This week I flew to Tucson to visit a client during a record breaking heat wave so I was expecting some pretty rough conditions. Planes definitely prefer cool weather. As I did my preflight preparations, I took time to add ice repellant to my wings. The repellant assists in ice removal, should I encounter any. Airplanes do not like ice, so being able to remove it is critical to a safe flight.
I was chuckling to myself as I applied ice repellant during a heat wave. So why did I do it? I have been trained as a pilot to be prepared for all possible conditions. I have learned no matter how smart I am, or how carefully I study the weather reports, it is not possible to know everything. Nature does what it wants and any pilot who is unprepared for that reality is not going to live long. So there I was preparing for ice in the sweltering heat.
As expected, the temperatures in Tucson were record breaking. Rolling down the runway, the plan was slower than usual to climb, as the blistering heat reduced lift and the hot engine generated less thrust. I was thankful I was wisely chosen the longest runway to give me plenty of margin. In the end, the flight was uneventful, until I began to descend through the clouds over the Grand Canyon and noticed ice forming on my wings. A smile came to my face as I watched it slide off the leading edge due to my preparation. You just never know with weather.
You have no doubt already been deluged with commentary on the British Brexit vote and what it may likely mean for the world economies. I have been a bit amused by all the experts, throwing their two cents in, trying to pretend they have the answers. These are the same experts who last Thursday were convinced the vote would be a victory for the "Stay" camp.
I will not pretend to know what Brexit will mean for the world economies. Too much is unknown. Instead I will continue to do what I have always done. I will resist fear and continue to seek value and opportunity, while keeping a little financial ice repellant on the wings, as it were.
British voters have rejected the establishment and voted for freedom. Their loud message, and spirit of rebellion, is not present only in Britain, but our own election cycle has demonstrated the same sentiment. Voters in both political parties have refused to cooperate with party leaders, and pollsters. I believe the British vote may indicate surprised lay in store for the American election as well. Investors be prepared.
As for Brexit, will it doom the world economy as some have predicted? In answering that question we are not without precedent. This is not actually the first Brexit vote. I believe that happened around 1776. History makes clear how that act of freedom affected the world's economies.
I would like to follow up on last week's article regarding our family reunion in Palmer, Alaska. One afternoon I took the opportunity to explore the beautiful area alone. The abundance of life was quite a site for a desert dweller. As I looked out across the Matanuska river towards the towering Pioneer Peak (which I learned is nigh unto Sinai for those who live in Palmer), I was awed by the beauty and timelessness of it all. That mountain was looking down on the valley long before humans discovered the place.
As I crossed a small stream my eye caught a glimpse of something that didn't fit in. It was a portion of an old whitewall tire and the distinctive tailfin of a 50's era Chevy Belair sticking out of the mud. Upon closer examination I discovered the whole bank of the stream was covered with buried old cars I later learned the farmer had put there to protect his property from rising waters.
I thought about the Belair, remembering that in its day it was Chevy's premier family vehicle, and advertisements often showed jealous onlookers, gazing enviously upon the lucky family driving past. That car was once someone's pride and joy, but here it was, long forgotten and rusting in the mud.
As we enter the summer investing season, I must warn that we enter a period of traditionally increased market volatility. With many market players out on vacation, lower volumes can exaggerate market movements. Add to that the current stream of bad news regarding struggles in Europe, Chine, Federal Reserve disappointments, terrorism and of course the unusually stressful presidential election, and you can find plenty to worry about. The investing markets may very well see some large swings in the coming months. Perhaps in response to this, a reader wrote to suggest a topic for my column. His simple request was, "Tell us something we can feel good about."
In my youth I read many books by Earl Nightingale, Og Mandino, and the rest who basically reached the conclusion that people are about as happy as they make up their minds to be, and that 95% of our worries never materialize.
I recommend that during these summer months, Investors keep a long term view. If you need some helping maintaining a proper perspective, might I suggest a visit to beautiful Palmer, Alaska to see Pioneer Peak.
My father-in-law was raised in Palmer, Alaska just outside of Anchorage. He always wanted to show his kids his childhood home so this year he arranged to take them and their spouses on a trip to Palmer. If you have never been to Alaska, you are missing out on one of the most beautiful and inspiring places on earth.
As I was walking along the street of a lovely town in Skagway, I stopped to admire the majestic jagged peaks of Sawtooth Mountain. It was a beautiful sunny day, a rare treat in Skagway, and I was in total awe of the beauty, and the privilege of being there to enjoy it. While soaking in the experience, an older lady, clearly a tourist as well, who was walking past me, said to her husband in a frustrated voice, "The stock market is down over 85 points today and our portfolio has already lost several hundred dollars." The comment seemed so trivial I wanted to turn her around and say, "Do you see that mountain? Do you realize how privileged you are to be in this beautiful place and you are worried about the stock market?"
People work many years, saving faithfully, so that they one day may retire. In its simplest form, a retirement portfolio is designed to replace our employment income so that we may enjoy retirement. This concept has been lost on many modern investors who value their portfolio more for its size, than for the income it can produce. They call it their "nest egg" and each day they open their account to see if their egg has gotten bigger or smaller. If bigger, then the day was a success. If it has gotten smaller, it was a bad day. In so doing they create unnecessary stress and forget why they saved the money in the first place.
It may surprise many to learn that statistically, as measure by the S&P 500 index, the stock market on a daily basis is down 46% of the time, since 1950. This means that if you are a "nest egg" investor, one who measures success by whether the egg is growing or shrinking, then almost half of the time you will be going to be disappointed. No wonder so many investors are stressed.
I suspect the Skagway tourist was a "nest egg" investor, who was unable to fully enjoy her retirement because about half her days were spent agonizing over the market being down, rather than celebrating that she had saved enough money to be on a beautiful vacation in Alaska. You retirement portfolio's number one goal is to provide income so you can enjoy your retirement. If it is doing that, be grateful and quit measuring the size of that nest egg every day.
I sat down to write my weekly column when I heard a tapping. I turned to see a small sparrow banging itself against my window. With all the windows in our house, it is not unusual, and practically a daily occurrence, to hear a bird slam against the window and then fly off, and unfortunately sometimes not.
This little sparrow however, was determined. After about 30 seconds of beating against the glass he flew to a branch near the house and looked at the window. I smiled and said to the bird, "I'll bet your little head will be ringing for a while after all that banging. At least maybe you learned a lesson that may save your life one day."
No sooner had I spoken to my little friend than he left the branch and went straight for my window, proceeding to bang his head on it all over again. After some time, he flew back to his branch to assess the situation. Again, I spoke to my little friend and said, "My goodness you are stubborn. If you don't learn your lesson soon, our friendship will not be lasting much longer."
To my surprise the above encounter repeated itself many more times. As I contemplated the sparrow, I thought back to the times in my life when it took me more than a few bumps on the head to finally learn my lesson. Sometimes, like my little friend, we keep making the same mistakes thinking that somehow the results will be magically different. About 30 minutes later, and still beating his head, I said to the sparrow, "Sorry little guy, I admire your determination but it isn't going to change the outcome. Actually, I think I have met quite a few investors who are just like you." And then I knew the message I needed to share.
Financial matters seem to be one of the greatest areas where humans beat their heads against the window. I often counsel with young people who have gotten themselves deep into debt and their solution has been to try and borrow their way out. This always results in a much bigger financial headache.
With age, the tendency to repeat financial mistakes moves to the way people invest their money. I have watched investors lose money because of greed, only to become greedier and end up losing more. I have known many who thought they could outsmart the very challenging options, commodities or the currency markets, and when they take a beating dive right back in hoping the results will be different.
It is human to make mistakes. It is foolish to keep making them. If there are areas in your investing where you have not done well, stop thinking the outcome will magically change. If what you are doing hasn't worked, stop doing it. Continuing to repeat the same mistakes, thinking the outcome will be different, will leave you like my little sparrow friend--with a very big headache, or likely worse.
I have a large family with many very different personalities. If I ask one how their day went I may get a shrug or a three-word answer. With another, I’d better have an hour for the detailed story I know is coming. Sometimes it is a challenge to manage the amount of information required to be a good parent. My wife is much better at listening to long stories, always nodding and smiling at the appropriate moments. I, on the other hand, tend to just want the facts. TMI (Too Much Information) as I am known to say quite often.
Is it possible to have too much information? About 20 years ago the information age kicked into high gear and it hasn’t always been for the better. It has certainly changed investing and I would like to warn investors of an area where I believe it has greatly increased risk.
It was not uncommon for our grandparents to have their entire portfolio concentrated in just a couple of stocks. In the days of brick and mortar companies, investors could see a lifetime of growth from a business that dominated its industry for decades. The time and resources to start up a new railroad for example, made it very difficult for new companies to compete. At the same time, information moved slowly, allowing companies with normal struggles to manage their problems often outside of public view.
Compare that to last year when a respected national restaurant chain with over 2,000 stores had a food poisoning event at a couple of its locations. Almost before the board could call a meeting, the news had spread and the stock fell like a rock. In another current example, a national retail chain is facing a massive public boycott that spread like wildfire through an internet campaign. Two months ago they were a strong brand. Today they are struggling to stay ahead of damage caused by all the internet attention. All it really takes now is a single social media comment, a bad review, or a viral video, and companies are at risk of a rapid stock collapse like at no time in history. I call this new risk, “Information risk.”
I recently posted a review of a restaurant that in just two weeks was read over 4,000 times. Keep in mind all those readers were actively looking for a place to eat. The power of the press, once held in the hands of a few, now lies dangerously in the hands of anyone with an internet connection, and that power must be respected by investors.
Because the internet spreads information at lightning speeds, I encourage investors to be very careful if they choose to buy individual stocks. Bad news, boycotts, rumors and scandals, all have the ability to spread instantly, creating a whole new level of risk our grandparents never had to deal with. If investors want to invest in individual stocks, they need to recognize that easy access to information is not always going to be a positive.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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