I just returned from my annual recurrent training required to maintain my ability to fly. Flying is important to me because it allows me to travel long distances to visit with clients who for many reasons are not able to see me in my office. But more important than visiting my clients is being safe while doing so. Safety is my number one concern related to flying, and without hesitation I will cancel a trip if conditions are not within my prescribed limits.
 
Flight training not only sharpens technical skills, but perhaps more importantly it improves decision making. Each pilot and plane has different capabilities, so flight decisions are very personal. Powerful commercial airliners with two professional pilots on board routinely land at my airport in weather I would not, and should not fly in. I know a pro pilot who once cancelled a flight with 180 people on board because he had a family crisis and suddenly was not in a good state of mind for flying. Many passengers complained, but they should have thanked him.
 
Pilots are trained to do a personal evaluation before each flight by asking the following questions. Am I physically healthy? Is my mind alert, and free from undue distractions? Is the weather acceptable? Is the plane airworthy? Am I current in my training for this type of flight? Are there unusual external pressures pushing me to make this flight? Should I consider seeking advice about this flight from another pilot or instructor? Pilots who answer these questions honestly and are not afraid to cancel a flight when an answer is not a good one are far more likely to live to fly another day. And I might add, the passengers should never complain about the decision.  
 
My flight training led me to wonder how these critical questions might also help investors when faced with major investment or financial decisions. They would sound something like this. Are my finances currently healthy enough to support this decision, even if it doesn’t turn out as planned? Am I in a good state of mind, having all the critical information I need to make this decision? Are the current conditions in the relevant financial markets acceptable, such that they are likely to lead to a good outcome for me? Have I carefully inspected the financial vehicles I am considering using and found them to be sound and suitable for my needs? Am I current in my financial knowledge so that I am able to make a good decision? Are there any outside pressures pushing me to make a decision in haste, or without considering other options? Should I consider calling another professional for advice before proceeding?
 
I think it would be very valuable if investors created a similar checklist, and followed it, before making any major investment or financial decision. Like a pilot, it may lead to them missing the occasional opportunity, but on the bright side they would be much more likely, financially, to live to enjoy many more days.
 

​My wife’s grandfather was a brilliant investor. Though limited to a high school education, he taught himself to analyze a stock like few I have known. Whenever we visited, he would call me into his den to discuss the financial markets. Our discussions always involved a fat resource book that he received in the mail every month. It contained an amazing amount of raw financial data about most of the major companies on Wall Street. The hundreds of pages were filled with highlights and notes Grandpa had made, which book he would pass to me when the new one arrived. He also watched market news on T.V. but felt most commentators were more entertainer than financial expert.
 
I thought of Grandpa recently when I turned on the news to see a random analyst talking under the headline, “Wall Street surges as investors welcome likelihood of (candidates name) victory.”  Presumptive headlines like this are common and leave me wondering where this “expert” got their information. I had placed several trades that day and no one checked in to see what my reasons were. I didn’t see any surveys or read any real data to suggest why investors were making their decisions that day. What it likely came down to is the stock market just happened to be up, for any number of reasons, but this analyst took it upon himself to play the expert who could discern the thoughts of the millions of investors in the world. As I listened to his ramblings, my Dad’s common phrase, “hogwash” came to mind.
 
There are plenty of media “experts” willing to tell us how to think, or how we are already thinking. Political pollsters have done this all year. Their embarrassing, and recurring failures should be evidence of the value of their opinions. But on the other hand, maybe there are too many who are willing to turn over their thinking to media experts, who they don’t personally know, and whose qualifications and motivations may be suspect. I was listening to a younger person speak about where he got his information and he said, “I’m very busy so I just get everything from Instagram.” “Oh wonderful,” I thought, “I feel so much better about our nation’s future now.”
 
I mention this because as the media noise gets louder, and more intrusive in our lives, we have an even greater need to slow down, and do some good learning on our own. Investing is serious business, and a very personal one. Try reading a good book. I’m sure they still make them. Taking advice from someone you don’t know, or whose goals may not align with yours, can be risky. Media personality comments about what other investors are thinking, with the implication that you should be thinking the same way, should carry little weight in your decisions. That commentator doesn’t really know what investors are thinking, and even if they did, it may have nothing to do with what is best for you.
 

​Writing a weekly column for so many years has allowed me to create a pretty good journal of world economic events. With the election only a few days away I re-read my thoughts from the prior presidential election. Just two days before the 2016 contest I finished my article with this line, “It has been an ugly fight and we are all tired of it.” I am pretty sure both sides today would agree with me on that sentiment.
 
History offers an amazing education and if we could just learn from it, we would be much better off. There are certain things in life that tend to repeat frequently, especially in economics and investing. It is very useful to learn from past events and a whole lot cheaper than making the same mistakes repeatedly. As we face the prospect of the presidential election finally being over this week (although the outcome may take a while to unfold), it is useful to consider what we have learned from the past that we can use to help make our investment decisions today.
 
One of the most important things an elections’ outcome does for investors is eliminate some uncertainty. Wall Street really likes to know what the future holds and the higher the uncertainty, the higher the volatility is likely to be. This past week has been evidence of that with its wild swings in the face of a number of unknowns.
 
For what it is worth, a few weeks ago most pollsters and pundits expected a Biden victory. That the markets were more stable back then would indicate such an outcome was largely priced in. After the second presidential debate the polling numbers began to shift and with it, volatility returned. It wasn’t that Wall Street doesn’t like Donald Trump but more that the shift created some uncertainty. We saw the same activity in 2016 when the markets had assumed a Clinton victory, then when it didn’t happen there was an immediate large drop in stock prices. Investors just needed a moment to work through the new uncertainty. It didn’t take long before they realized a Trump presidency would be favorable to the markets and stocks began a very long and fairly steep climb.
 
Based on history I am going to go out on a limb here and make a prediction. If Trump is elected, I think investors would be pleased because they already know his history and what to expect, although we could repeat the initial market shock after the win. If Biden wins, I would expect him to pursue a large stimulus bill like the one already passed in the house. His history in the Obama administration would indicate some bold stimulus action. The potential for such a stimulus, for better or worse in the long term, would likely be very welcomed on Wall Street. In either case, once the election outcome is assured, I am looking for markets to move higher.
 

A referees’ job is to fairly enforce the rules of the competition. Nothing annoys a sports fan more than a referee who gets involved in deciding the outcome of the game. Watching the financial news this year, I feel more like a sports fan watching a game officiated by a group of biased referees. Unsurprisingly, in business as well as in sports, the team whose side is being benefitted by the unfair refs, rarely complains about the bad calls.
 
I am referring to Wall Streets’ daily obsession with ongoing government Stimulus. I equate this to a spoiled trust-fund child worrying whether Mommy and Daddy will keep the money flowing. The stimulus is cheered on by Wall Street, and it increases stock prices, but does it really add any wealth to society?
 
In our free market, wealth is created when a company produces a product or service that improves life such that others are willing to pay for it. The system works because companies that create wealth are rewarded, while those who do not will fail. Take the computer industry as an example. The founders of the PC and the MAC made huge fortunes for themselves, but their billions are grains of sand compared to the wealth those products created for others. Computer companies that did not add to society’s wealth have long since failed – as they should have.
 
Governments’ role is to act somewhat like the referee, establishing rules of play and seeing that they are followed. It is not governments job to put points on the board, partly because it does not have points to give. Unlike a business, government does not create wealth, it can only transfer it. If a referee gives 10 yards to one team in a football game, it can only do so by taking 10 yards from the other. Likewise, if a government hands out a stimulus dollar, it must take that dollar from someone else.
 
If, for example, government lowers interest rates, all it is really doing is taking wealth away from savers and giving it to borrowers. When government uses deficit spending, it is taking wealth from future generations to give to the current one. If these behaviors create inflation it is essentially taking value from the poorest among us, those who own little, and transferring it to the richest who own the assets whose value is inflating.
 
So, if government cannot create wealth but only transfer it, why is Wall Street so excited about more stimulus checks? Why do they want government referees to step in and put points on the board? Because they are the team who will be getting those points. Wall Street should remember, the bad referee that helps you today may hurt you tomorrow.
 
Regardless of what Wall Street is doing, investors should remember to focus on companies that provide products and services they believe society will want in the future. Only by continually creating wealth, can a business grow its real long-term value. And those great companies don’t need the referee’s unfair help.
 

​Winter is arriving and that presents new challenges for pilots. On the positive side, the terrible summer turbulence will be gone. I won’t have my family complaining about the rough afternoon approaches into my desert airport. I love flying in the heavy, cool winter air where the engine can breathe better, the air is smoother, and the wings generate more lift, making for easier take-offs.
 
On the downside, the northern Jetstream will be finding its way down into the lower 48 states. A Jetstream is a mostly narrow, meandering band of air that circles the globe in a west to east pattern. The speed varies significantly depending on altitude but where I fly at 27,000 feet, it is very common to see it travelling at over 100 mph. In a plane that does 300 mph, it can take a big bite out of your groundspeed when heading west, although it feels great when you are eastbound. Unfortunately, the laws of wind-math work against all pilots.
 
A headwind will hurt you more than a tailwind can help you. Despite what seems logical, a round trip flight is not a wash when it comes to winds. As an example, a 200-mph plane with a 190-mph tailwind, would move across the ground at nearly double its normal speed. But when it turns around to go home into that 190-mph headwind, it would actually only be travelling 10 mph across the ground. That would be a long trip.
 
The headwind principle applies to many other areas of life. Bad things can happen quickly, but then take a much longer time to correct. This is especially true in investing. For investors it works like this. If your account suffers a 20% loss in a bad market, it takes a 25% gain to get back to where you started. If you suffer a 50% loss, as many did in 2008, then you need to gain 100% just to get back to even. Market losses measured in percentages, like headwinds, hurt you more than the same market gains will help you.
 
As a pilot in the winter it is not uncommon to take a route that is less direct, in order to avoid the headwinds of the Jetstream. You find yourself travelling farther, but the time to your destination can actually be faster. As an investor it is equally important to avoid headwinds, or losses. Taking what might appear to be a slightly longer route because it is less risky, may actually get you to your destination more quickly if that route helps you avoid significant losses along the way.
 
When you look at expected investment returns, don’t focus solely on the biggest numbers but also pay attention to the volatility you might incur while attempting to hit those numbers. Like headwinds to a pilot, a market loss can hurt you more than tomorrows market tailwinds may help you, so it’s best to plan your retirement trip accordingly.

​I recently read a particularly troubling story about an advisor who had stolen millions of dollars from his clients over many years. He had done so largely by forging client signatures on transfer documents. Many of the clients were single and elderly and so the advisor likely felt he would be less likely to be discovered.
 
The story reminded me of an experience when a local law firm asked if I would analyze the financial plan of one of their clients. As I reviewed the clients’ account, I discovered a couple of suspicious looking insurance policy statements. After some quick research I confirmed that the lady had literally spent over a million dollars on life insurance with companies that did not exist. The client was a widow, age 85, with no children. She thought she was buying large insurance policies to benefit her chosen charities. The agent was pocketing the money and creating the statements on his own computer, assuming when the client died no one would be around to discover his crime.
 
These examples teach at least two methods investors can use to help protect their accounts against fraud. In the first case, millions of dollars in cash was transferred out of the client accounts using forged documents. Though the clients may not have seen the forgery, they certainly could have noticed the money leaving their accounts. In order for fraud to occur, there has to be a movement of money or assets. One of the best ways to protect against this is to read your monthly statements. You may need help from a friend or family member but it is something all investors should make a habit of doing. While reading the statement, pay particular attention to any transfers out of the account. If you don’t recognize why it was done, call your advisor for an explanation. This simple procedure would have stopped the forgery fraud very early, yet it surprisingly went on for at least 10 years.
 
In the case of the 85-year-old widow, discovering this fraud would have been a little more challenging. In the age of the internet however, it is not too difficult to do a quick search of companies you invest in, especially when it involves money leaving your account as was the case here. If you don’t know how to do such a search, seek help from someone who does.
 
The good news in both of these cases is that the agents represented large, established investment firms that had policies and insurance in place to help protect their clients against fraud. In both cases the agents were sentenced, and the victims accounts were restored. Investors should ask their advisors what policies exist, and what insurance may be in place to protect their account in case of fraud or insolvency. The vast majority of financial advisors operate with integrity, but you want to know what your protections will be if you happen to choose one who does not.   

​Have you ever been flying in heavy turbulence and watched those big wings bouncing up and down, wondering if they were going to break? Yeah, me too. Given how much weight those wings are carrying and the intense pressures being exerted on them as they travel hundreds of miles an hour, it is a marvel of engineering that the things hold together.
 
Another force acting upon airplanes you may not realize is the pressurization. The cabin steward will politely announce that it is being pressurized for your comfort, but what they really mean is so that you don’t suffocate. At the altitudes most jets fly at you would pass out quickly without pressurization. But the pressurization needed to keep you alive exerts enormous pressure of the structure of the airplane. When I was first learning to fly I was impressed at the red carpet treatment the lineman would give our private aircraft upon landing. But one thing they would never do is open the door for us. I learned that, in the event the plane failed to depressurize on landing, opening a cabin door would create an outward explosive force that could kill anyone standing in front of it.
 
Though powerful structures in the air, airplanes become very fragile once on the ground. Even if being towed at 1 mile an hour, a collision with a ground structure could result in hundreds of thousands of dollars in damages to the wing. The skin of the airplane which can withstand thousands of pounds of air pressure, could be damaged by a mechanic dropping a tool on it. The simple reason being that airplanes are engineered to fly. To get the full value out of an airplane, or any vehicle, you need to first know its purpose.
 
Investment vehicles follow the same principle. You cannot ask, “Is this a good investment?” without first knowing what its purpose is. Investors sometimes complain about perfectly good investments because in a sense, they have purchased an airplane when they really needed a tractor. For example, we call some investments “defensive,” because they are designed to hold up better in difficult markets. Don’t get frustrated if your defensive positions lag behind in a booming market. We refer to other investments as “growth,” since they are designed to take advantage of strong markets. Don’t blame them if they struggle when the economy is bad.
 
When people are unhappy with their investment portfolios it is usually not the investments fault, but more that they are using the wrong ones for the job. With volatility increasing as the election nears, we are already seeing growth investments starting to struggle. Don’t let this panic you. Just realize they were meant for a different purpose.
 
If the markets are concerning you, it may be time to reassess your goals and make sure you have the right vehicle for the job. Remember, airplanes are wonderful at flying, and really bad at everything else. The same could be said of many investments.
 

​It was a great week in our office with my son Jared, and son-in-law Jason, both passing their CFP® exams. Apart from all the pre-requisite educational and experience requirements, they both studied almost every day for over a year to prepare for the very difficult test. You can imagine the celebration when they both passed, and the relief felt by their patient wives.
 
As we discussed their accomplishment, one asked what I recommended as the next step in their journey to becoming the best they could be in the financial planning world. My answer to that question comes from my own experience in the industry. I’ve always been fascinated with investing. Perhaps that began early on when my dad first taught me about making money. He said you can either spend your whole life working for money, or you can learn to let money work for you. I liked the sound of that second option and so I set out to do my own investing. I quickly learned that not only can money work for you, but it can work against you if you don’t invest it wisely.
 
As the years went by, I began to learn the value of “time” in investing. Good and bad economies come and go but the person with time to ride them out seemed to do much better. Impatient investors often found markets unforgiving but patient ones were able to benefit from the up and down cycles. The challenge was surviving the bad times. Thus, came my answer to the question. I told my boys that in order to be a good financial advisor, they had to first be financially sound themselves. If bad times came (and they always do) a person who has too much debt or lacks adequate financial reserves to weather the storm, will experience stress and fear. With those emotions come bad decision making. It is also impossible to give calm advice to others in a time of stress, if you are personally afraid for your own survival.
 
I offer the same advice to everyone I teach about investing. Making money in good times is great, but if you have too much debt or if you lack the financial resources to survive a personal disaster or a long economic downturn, a bad situation can quickly erase all you have worked for. And you certainly can’t help another if you are sinking yourself.
 
The coming years will certainly bring more economic volatility. Just as there have been dark days in the past, there will be dark days to come. It is the nature of life. There will also be many times of bounty and opportunity. Prepare for the storms by getting your own house in order, and don’t delay. Then you will be in a position to not only survive the bad times, but to enjoy and benefit from the good ones.
 

​Launa sent me to the store to buy bananas. I was expecting them to be .69 a pound but when I saw they were only .49 a pound I bought more than she asked for. I like a bargain and when I see one I stock up. I am even worse when it comes to clothes. My family is well aware that my closet is filled with shirts and jeans that still have the labels attached. I know I will need them eventually so it only makes sense to buy them when I find them at a great price.
 
On the other hand, I don’t like being taken advantage of. During the spring of this year there was no way I was going to pay those high prices for toilet paper. No worry, we had plenty of supply from a prior sale. If we didn’t have something and it was overpriced, we would do without. Or we would buy the bare minimum. I think most people are like us to some degree. We all like a great deal.
 
That is why I am often confused by investor behavior and the way people buy stocks and other investments. One of the most common methods I have seen goes something like this. A person calls up and says, “Can you buy me some ABC stock because it’s really been going up a lot lately.” This same person would never walk in a store and upon finding bananas at $5 a pound think, “I need to buy a whole bunch of those because they are getting so expensive.”
 
The flip side of this is the person who calls and says, “Can you please sell XYZ stock because I see it has been going down.” Really? So if you go to the store to buy some new clothes and find out the clothes are on sale do you wait and come back another day? All investors love to quote the adage “buy low and sell high” but in practice it is much more common for them to do the opposite. Perhaps the confusion comes from misunderstanding the adage. What it should say is “buy a stock for less than it’s worth, and sell when it’s trading for more than it’s worth.”
 
Buying or selling investments based solely on price movement is like running out to buy real estate because everyone else is. (Sound familiar?) Or dumping an investment because it is currently out of favor. It is critical to know the “why” behind the price movement. In many cases the movement begins to drive itself, opening up opportunities for those willing to invest against the crowd.
 
This has been, and will continue to be, a year of rapid stock price movement. Be very careful about buying or selling something just because everyone else seems to be doing it. Price movement can be a factor, but it is often the least reliable one. As I say, “Know the Why, before you Buy.” 

​Last week I pointed out the irrational prices of some high-flying tech stocks and mentioned that even though I love tech in the long run, I questioned whether it was worth what Wall Street was paying. Stocks, at some point, will usually return to a reasonable level based on value. I was glad to see Wall Street took my advice as tech fell back closer to earth, giving investors more reasonable pricing. So at the risk of starting another run on the market (of course I am teasing here), I would like to point out another area that is getting my attention.
 
As I mentioned last week, much of the market gains since March can be attributed to a handful of high-tech stocks. What is surprising to me is how many well established traditional companies have been left out of the stock market rally. They have been hidden in the shadows as the focus has been mostly on the tech stocks that have driven the rally. This could possibly indicate an opportunity for investors to rotate a bit out of tech and take advantage of more value oriented stock plays.
 
Given my diverse audience, it would be improper to make specific stock recommendations, but I am happy to mention a few things for consideration. One analytical tool I often use is to consider what products or services I think I personally will be using in the years to come. This is especially relevant during the current crisis with so many companies operating at reduced capacity. I ask myself, “Will these industries ever come back, and if so, which ones are likely to be the survivors?”
 
An example would be the travel industry. With travel way down, airlines are struggling, but do we really believe this will be permanent? What about hotels? They were shut down for a time but are now starting to come back online. The financial numbers for the year are going to look pretty dismal, leading to poor returns and weak stock prices, but do we believe people will no longer stay in hotels or travel?
 
What about the oil and gas industry? There is very weak demand now, but will Americans start driving and flying again, and when they do, how will that affect energy prices? Are there energy companies out there with low stock prices that might benefit from a recovery?
 
Theme parks, entertainment companies, sporting events, restaurants, auto manufacturing, and dozens of other industries are suffering severe setbacks during this difficult time and all fall under my main question. Do we really think these things are down forever or will we one day return to using their products and services as we once did? And when that day comes, which companies stand to benefit?
 
High-tech has stolen the Wall Street headlines for six months, but hundreds of other overlooked companies, whose stocks have not yet seen their own recovery, may be the next investing opportunity.