In my youth I loved to sail. Sailing can be a very rewarding experience. As much as I love sitting behind the 800 horsepower turbine engine in my airplane, there is something very special about a quiet, beautiful day on the water, gliding peacefully along under the power of the wind. In recent times my son Jared has joined me in my renewed interest in sailing.
 
Generally, as a pilot the wind is not your friend. It is a constant battle to keep the plane on course while the wind is usually pushing you somewhere else. Flying against the wind requires raw power and determination. Sadly, on those days when you get a nice tailwind, the benefit is more than negated by the headwinds going home. The physics of flight are such that a headwind hurts you more than a tailwind helps you. It works much like an investment where a 10% drop in value is not recovered by a 10% gain, so you have to plan carefully.
 
A captain of a sailboat views the wind much differently than a pilot. It is no longer his enemy but his friend. It has always fascinated me that ancient mariners were able to cross the seas both directions using the same wind. Modern sailboats are even more capable at using the wind to move them the direction they want to go. The wind provides the energy that moves the boat, but the captain decides the direction by the way he sets the sails and the rudder. As Ella Wilcox’s famous poem reminds us, “Tis the set of the sails and not the gales which tells us the way to go.”
The last couple of years have been pivotal in American politics. To say that contrary winds are blowing might be an understatement. The polarization has reached such dramatic levels that government struggles to function properly. Historically, presidents like Reagan and Clinton worked across the aisle with a divided congress and were able to get the country’s work done. The current environment may be so toxic that changes in Washington may have a more dramatic effect on our lives, and our investments. Elections may have much higher consequences. Past politicians were very divided on the campaign trail but after the elections they largely worked together to get things done. That does not appear to be the case anymore.
 
As such, I encourage investors to be more pro-active in planning how their portfolios might need to be adjusted depending on changes that may occur in November. It would be wise to assume that changes in control of the branches of government could have a more significant effect on investors than they have in the past. In the coming months I will share some of my specific ideas on this relatively new challenge for investors, along with its potentially increased risks. Like good sailors, we must find ways to move toward our destination, regardless of which way the powerful political winds may blow our nation.

​In his 1933 inaugural address, Franklin Roosevelt made his famous statement regarding the Great Depression saying, “…the only thing we have to fear is fear itself…”.  Throughout my career as a financial advisor I have had many opportunities to reflect on that quote. I have watched as investors have reacted with fear to the many economic and political cycles that have come and gone.
 
The emotion of fear is uncomfortable but necessary to protect us from the real dangers of our world. If we did not fear, we would not survive very long. I recently watched a documentary about an amazing man who spends his life in the dangerous world of free climbing. This is a sport where people climb steep rock faces without any ropes. As one who has a personal fear of heights, it was hard for me to even watch the movie of this man climbing those cliffs. At one point in the documentary he mentioned how he had no fear of heights and for the most part, was not afraid to die.  A little bit later in the show when the interviewer asked about his climbing friends he eerily and almost too casually responded that most of them had died in falls.
 
Somewhere between myself and this climber lies a healthy fear of heights. A little fear might help this climber to live longer. If I had less fear of heights I might better enjoy when a hotel gives me a room with a top floor view. Ironically the same emotion can save your life or be crippling.
 
Finding balance as you manage fear as an investor is a challenge. The problem is exaggerated by the constant and unavoidable barrage of frightening news. If we always respond with fear to the negativity, we could find ourselves unhappily locked behind the walls of our homes. If we ignore fear completely, we risk falling off a few cliffs. Fear can protect an investor or hinder them.
 
A real-world example of this dilemma is the current coronavirus scare. A cruise ship this week quarantined 7000 people because one passenger appeared to be infected. Now, suddenly people are cancelling cruises, airlines are refusing to give out blankets, and some stocks are falling. The fear seems to be outgrowing reality at this point.
 
Nobody knows how the Coronavirus problem will end or how it might affect investors. I suspect, like so many other “fears” it will run its cycle and eventually have very little effect on the worlds’ economy. As for investors I kind of agree with FDR that the fear of the problem is often more dangerous than the problem itself, because it can lead to poor decisions and even greater problems.
 
I encourage investors to be aware of the risks around them, while resisting the temptation to allow fear to take more control over their decisions than is prudent. FDR was only partially correct. Fear may not be the only problem, but too much of it can exaggerate the problem while hindering the solution. 

​I doubt many of my readers spend a lot of time studying, or caring about, Rule 144A from the Securities Act of 1933, but let me point out how a recently proposed change to that rule might affect them.* The rule requires investors in the private capital markets to qualify as “Accredited Investors.” This means they must meet minimum thresholds for net worth and/or income levels. The theory is that private offerings may have higher risks and therefore are only suitable for individuals with enough financial resources to bear those risks.
 
The SEC is proposing changing the definition of “Accredited Investor” and in one area of change it relates to financial advisors who hold certain licensing. For these advisors the income and asset minimums would be waived. The SEC believes that a financial advisor who can legally give advice to others on these products should be knowledgeable enough to decide whether they should personally own them.
 
I understand the logic the SEC is using in reaching this conclusion, but in my opinion, they are overlooking a key element that may have unintended negative side effects for investors. I believe that good financial advisors must first be financially sound in their own lives. They become sound by demonstrating, over time, an ability to save and invest in a manner that will naturally lead them to becoming accredited investors themselves. Let them go through the same process they teach to their clients. Along the way they will not only strengthen their own finances, but increase their ability to give advice to others.
 
Private offerings carry unique risks and if advisors are permitted to invest in them before they are “financially” prepared, they risk getting themselves into financial difficulty. You would never want to get financial advice from an advisor who was in financial trouble. Such a situation could lead to the advice being biased by the advisors need for income. While counseling another financial advisor some years ago who I could see was giving advice based on his personal need for a commission, I asked him the question, “Are you planning your clients’ retirement or your own with this advice?”
 
It is my opinion that if advisors are allowed under this new rule to take more risks in their own investments than would otherwise be appropriate, the potential exists for those advisors to get themselves into financial trouble.  I do not believe the SEC should change the accredited investor rules to allow certain financial advisors to bypass the income and asset requirements. I believe doing so may put them and their clients at risk. Let them save their money, invest wisely, build a solid portfolio, and demonstrate by a lifetime of sound investing that they are ready to move on to potentially higher risks in the private capital markets. If they are unable to do so, then maybe it’s an indication that they shouldn’t be giving financial advice in the first place.
 

​My mother will be celebrating her 90th birthday this week. I am not sure what her plans are, but I suspect they will include swimming, which she has done six days a week for many years. Keeping her body and mind in shape has always been very important to her and perhaps a key to her longevity.
 
I have another relative who recently turned 90. In his career he was very influential in the community and state, and well loved and respected by all who knew him. Whenever the occasion occurred to mention that he was my relative, the positive responses and declarations of admiration for this man were universal. He was an individual who could do, and did do, everything he set his mind to. Like my mother, he exercised daily to stay in shape. But now at age 90 things are much different.
 
We recently visited with this wonderful man at the memory care area of the senior facility where he lives. It was a tough visit. The long pauses between questions and the often-incoherent answers, no way resembled the vibrant and intellectually stimulating man we had known for so long. Watching him attempt to get a single piece of food in his mouth on his own was disheartening. A once healthy and brilliant man now struggles to remember, comprehend and function at even a basic level. Aging affects everyone differently and you never know until you get there how it will affect you. Thus, planning early for that time in life is so critical.
 
As I looked around the care center, something about it stood out to me. In the room full of people, I only saw four men among dozens of women. Launa, who regularly donates her time singing in a retirement home, commented that it is the same there as well; mostly women. It should not have surprised me since the largest demographic in my office client base is women.
 
Research shows the startling reality that about 80% of women die single.*  That means most women will be responsible for their own retirement at some point. The challenge gets greater when you consider that many married men who die before their wives, deal with expensive mobility and healthcare issues in their final years that can put a strain on family finances. This often leaves their spouse with less resources than originally planned. Even though my father died from a condition incident with old age, my mom has still outlived him by more than two decades. I am certain she never expected that to happen.
 
Out-living your money is a risk to retirees that largely falls upon women. It makes sense that women should take an active role in family finances, budgeting, investing and retirement planning since they are most likely to be left alone with these matters at some point. The best time to prepare is long before that happens.
 

​It was always a treat when my elementary teacher brought in the movie projector. One of my favorites was the Disney cartoon story of Johnny Appleseed. Though a bit mythologized, John Chapman was a real-life pioneer who travelled across the country planting apple seeds for those who would follow long after.
 
Investors I work with often have dreams of leaving behind a legacy for the generations that will follow them. In this area I believe there is some generally accepted financial planning practices that might need to be reconsidered. One common train of thought is that as we age, we should reduce exposure to the equity markets. The thinking is that the older a person gets, the less time they have to recover any losses. This practice is often implemented by following a basic principle that the percent of equities in a portfolio should be no more than a person’s age, subtracted from 100. So a 60 year old under this method could have up to 40% in equities, while a 90 year old would only be allowed 10%. The remainder would go to bonds, CD’s, and other lower risk assets.
 
What this method leaves out is that many people have more money than they need to live out their lives. Thus, they are being overly conservative with money that will be going to much younger heirs anyway. As an example, I was once meeting with a client who was 93 years old. As we did a thorough review of her portfolio, she said she had a desire to get involved in the high-tech industry that was in its infancy at the time. She specifically asked, “What small companies could I buy today that in 10 years might really take off?” The look on my face led to her next comment. She said with a laugh, “Just because I’m old doesn’t mean I want to stop living.” She had enough income and conservative investments to live out her life, but she said the rest was for her posterity and she was investing it for them.
 
I believe that too many investors, in their later years, get overly conservative with money that they will never need. After handling hundreds of estate distributions, here is my own personal experience on the matter. I have found that heirs who inherit cash are more likely to spend it, than those who inherit equities. I often hear something like, “Grandma left me this stock so I want to hang on to it.”
 
I will not leave a pile of cash to my kids. I want to continue living and working and building so that I might leave behind an example of how I would like them to live. If I reach 100, I still hope everything about my life, including investments, will reflect my optimism for a great future. I want to be a Johnny Appleseed, planting seeds right up until the last day of my life for my kids and grandkids to enjoy and learn from.

​I have a second home with six Xanadu plants and two of them struggle while the others are doing great. With some research I discovered that the two were getting more hours of direct sunlight than the others.  I learned that the Xanadu family of plants thrives in low light and the few extra hours of sun was causing them stress.
 
One of the  biggest landscaping challenges is plant placement. Each plant species has specific needs and the same plant may grow well on one side of your yard but poorly on the other. Plants grow in the wild where they tend to be the happiest but in our yards we put them where we want them to be. I really wanted those two Xanadu plants right out front by the sidewalk but they preferred a shady location.
 
People, like plants, have many things in common, but are also very unique. The environments in which they thrive varies based on personal tastes, needs, goals etc.. When it comes to their investing needs, I have always disliked the investment modeling that is so common in our industry. Using this method an advisor, or more likely a computer program, assesses a person’s risk profilc and time horizon based on the answers to some questions. Then the person is classified as conservative, moderate or high risk, with perhaps a few other categories thrown in. Once the classification is defined, the investor’s funds are essentially allocated into a bucket of investments with all other similar investors. If the investments in a specific bucket are changed, they are changed for everyone in that classification. The problem with this system is that it assumes that what is good for one conservative investor (for example), is good for another.
 
I have 12 children. When I make a parental decision that results in the common retort, “That’s not fair” I remind them that I try to be fair but that doesn’t mean I am going to treat them all the same. They are 12 people with 12 unique sets of needs and as a parent, I try to do for each one that which is best. I had a client once ask me, after speaking to his friend who is also a client, “Joe told me about an investment you got for him but I don’t see it in my account. Why not?” I replied, “Because you are not Joe.”
 
All investors have basically the same pool of investments to choose from, so many things will be similar, but your particular portfolio selections should still be unique to you. Whether it be in the allocation percentages, or some of the specific holdings, your portfolio should be customized to address your specific needs. Just like plants, some investors need more water, others need more sun. The ultimate goal is not the portfolio but the health of the investor. And that can only be addressed using a personalized program.

​This week I attended the Newport Beach Christmas Parade of Lights. It’s an annual event where dozens of yachts, decorated in Christmas lights, parade around Newport Harbor. The sights, sounds, music and festive parties were a sight to behold. The parade passed by multi-million-dollar homes, high end restaurants and hundreds of additional moored yachts, all full of people celebrating the season. One of my first impressions upon seeing the large number of elaborately decorated yachts, and homes along the harbor, was the reality of our booming economy. Sometimes it doesn’t take an economic report to tell you how things are doing.
 
Granted, the owners of those yachts tend to have money in any economic condition, but the atmosphere of the event was still a reflection of the times. I remember well the subdued celebrations during the Christmases of 2007-2008. During those years many large financial firms cancelled their annual exotic trips, partly due to budget cutbacks but also out of respect for those who were struggling with the tough economic times. A review of my weekly columns from those years reminds me of the many challenges our nation was enduring, as I advised each week on how to get through it.
 
Our country is passing through an era of unprecedented economic growth. Of course, the growth benefits the already wealthy, but at record levels it is also reaching those areas of the population that are often left out. Unemployment is at or near record low levels, most notably among several minority groups. I dare say that if you want a job in America today, you can find one; probably several.
 
Many factors are contributing to Americas economic success but five stand out in my mind. 1 – Energy independence. The availability of energy at a stable price is a critical factor in economic growth and sustainability. Finally freeing ourselves from foreign energy dependence has given American businesses the ability and confidence to grow. 2 – Abundant Capital. Continued low interest rates and an abundance of available investment capital is the life blood of business growth. 3 – Reduced Regulation. There is a fine line between regulations that maintain orderly economic activity, and those which stifle growth and investment. We are currently enjoying a reduction in regulatory burdens and it is allowing businesses to grow more freely. 4 – Technology. Advancements in science and technology continue to make life more enjoyable and more affordable for average Americans. Fifty years ago, it took billions of dollars in computers to land Apollo 11 on the moon. Children today play video games on cheap cell phones that contain more computing power than NASA had in 1969. 5 – Reduced Taxes. The government is inefficient by nature. Any money it gives back to the citizens in the form of lower personal and corporate taxes will be spent more wisely and efficiently, benefitting the economy.
 
Our nation has been very blessed.  As we ponder whether next Christmas will bring similar success, the ability to maintain the above five items will be a critical piece of the puzzle. Merry Christmas!

A friend asked if the China trade war is the only issue that matters anymore to Wall Street. Based on the daily financial news, one might get that impression. It reminds me of a quote by the late Benjamin Graham, who is viewed by many as the father of value investing. He said, “Over the short term the market is a voting machine, but over the long term it’s a weighing machine.” That’s an appropriate quote in our current impeachment drama where people are running about frantically trying to count “votes.” How a congressperson votes will largely be driven by political pressures, focus groups, strategic re-election planning and the daily hype coming from both sides of the question. The short-term outcome of that vote may vary dramatically from the long-term view, as future historians look back with clearer vision and thoughtfully “weigh” the whole matter.
 
Every day Wall Street investors decide which stocks rise and fall as they vote with their pocketbooks. Such voting is also often clouded by the noise and excitement of the moment. At such times investment choices can be hasty as emotions and even confusion may drive decisions. Over the passing of time the markets will “weigh” stocks more thoughtfully as real value is revealed.
 
Returning to the example of China, let me share a personal experience. Most know that I write children’s books (under the pen name, Ule B. Wise) and I recently released another book, “The Magic Violin.” When I went to have the book published, I found that printing prices for hard cover books had increased 350% due to the trade war. This made printing the book similar to my last one, cost prohibitive. Rather than give up I decided to use a domestic Print-on-Demand publisher and release the book in what turned out to be a beautiful paperback version. My customers were very happy to have the book in time for Christmas, and it allowed me to keep my book release on schedule.
 
The trade war affected the way I run my book business, but it did not stop it. Business owners, like myself, find ways to work around problems and keep moving forward. So it is with large Wall Street companies. There is so much noise and frustration over the trade war and some investors run around daily “voting” how they think things will play out, but in the end I don’t think it really matters that much. Businesses will find a way to work around it until it resolves, and then they will find ways to be profitable from the outcome. I believe the foundations for success and further growth continue to exist in our economy and feel Wall Street will continue to reflect that over time.
 
Wall Street tends to be volatile on a daily basis as millions of investors cast their “votes” on various current events. But overall the markets have continued to climb as long term investors like myself have “weighed” the markets and determined that there continues to be value worth owning.

​I try to avoid political topics, but quite often politics and investing cross paths and it’s part of my job to warn my clients when the one might negatively affect the other. One current issue I found interesting were the stories of this year’s Black Friday protests. Apparently, some individuals who take issue with our capitalist society, organized protests over the Thanksgiving weekend against Black Friday shopping, which some referred to as “Capitalism run amok.”
 
The rising popularity of socialism in America, combined with a growing disdain for capitalism should be a concern for investors. Some basic definitions of the two political thoughts would be useful. “Capital” is another word for money, or wealth. A key element of Capitalism is the private ownership of property. In a capitalist system, the owner of wealth is free to use it wherever they feel it will provide the most use. 
 
Black Friday actually represents an excellent example of the benefits of capitalism. On that day, producers bring their products to market in a very competitive event designed to draw in consumer dollars. Whichever business produces the most desirable product at the lowest price will attract the most dollars. Businesses are rewarded for quality and efficiency and the consumer is rewarded with better products at lower prices. Wealth is not determined by how many dollars you have but by what you can do with those dollars. Therefore, a capitalist system tends to enrich all consumers by making their dollars, regardless of how many they have, more valuable.
 
A socialist system is defined as one where the means of production and distribution are managed by a central government. In the purest sense, all property is publicly owned and shared according to each person’s needs and abilities. On paper it may sound good, but in countless examples worldwide the system results in inefficiencies, lower quality and higher costs. Think, allowing the DMV to run all businesses. In practice, socialism destroys the motivation and ability to create better products at lower prices.
 
As I watched video of the Black Friday protests, I noticed an irony. Just about every person I saw was recording and posting the event on social media using their cell phones; the amazing and ubiquitous cell phone, a device created by capitalism.
 
The opportunity to improve their lives drives people to work, take risks, and invest their private resources in the future. Take away that motivation and people, society and economies stagnate. My Polish grandparents sacrificed everything and took great risks to come and participate in the great American freedom experiment. I and my large extended family have benefited immensely from their decision to do so.
 
It is my belief, as a lifelong student of economies and investing, that the current socialist movement in America may be one of the greatest threats to our personal and national financial well-being. For that reason, I consider it a matter of “Common Sense Investing” to encourage those interested in controlling their own financial destiny, to not take this risk lightly.  

​I saw an interesting story in the news of a pilot who hit some power lines with his small airplane. The accompanying picture showed the plane dangling upside down from the lines, while a fire department ladder truck rescued the pilot. I could only imagine how he must have felt as he hung there waiting for help while onlookers gawked and took photos for their social media pages.
 
My first reaction to the story was to question why the guy was flying so low. The top altitude of my airplane is 27,000 feet and I regularly use every one of those feet to stay as high as possible. There is nothing that tall in the United States so I am confident I won’t hit anything, at least nothing attached to the ground.  During the portion of flight when I am climbing and descending, I follow prescribed procedures that guarantee I won’t run into any obstacles. There are risks to flying so I try to eliminate as many of them as possible by making good decisions before I take off. I am reminded of the NTSB’s aviation accident report a few years ago that started out with the sentence, “If pilots would stop buzzing farm animals we could greatly reduce our accident rate.” It was meant to add a little humor, but it pointed out that the price for enjoying “low and slow” flight, is an increased level of risk. Each pilot must find their own comfort level.
 
Investing contains risk. There are some risks that cannot be completely avoided, but others that investors regularly bring upon themselves, much like a pilot cruising near power lines. I was going to list some of the riskier investment practices but then I thought of a few phrases I have heard from investors hundreds of times. Phrases like, “Dan, I know this may sound dumb but I would like to …” Or maybe, “I know you are going to laugh but I took some money and…”  or “You will probably think this was a bad idea but I went to a free dinner seminar and bought…” Each of these statements are worded in a way that indicates the person already knows what the answer is going to be. Like a low flying pilot, investors are often already aware that what they are doing, or thinking about doing, is increasing their risk.
 
The holiday season is a time of reflection and of planning for the coming year. As you consider your investing practices ask yourself, “Am I buzzing farm animals at 50 feet, or am I cruising along as high as possible, having one less risk to worry about?” My advice is to fly high whenever you can, and leave low-altitude risk taking for those activities that are not as critical as saving for your retirement. Whether it be in investing, flying or life in general, flying high above the obstacles is always a good idea.