and the egos of others out of the process.

Note:  A great quote from Tolstoy that would never survive in our Twitter World.


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