March 13, 2018

I think our start to March weather qualifies as lion-like (or at least an angry cat) so maybe we can look forward to a lamb-like finish.  The markets seem ready to turn the corner from the down and volatile February.  This would be nice and might allow us to sleep a bit better, but a quick turnaround is not necessary for our long-term goals.  Remember, markets fluctuate and the longer our favorite investments are undervalued, the better the buying opportunities.

Spring is on the way.  Heck, it may have even arrived by the time I get this newsletter out—by the calendar, it arrives on Tuesday, March 20^th.  On that day darkness and daylight equally split that day.  The internal clock of things that are alive roll over from dormant to growth.  We humans de-winterize our boats, drag-out lawn-mowers and prepare to leave the stale air of indoor living and get outside.  We can perhaps wash the car without our fingers falling off!

Read More

February 13, 2018

So far, February has reaffirmed itself as my least favorite month of the year.  We have had snow, freezing rain, hard rain, super cold winds and now the markets just kicked us in the shins.  Frankly, I am ready for March and a bit more normalcy.  Perhaps a month where the word, volatile is neither uttered nor thought of.

Enough complaining, let’s talk about what we are going to do about these darn markets.  The only correct response to this momentary loss of investor sanity is to do nothing.  Our job is to simply ignore these daily and temporary market gyrations.  This is like the weather; not many people like February in Maryland, but it does not materially affect our long-term outlook on our lives.  It is just the weather, and what it did in the first two weeks of February will be long-forgotten in July.

Read More

January 17, 2018

Financial News Media is in the entertainment industry and the creators, producers, writers, and the actors are not in that industry to inform anyone how to invest or make investment decisions.  The primary goal of these entities is to generate higher ratings so their sales’ teams can then use those ratings to price and sell more profitable advertisements.  Achievement of this goal pays them all a nice salary.

There is nothing wrong with their business model, I believe these organizations make a decent return for their efforts and the actors/reporters make a decent living doing what they do.  They are certainly entertaining and if you view them in that light then you surely will get your money’s worth.   A few of the print media sources create some decent reading and they are easier to ignore the ads.  The televised broadcasts are visually entertaining and can offer up some information around earnings season.  Their sets, by the way, are designed to look like pre-game football sets that show activity and action with numbers and graphs popping up all over the place.  There are even “experts” who forecast future market results with as much flare as football analysts predicting the winners of the NFL schedule that week.  Unfortunately, with the same dismal records of successful predicting.

Read More

Owning equities in 2017 has once again proven its value to our financial health.  As of December 11, the S&P 500 sits in the neighborhood of 2,657 and, not even counting dividends, has returned about 18.7% for the year.  Now, just to keep compliance content and happy, we need to note that none of us can invest in the S&P 500 directly, it is an index.  Furthermore, we want our investments to be diversified so we would not invest in only the top 500 companies in the USA.

While we want diversification we will always want a sizable portion of our investments in equities.  By the way, when we say equities we are referring to shares or pieces of ownership in public companies.   And we want to own our part of these companies so we can participate in their success.  Ownership of the top 500 companies (S&P 500) has returned a very nice 8.5% average since 1980.  (J.P. Morgan’s “Guide to the Markets” Sept. 30, 2017.)

Read More

The Wealth Effect!

The Wall Street Journal is my paper of choice.  I get the online version and one of the primary perks of that is a morning email sent every weekday titled, The Daily Shot.  The Daily Shot or DS is worth the price of the whole subscription.  The DS sent on October 31 had a few charts which shows that we may be experiencing what Behavioral Finance defines as The Wealth Effect.  We will cover The Wealth Effect this month and see how it might be affecting our personal financial behavior.

The charts in question show that as of last month, the US Household Savings Rate had fallen to just 3%, the lowest level in ten years.  At the same time, households are saving less, we are spending more.  Pretty simple, if you are not saving it, you must be spending it.  Real Personal Consumption Expenditures (Spending) surprised to the upside with a .6% uptick in September and is at its highest level since the start of the measurement in January 1999.[i]  The two measures are obviously related; not saving, more spending.  My job is to help make sure we are not a party to this foolishness—or, if nothing else, make you feel guilty about it.

Read More

2017—October

Opportunity Cost

Our first topic this month is Opportunity Cost.  Simply defined, Opportunity Cost is the value of one decision over another.  It is the difference between choosing Option One over Option Two.  If it is possible and you execute both decisions equally well, then there is no lost opportunity or cost, it is just a busy week.  In personal financial matters and this newsletter, we are referring to spending resources (time and money) on one thing, rather than on some other thing.

Lest I appear holier than thou, every weekend as I walk my dock toward our boat “Summer Knights,” I am confronted with a constant reminder of opportunity costs.  While we preach prudence, we are human and thus not perfect.  When we fail, we should at least be aware of our frivolity.

Read More

2017–September

Forward

As you may know, we have been using a marketing service since last December to do our end-of-month newsletters.  I have been pleased with the content and hope you have been too.  We have received, however, rare feedback intimating that the updates are over-loaded with details and just a tad, well, let’s just say boring.  With that in mind, I am going to start this mid-monthly newsletter to supplement the “detailed and boring” economic updates.

To avoid the end-of-month crush of all the stuff that goes into running a business here in modern-day Byzantium, we will send these out on or about the 15^th of the month.  These will focus on economic and financial planning subjects not covered in the updates.  We will endeavor to make them less boring and more entertaining.  Heck, there might even be a few dog or baby pictures (no promises though.)

Accumulation Phase

The first extremely interesting topic of the new email-newsletter will be a basic but often overlooked economic truth.  The more money you accumulate now, the more you can spend later.  The name for this logic-bombshell is the Accumulation Phase.  This phase is virtually any time before you actually retire.  Seemingly logical on the face, “save more now, spend more later,” it must be a difficult concept to grasp.  We can assume it is difficult to grasp since we know many people (and families) fail to have any plan for saving money.  Forget about investible assets—large swaths of the population have no liquid assets.

This odd condition is so prevalent that one might think saving money is an instinctual trait that some people just did not get.  We hope and think however that this is simply a behavior, one that we can learn and practice until it strengthens into a habit.  One of those good habits that once in place relieves much of the financial stress and worry in our retired life.

Regardless of where you are in your earning lifetime, young or old, high or low, there should be a portion of your earnings that is dedicated to the period when you are no longer earning.  If you are earning, then you are in the accumulation phase—it matters little if you’re 12 or 72 years old.  Save some of it and do not touch it.

To make saving a habit instead of a fad we need to put a few things in place.  First, you can’t save any money if you spend more than you make.  This should be self-evident, but you would be surprised.  Secondly, the savings should be automatically removed from your spending money every month.  This way you only need to decide once to start saving—then all you need to worry about is how much you are spending.  (This is where budgeting comes in handy.)

Finally, what to do with the savings?  It should be invested in the best and most profitable companies in the world.  We are not writing about the emergency fund, that money is in a safe short-term CD or interest-bearing account in a bank somewhere.   The “savings for later” referred to in this article should be invested in the markets since over the long-term that’s where you earn the most return.  Do not overly concern yourself about the return when you are just starting—the return is icing on the cake—here, we are baking the cake.  5% on $10,000 is a whopping $500.  You will not get rich on the investment returns, but you can join the ranks of the wealthy with the savings you stow away. People often focus on the returns and not the principal.  Let me ask you, is the $500 more important than the $10,000?

At some point, the return will compound and grow as the principal grows.  Like a savings partner, the returns will eventually surpass the amount of money you save every month; but we only arrive at this nirvana long in the future.  The primary factor that determines successful, long-term financial outcomes is investor behavior, not investment returns.  (Write that on a sticky-note and plaster it on your refrigerator.)  Now tighten up your long-term saving plan today and get cracking!

Feel free to forward this to someone you think might need to hear this from someone other than yourself.  Send it with a friendly note to the effect of, “Hey, this guy Marty might be able to get you started saving for your future.

(Sorry, no dog or baby photos but thanks for reading anyway.)   Marty

Oh, I do have this, Kristen Owen is doing short presentation on socially responsible investing at JR’s here in Chestertown—see the advertisement below and RSVP to Jenna at 410-810-0735 or email her at jputman@chesadvisor.com.