Dan talks about his experience in A Florida Alligator swamp and how it teaches about having a plan while investing and sticking with it.
**CommonSenseInvesting -- Helping Ordinary investors do Extraordinary things**
Twitter: @DanWyson ( https://twitter.com/DanWyson )
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
This communication is strictly intended for individuals residing in the states of AZ,CA,CO,DC,FL,HI,ID,IL,KS,KY,MA,MI,MN,MO,MT,NE,NM,NV,OH,OR,SD,TX,UT,VA,WA,WY. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.
When preparing for a flight, it is not unusual for me as pilot to spend more time planning the trip than actually flying it. A prime concern is always the weather. I review numerous meteorological sites, looking at winds, moisture, storm fronts, and so much more. The amount of information grows geometrically every year, with pilots having access to everything a meteorologist has, right on his IPad. Be assured both pilots on any commercial flight are tracking the weather in real time with their Ipads, which FYI, are not on airplane mode.
Once inflight, my XM weather screen shows a satellite view of clouds and moisture. I also have forward looking radar which paints a picture of moisture levels in the clouds directly in front of me. Technology has turned the modern cockpit into a real time, highly accurate weather station. All of this creates what pilots call “situational awareness,” which means knowing where you are and what is going on around you at all times. Situational awareness has contributed greatly to lower accident rates.
Despite all the fancy technology in todays “glass panel” cockpits, what might amaze the non-pilot is the most important safety feature of all, as it relates to weather related information. It is what we call “Pireps,” short for pilot reports. This report comes from another pilot, flying slightly ahead of you, reporting back the weather he is currently experiencing. For example, expensive computer technology is nothing compared to having a 737 pilot 100 miles ahead of you reporting “moderate turbulence at flight level 270.”
Computers can predict ice accumulation in a certain cloud layer, but a fellow pilot looking out her cockpit window at 25,000 feet can give you information about that ice that is infinitely more useful. Computers improve situational awareness, and reduce human error, but in an ironic twist, it is actually the human element that adds a level of safety computers cannot replicate. A computer shows you weather, but a human tells you what it feels like to be flying in it.
As investing tools become more and more computerized, with some brokerage services actually turning the whole process over to computers, I find myself thinking more about the value of human pireps. There are some things computers simply cannot tell you.
Some fellow advisors ask why, with so much digital information available, I continue to travel so much, visiting companies onsite and speaking directly with CEO’s about their business plan as I evaluate their companies for inclusion in my client accounts. I guess it is just the pilot in me who uses and understands the value of technology, but realizes there is no replacement for face to face, human interaction and research.
As we move further into an investing realm where computers trade against each other while the humans just sit back and watch, I believe great advantage will go to those who remember that in a world driven by emotions, machines in many ways are at a disadvantage. Sometimes nothing beats a good old-fashioned financial pirep.
I listened to a group of individuals discussing investing when one mentioned he had bought a hot penny stock on the recommendation of a friend. “What company is it?” one individual asked. “I don’t know,” was the response, “I only know the symbol.” As you can imagine, my next newspaper article was already formulating in my head.
Another person in the group then asked, “What does the company do?” I knew I had to write this article when the answer came back, “I don’t know, but what does it matter?” By now cell phones were searching the internet for news on this mysterious company. When the group learned that the company was selling a dangerous product, and marketing it to teens, the man boastfully declared, “I don’t care what they sell, as long as they make me money.”
I wonder how many people feel the same about their investments. Do you care what your money is being used for or do you only care if you turn a profit? A couple of decades ago a trend known as “Socially Responsible Investing” began to emerge. I remember reading an article by a leading analyst at the time who discarded the movement as a bunch of “tree huggers” who did not know how to read a balance sheet. A modern offshoot of that trend called “Impact Investing” looks for companies making a positive impact on the world. Having followed the data for years, I am beginning to believe there may be good reason for investors to give a serious look at this type of investing.
A recent example is CVS pharmacy whose stated purpose is “Bringing good health to America.” While touring a store, CEO Larry Merlo noticed the rack of cigarettes behind the counter. He wondered how a company focused on good health could be selling such a product. Many investors were shocked when he later announced CVS had discontinued tobacco sales at all 26,000 stores saying, “It was the right thing to do.” Mr. Merlo put his job and company on the line since tobacco sales accounted for a whopping $2 Billion in annual revenue. Surprisingly, in the 17 months since that announcement, CVS stock has climbed over **25% (Yahoo Finance). I wonder if being morally responsible in one area of business leads to higher morals in other areas? If so, there may be some value in looking beyond the traditional balance sheets of future companies.
In 2015, the Edelman Trust barometer showed that 81% of customers wanted to do business with companies that sought a purpose higher than profits. In a related 2015 survey by the Levo group, 84% of millennials reported that a company’s purpose was the #1 consideration for a good job fit. Investors in 2016 who only know how to read a balance sheet, but fail to take into account the moral value and purpose of what a company does, may find themselves moving dangerously away from some very strong socio-economic trends.
** In NO WAY should this be taken as a recommendation to buy or sell CVS stock. The story is only used as an example to illustrate a point.
On a flight to Houston I sat behind two strangers who were engaged in a very active political discussion. The word that came to mind to describe their very animated three-hour debate, was "anger." Americans, from all political views, are angry at government.
As I visited the DMV this week to take care of, what in the business world would have been a simple matter, I was reminded of the disconnect that exists between regular Americans and their government. A business survives by providing a product or service the customer wants or needs, and must do so efficiently, or a competitor will quickly push them aside. Government’s purpose is to control activities, (such as issuing drivers licenses), but in so doing has no competition, thus has no need to provide either efficiency or quality. As a result, its efforts often generate anger among its citizens. Well fellow citizens, and particularly investors, prepare for your level of anger to soon be elevated, as if that is possible.
Six months ago I discussed the Department of Labor's (DOL) proposed fiduciary ruling. That ruling is expected to be announced in the next 60 days. Opposition has been strong from both sides of the political aisle, but the ruling comes from the executive branch and therefore, is bypassing congressional approval. The DOL has been tight-lipped about what is in the final ruling, but it is apparent from the discussions that dramatic changes are about to happen to the way investors, and their advisors, engage in the investment process. The ruling affects all retirement accounts.
Designed to "protect" investors from perceived evils, the DOL is set to place restrictions on where retirement assets may be invested. In addition, the private relationship between an investor and their advisor will be governed by strict new rules and involve significantly more regulations. I am personally not looking forward to having to tell my clients,
“Yes, I know that IRA is your money, but you can no longer invest it as you choose.” It is my personal belief that the added regulations and costs will force many advisors to drop their smaller clients, those who often need advice the most.
As an example, this week MetLife joined the growing list of financial firms who announced they are getting out of the investing advice business because the DOL ruling will make the cost of providing advice prohibitive. Companies like MetLife have always served large numbers of newer and smaller investors.
As this ruling begins to be implemented and millions of unsuspecting American savers feel the effects of a government that believes your IRA is their IRA, I suspect the anger will rise to yet another level. Is it any wonder the political debates have been looking like a backyard brawl? Don't blame the candidates. They are merely reflecting the anger most Americans are feeling. As to what investors can do at this point, once the official ruling is released I will share some thoughts I have on how to make the best of it.
**The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing
In Florida, our daughter took us to an alligator farm containing a large swamp that could be crossed by walking along a wooden pathway. Multiple signs were posted warning the swamp contained dangers including alligators and poisonous snakes that lay hidden in the murky waters. The signs cautioned people to stay on the path.
I took a beautiful picture of the elevated pathway that shows it winding into the trees and then turning out of sight. As we followed the pathway we could never see very far ahead due to the trees and winding of the path, but we were confident in reaching our destination as we had studied the map before entering the swamp. Because of our concerns for the dangerous creatures that were hidden in the swamp, we were careful
to stay on the path.
During our journey we came upon a mother and her daughters walking along the path. One of the girls was horsing around and in the process her little plastic flip flop fell off into the swamp below the pathway. “So much for that,” one of us said. Then, much to our surprise, after scolding her daughter, the girl’s mother lay down on the path and squeezed the upper part of her body through the railings and with outstretched hand reached down for the floating flip flop.
As we gazed upon the scene we began to imagine the potential outcomes. We marveled at the mother’s decision to reach her hand, arm and part of her body into the weeds and darkness of the swamp below the pathway. Did she not read the warnings? Was she not aware of the danger she was putting herself in over a two-dollar flip flop? I imagined the headline the next day saying, “What was she thinking?” Fortunately, the event ended without incident.
Like my picture of the path through the swamp, life is a beautiful, though often unknown journey, with many turns along the way. We don’t know what lies around the corner ahead and there are certainly dangers lurking, but our highest likelihood of success comes from finding a good path and staying on it.
I am not totally sure what my walk through the swamp has to do with investing but somewhere in my picture lies a message for investors. In the picture there are no alligators or snakes visible, but surely they are there. The final destination is out of view beyond the trees, but if you stay on the path you have a really good chance of getting there. It was foolish for the lady to reach into the unknown waters, but it is amazing how many investors I have seen do the same. Some even leave the path entirely, or worse, they try to cross the swamp without one. Hopefully this new picture, that I will frame and post in my office, will remind investors to plan a good path, then stay on it, and be especially careful what they stick their hands into.
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
This communication is strictly intended for individuals residing in the states of AZ,CA,CO,DC,FL,ID,IL,KS,KY,MA,MI,MN,MO,MT,NE,NM,NV,OH,OR,PA,SD,TN,TX,UT,VA,WA,WY. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.