The cause of most airplane accidents boils down to two pilot related issues, insufficient knowledge and poor judgement. Although knowledge doesn’t always result in good judgement, the lack of it will usually lead to bad decisions. One of my favorite childhood cartoon shorts ended with the phrase, “Knowledge is power.” That phrase never left me and over the years I have learned that “power” means an increased likelihood of success, while minimizing risk. Thus, in everything that interested me growing up, I always wanted to gain all the knowledge I could.
In my youth I Iearned by reading books. It was a marvelous day when I got my first computer and was able to use the popular “AskJeeves” search engine to answer any question I could think of. I spent hours typing random questions and being thrilled with how quickly the answers came. It was a dream come true for me.
I thought the internet would solve many of the world’s problems with its ability to freely provide all available human knowledge to every living person. In time we all realized that the worldwide source for all knowledge was also the source for all lies and deceptions. It became clear it would still require good judgement to separate truth from error.
The other day Launa expressed frustration with an online purchase. The product was poorly made despite having over 2000 five-star reviews. When she asked to return it, the company reached out and offered a full refund plus a bonus $20 gift certificate. All she had to do was post a five-star review. She declined the offer and posted an honest review instead. The company responded a week later by increasing their offer to $30 if she would take down her review. Thus, the review process which was once designed to inform consumers was being abused to deceive them.
When it comes to investors who are dealing with their life savings and future, not just some minor kitchen tool, how is someone to find accurate product knowledge so they can make good decisions? My answer to that has come full circle back to where I was before the internet existed. It just takes a lot of hard work. Obtaining knowledge has never been easy and just because access to it is at our fingertips, doesn’t necessarily make it a shorter process. In some ways it has become more difficult. The non-stop contradictory information on the current virus is evidence enough that finding truth rarely comes without a dedicated effort.
I have found these tools essential to discovering investing knowledge today. 1 – Make learning a daily experience, using multiple sources. 2 – Question everything, verifying the underlying data as much as possible. 3 – Research the key individuals involved. As much as possible I like to know the people behind the product. 4 – Invest with the understanding that you will sometimes be wrong. The big picture is more important than individual successes and failures. 5 – Use your own good judgement.
Our family has a little thing we do when, if we really want to buy something that is too expensive we say, “Imagine what it would cost if you bought it at Disneyland?” This always generates a chuckle and then makes whatever we want to buy seem cheap in comparison. I‘m pretty sure this is what lead me to feel comfortable paying $7 a pint for that delicious fresh squeezed orange juice at our local market. I have taught my kids that the Disneyland model of pricing is a false or artificial market, not a free one, because it is controlled.
From my perspective we are currently living in a false economy. It is a basic law of economics that if you tax something, you will have less of it. Conversely, if you give something away for free, a long line will form. Our government is giving free money away left and right. Some people are actually being paid more to not work than when they were working. So it should come as no surprise that unemployment numbers are artificially being pushed through the roof.
Another example of our artificial economy was the report last week that mortgage delinquencies hit the highest number on record. The report said people were included who were never late until their bank had “offered” them payment waivers. My own bank sent out letters in February offering their customers to skip four months of mortgage payments. I imagined that if they were going to send those letters to all their customers, certainly many would likely take advantage of it. There are many other aspects of our otherwise free market that have become temporarily artificial.
This current economic mess is part virus driven and part government imposed. As such, I caution about making too much out of stock prices. It is a very difficult time to find true value since many companies are not producing, and others are being artificially supported. In such a market I am certain there are great investing opportunities out there, but there are also great risks.
This sort of reminds me of 2012 when a city dam broke and flooded my home. It was listed at the time for about $600,000. As I stood on my porch a man came by, saw the for sale sign buried in mud, and offered me $250,000 cash for it. Neither one of those numbers represented its real value since the flood and all the mess had created a temporary false market, so we cleaned the place up and sold it 18 months later in a real market and at a fair price.
My advice is if you are looking to buy stock, or tracking the prices of things you already own, be aware that in our current manipulated economy, finding the real value of a company can be elusive. Try to look ahead to when this is over because stock prices today may be as false as our economy.
In Utah, a largely desert land, we have endured many flash floods. One that hit in 2012 destroyed a dam which severely damaged my home and 65 of my neighbors’ as well. Within an hour volunteers showed up at my home to shovel, clean and tear down that which was destroyed. The community help was massive, touching, and desperately needed. They unselfishly came with a “We’re in this together” attitude, and worked hard to help us through those tough days. After the initial cleanup was complete, the volunteers left, the charities took down their tents, and the city went back to its business. It was then we realized we would have to face the long process of rebuilding largely on our own.
In that flood crisis, and in our current national crisis, there is a tendency to expect government to fix all problems. Government is neither capable of, nor responsible for, righting all wrongs or saving us from all disasters. Government may provide support and some direction, but in the end, it is dependent on individual Americans to rise to the task of rebuilding. That process begins with not getting bogged down in fear or self-pity. Those natural human reactions to a crisis serve no good purpose. I felt both while looking at my flooded house, but neither one helped put the house back together.
In the Covid crisis I find some similarity to the energy crisis of 1979. Americans were deeply discouraged and fearful. Our entire way of life was being threatened by an outside force we could not control. (A political virus you might say) In the midst of the crisis, President Carter gave a gloomy speech, later known as his “Malaise” speech, wherein he largely blamed Americans for the problem. Reagan seized on Carter’s pessimism and declared that America remained a “City on a Hill” whose light still shone. Reagan’s optimism led to his landslide victory and subsequent 3.6% annual economic growth over the next eight years. He believed America had a great future and he inspired Americans with his attitude.
Rebuilding America today will require that same spirit. It will require Americans individually to decide we cannot wait for this problem to solve itself. We must move forward and solve it ourselves. The solutions will take ingenuity, creativity and courage. It will require Americans to realize that despite what Washington does, 70% of our economy is in the hands of the American consumer. If that consumer displays confidence, the economy will rebound with great strength.
After the cleanup crews left our severely damaged home, Launa and I put together a game plan. We couldn’t do everything at once, but each day we could do something. We took full responsibility for our own destiny. My plan for rebuilding America is based on the same principle. It requires individual American families to make the decision that it’s time to move forward. Rather than worry about what we can’t do, let’s focus on what we can do. Washington politicians can print money, but only hard working Americans can create real wealth. Let’s go out there and do it! Again.
In the midst of our current huge financial crisis, a prominent national publication released its annual list of the top financial advisors in America. I suppose maybe this is a good time for people to know who to turn to for their financial advice, so I read through the article. In the very small print at the end (you know, the stuff no one reads – but I always read) I found the criteria for being selected to the list. The researchers considered things like total dollars under management. That’s good to know since you wouldn’t want an advisor who only had a couple of clients. They also looked for total revenue. Hmm. I had to think about this for a while. I have no problem with people making money but is that a good criteria for determining how good their advice is? There were other items such as investment selections and book keeping procedures. But then I came upon a line that stood out boldly, even though written in very small print. I will quote it here exactly: “Portfolio performance was not a criteria for selection to this list.” You have got to be kidding me! A person can be listed as a top financial advisor without any consideration of whether their advice was any good or not?
I thought of other career fields and wondered how long they would stay in business if they were evaluated using the same criteria. Imagine ranking an auto mechanic without considering whether the cars he worked on ran properly. What about rating a doctor without considering the outcome of her treatments? Would anyone use a lawyer who lost most of his cases? I chuckled at the thought of ranking the top college football coaches in America with a notation, “A coach’s win-loss record was not a criteria for selection to this list.”
Let’s get back to reality here folks. Critical to the evaluation of a good financial advisor is measuring the results of their advice. Portfolio performance at some level is essential. Now that is not to say it needs to beat some arbitrary index, or generate a specific return for a client in excess of what their neighbor may be earning. Finances are a very personal matter with each coming to the table with different needs and varying resources with which to address them. The best financial advisors in America are those who help each client on their own individual level, and within a framework of risk they are comfortable with, to reach their unique goals.
Because of the individualized nature of financial planning, I feel there is no way to truly award “The Top Financial Advisors in America” because each client uses a different criteria for measuring success. An advisor who might be top for one person would be a lot of sleepless nights for another. So find someone who shares you ideals, is well educated, certainly a CFP®, and with whom you have a good relationship.
Many have asked me why the stock market is doing relatively well, while the economic numbers keep getting worse. There are several reasons for this phenomenon so let’s review a couple things that are going on.
High unemployment. The unemployment numbers are off the charts, which would normally indicate tough times ahead. However, consider this issue from an investors’ point of view. In conversations with various business owners I am hearing that many companies are having a difficult time retaining employees because in many cases, the CARE act offers more in unemployment benefits than an individual was earning when they were working. When government gives incentives to not work, they artificially inflate the unemployment numbers. At the present this incentive only lasts 16 weeks. Since Wall Street investors are usually looking further than that into the future, much of this unemployment number has been discounted in their evaluations.
The second aspect of growing unemployment is more ominous for employees but potentially good news for investors. One of the biggest costs of running most businesses is labor, which can reach 50-70% of operating expenses. I had a good conversation this week with the owner of a large accounting firm and was surprised to learn that many of their clients, especially restaurants, have actually increased profits, (on lower revenue) because they have been doing curbside pickup only. If you spend $100 in a restaurant dining room, you will take up space and require service individuals such as waiters, bussers, hosts etc., to care for you. If you order online and pick up your meal you will still pay $100 but have eliminated most of the employees. You have also increased the number of meals that can be sold, with the establishment no longer limited by room size.
I expect that just about every business manager in America is using this crisis to ask themselves, “How can we operate with fewer employees?” This kind of thinking tends to lead to greater innovation, higher efficiency and ultimately more profits. It’s good news for investors but not so great for employees.
Another reason the “market” is doing well compared to the news is because of what actually makes up the stock market. Wall Street does not trade in small businesses. Even a small cap company generally has a minimum value of about $300 million. Investors are betting that even if there are massive business failures, the large Wall Street companies are more likely to survive, and even benefit as they pick up extra market share from the weaker ones that fail.
These are a couple of the reasons why Wall Street investors seem a bit disconnected from the pain on Main Street at this time. If you are an investor, these realities are valuable to know and consider. Look for companies that can reduce staff, and look for innovative firms that will help them to do so. And if you are an employee, use this time to improve your skills and increase your value to an employer.
Last week I took an essential business trip to Colorado, which resulted in my booking a room at a well-known national hotel chain. As I approached the hotel I saw there were no cars in the parking lot. The place, which had only opened in the past six months, was a complete ghost town. My first inclination was to assume the booking website had made an error in allowing the reservation, but I saw an operating TV in the lobby area so I walked up to the door. The automatic door opened, revealing the completely empty lobby. I rang the bell, wandered around, even called the front desk and watched as the phone rang continuously with no one arriving to answer it. I concluded that the place was in fact vacant.
Not willing to give up I opened my phone app for this chain and proceeded to check in online, even receiving a digital key for my assigned room. Now it was really starting to feel eerie. But with key in hand I grabbed my day pack and went to find my room. Suddenly, an out-of-breath young women came out of the stairway, apologized for her long delay, and asked if she could help me. She said she had been upstairs cleaning a room and that she was in fact the only employee, and only other person, on the premises.
When I returned for sleep later that night there was just one other car in the parking lot. It was a strange feeling staying in this 250 room hotel. The next morning I looked out my window at another empty hotel across the street. It was a local family brand, also clearly struggling and with an uncertain future.
When I told my story to a friend he commented that he was glad he didn’t own stock in that hotel chain. As I pondered his comment the following thoughts came to mind. 1 – The current crisis has devastated the travel and leisure industry. 2 – The crisis will end. 3 – The best capitalized companies are most likely to survive at the expense of weaker competitors. 4 – If I can find those survivors this could be a great investing opportunity.
Investors want to buy low and sell high, right? What could possibly be lower than a completely empty hotel? So long as it is ultimately able to stay in business, I estimated this was actually a great time to take a serious look at its stock. Using this same investing theory there are many other areas of the economy to consider as well. Many businesses from energy to manufacturing and even healthcare, are operating at or near the bottom of their capabilities, and yet they provide products and services that the world needs. Look around those industries and find the players you believe have the staying power to be the survivor when this is over and you may find that today offers some of the best investing opportunities you have ever seen.
As a financial advisor and a pilot, I consider myself a good risk manager but I can’t hold a candle to my wife. She has given birth to seven children. She told me that if you can survive pregnancy and childbirth, you can do anything. I believe it. With each child I have seen Launa make a conscious decision to put her very life at stake, to create another. She considered the benefits of having another child, weighed it against the physical, emotional and financial risks, and made the decision to move forward.
Our lovely family would not exist without her willingness to risk so much, so that we all could enjoy so much more. Politicians and others today, paralyzed by fear, could learn a lot from mothers like Launa about having the courage to press forward.
America was built on risk taking. King George III offered economic and military “safety” but those early colonists knew better as they weighed the risks against their bold and wonderful desires for freedom.
As we face yet another American crisis, our stomach for risk and our resolve for freedom are being tested. We have sacrificed much in this battle against a frightening enemy. It was good we did because many lives were being lost and something had to be done. As the crisis grew, additional risks appeared. Nations shut down and economies were closed creating the risk of a global economic collapse. Millions of people have lost their source of income and if something doesn’t change, the homelessness, despair and suffering will reach staggering numbers. Many now fear the cure more than the disease.
It may seem trivial to be discussing investing, but successful investing is critical to human survival as well. Some face the reality that if the virus doesn’t kill them, running out of money may. Many are seeking financial safety, but where they are looking may be just as risky, or even more so. As I evaluate the current situation, I am seeing some opportunities, and risks, that investors should be considering. One risk that cannot be ignored as we plan our next steps is inflation.
Politicians are spending unconscionable amounts of money, flooding the economy with dollars (dare I call them counterfeit bills?) that will have long lasting implications. You can’t just dump 4-8 trillion dollars into the economy without devaluing the dollars already there. Those seeking the perceived safety of cash and bonds may be walking into an inflation trap once the economy begins to recover. Real assets such as real estate and stocks have traditionally been a hedge against the erosion of the dollar. I believe a key “risk-managed” decision in this endless money printing environment is to realize that every new stimulus phase increases the risk of a future inflationary storm hitting your savings.
Understand, like the colonist before us, there is no real safe-haven option, so we must choose our destiny and manage the risks. We can do this. After all, about half of us have given birth – so we can do anything.
An investor came to me for advice this week saying, “I spend all day long watching every show, joining every webcast and following every analyst I can find, and I’m still confused and don’t know what to do.” I responded that if I did the same thing, I wouldn’t know what to do either.
I get tired of analysts blabbing all day long about what is happening and what to expect while displaying their graphs and market recovery curves, as if they know anything. They talk about resistance and support levels, which are by design, conveniently moving targets that assure the analyst will always have work tomorrow. The fact is that no one knows where the market is going tomorrow or next month and anyone who pretends to know is either a fool, or has fools for followers.
That may sound harsh but consider this. If you had a system that could predict with any level of accuracy, (anything over 51% would work) which way the market is going in the short term, what would you do? Would you hire on at an investment firm for an $114,000 salary – the average for analysts. Or would you keep your graphs to yourself, mortgage your house, borrow from your in-laws, and become a billionaire in just a couple of years by applying your secret? The reason analysts take the salary is because they can’t forecast the future and they know it. As the great investor Peter Lynch said, “Charts are great for predicting the past” as well as “If you spend 13 minutes listening to analysts, you’ve wasted 10 minutes.”
I often gain perspective from the story of Rip Van Winkle. Rip fell asleep when the country was struggling under King George III. He awoke 20 years later to a free and prosperous country, having peacefully slept through the American Revolution with its terrible fear, suffering and sacrifices.
I equate some of todays panicked investors with recent shoppers who were hoarding toilet paper as the crisis began. Were the winners in the battle the ones with the bloody noses, proudly leaving the store with their case of TP, or the ones who were quietly at home because they had enough stored up before the crisis began? If one thing comes from this crisis I hope we learn to slow down a bit and plan better. Is your portfolio setup in such a way that if a crisis hit, you would still be able to sleep peacefully while others are running around in panic trying to find answers?
I am a firm believer in attempts to maximize returns by careful planning and regular adjusting of investments. But I also believe that when a crisis arises, the winners will not be the ones who spend long hours watching analysts with their walls of mostly useless graphs, but the ones who were already well positioned before the crisis began. The latter will enjoy a much better sleep while the world panics around them. If not this time, be that investor next time.
Not long ago I wrote that according to statistics from the Department of Labor, over half of all financial advisors had never experienced a bear market first-hand. I can safely set that statistic aside now. This crisis has been quite an education for investors and their advisors. Based on some younger financial advisors who have reached out to me recently, they are finding that a bear market looks a lot worse in real life than it did in a college textbook.
In training, pilots are given a series of emergencies and taught to follow a checklist in order to obtain a positive outcome. Training can simulate the physical conditions of a crisis, but unfortunately it can never simulate the accompanying fear. In a real emergency, emotions can overwhelm a pilot and cause him to forget to follow his checklist.
This was impressed upon me by my initial flight instructor who unexpectedly turned off the plane’s power in flight. Initially I panicked, not knowing what to do. The instructor held his hand out to indicate calm as he said, “Take your time. From this altitude you can glide for 25 minutes before reaching the ground.” Knowing that I had time, I calmed down and carefully reviewed the engine-out check list which guided me to a safe outcome.
During the stock market crash of ’08, there were many who panicked and gave up on investing entirely. I also knew several financial advisors who left the industry. One told me he couldn’t take the stress of it, so he opened a small retail business. Ironically, his business is now closed due to the virus. You cannot escape life’s emergencies, so the alternative is to adjust how you react to them. Are you going to panic each time and make unwise decisions? Or do you have a personal checklist to refer to as you carefully review your options? You almost always have more time than you realize to make a good decision, as I counselled another panicked advisor who contacted me this week.
When the virus hit, the stock market began an almost uncontrolled decline. Now as the news mitigates a bit, emotions are driving it back up at almost the same rate. On both occasions, investors and advisors rushed to make decisions, feeling they had to act quickly. Like my flight instructor, on the markets’ way down last month I raised my hand and encouraged calm. Now on the way back up I am raising it again. Take the time to think this through.
Easter is a time to celebrate peace, made even more peaceful by our current confinement to our homes. Take this opportunity to consider your personal life’s checklist, and then make thoughtful decisions accordingly. There is always time to make a good decision. Use that time wisely to carefully consider your next moves, and your financial and emotional life will both be better off for having done so.
My copy of the masterpiece, Dante’s Inferno, is in Italian, so I will attempt to translate into English the sign that hung above the gates of hell in that poem. It said, “Leave behind all hope, you who enter here.” To Dante, the loss of hope was the loss of everything.
I thought of that poem during a call from our son Jayden. He is currently serving a two year church mission in England. Normally he spends his days out among the people. For several weeks he has been quarantined in his apartment, allowed to leave for only one hour per day. Jayden is 19 so imagine how a teenager might respond to being indoors 23 hours a day with no video games or movies and a very limited selection of music. Add in the current world health crisis and being in a foreign country away from family, and you can imagine how stressful it could potentially be.
Yet, when we spoke to him he was just as happy and optimistic as he has always been. Jayden has always looked for the good in life and in the midst of a world crisis, he is still finding it. He is finding new joy in reaching out to people by phone and through social media, people who are appreciative of his concern as they endure their own isolations.
I realized as I was listening to him that the world of the future, the one that is being molded during this pandemic, will be much more his world than mine. The immediate health risk of the virus more directly affects older generations, but the longer term social and economic effects of the crisis will likely have a greater effect on the younger ones. In light of this, it was refreshing to see that Jayden’s vision of the current and future world remains filled with hope and optimism.
After our conversation I wondered what investing advice I could share with my readers. Even though it may not fit into any textbook financial strategy, my message would be one of hope. Jayden has always lived with the belief that nothing good comes from being negative. No happiness results from complaining.
Our country has faced many disasters and we have a 100% track record of overcoming them. Let that sink in for a minute. We have also come out of each of them stronger, better, and with a brighter future. I have full confidence in maintaining our perfect record as we overcome and then emerge from the current challenge.
As an investor it is useful to note that in past economic crises, it is usually true that things begin to turn around just when they seem at their worst. Thus the Wall Street axiom, “Sell the rumor, buy the news.” In other words, the time to sell is when it looks like it might be bad. The time to buy, is when it is bad. Don’t be one of those investors who gives up hope just before the new day starts to dawn.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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