“The Marley’s were dead to begin with.” I love a great opening line and this one by Dickens has to be one of my favorites. In his classic story, Dickens introduces us to a man named Scrooge, a selfish old miser that no one likes and everyone fears. As the story progresses Scrooge learns a great deal about himself and what he sees he dislikes as much as everyone else does, and so he commits to change. Unfortunately, it isn’t always easy to change once others have formed an opinion of you. In one of the memorable scenes from the Muppet’s version of this story (our family favorite), a repentant Scrooge goes to Bob Crachit’s house to make amends. When Mrs. Cratchit, played brilliantly by Miss Piggy, answers the door, Scrooge declares, “Bob Cratchit, I am about to raise your salary.” Not hearing his words because she had already determined Scrooge was up to no good, Piggy angrily responds, “And I am about to raise you right off the pavement.” As Piggy curls her fist and winds up for a big swing at Scrooge she suddenly realizes his good intentions.
Our family watches this movie every Christmas Eve but this year we saw a bit of a precursor as congress passed a huge revamp of the tax code. Trump and house speaker Ryan both proudly declared that this bill, with its lower corporate tax rates would spur a huge economic boom while also lowering taxes for over 80% of Americans. In essence they promised to “raise the salary” of workers across the country. Maybe no one was listening because most media reports I saw reminded me of Miss Piggy in her doorway winding up for a strong left hook.
Time will tell where this all ends up because there are so many moving parts in our economy, but I would like to make a comment about this bill purely from an investor point of view. Ronald Reagan was fond of the quote, “If you want more of something, tax it less.” Well, businesses are about to be taxed less so we will find out if that saying is true. I am a small business owner. I understand very well what it means to balance budgets, meet payroll and pay taxes, through good times and bad. I have already told my staff of our plan to raise salaries as a result of this bill. In addition, we expect to be able to invest more in future growth with dollars that heretofore have gone to taxes. Multiply this by the 26 million other small businesses in America and add in the large corporations, and I have to believe investors (and workers) are going to enjoy the outcome.
The social implications of tax bills are for politicians to debate, and there are good people on both sides, but looking at the economic side of this one as it relates to investors, I am very optimistic that this congressional gift will not be a humbug.
While hiking in Switzerland years ago, Launa and I were surprised to see someone jump from a nearby cliff wearing what we later learned was called a wing suit. Just before hitting the ground he pulled a small parachute and landed on his feet, to great excitement from a nearby crowd. This was followed by several more performing the same feat, each appearing to be in a contest to see who could get closer to the ground before pulling the chute. As we observed this amazing, and in some ways disturbing activity known as base jumping, I wondered how long it would take before a jump would end in tragedy.
It has been a few years since that day and I often go back and look at the video we shot of those jumpers, wondering how many of them are still alive. It isn’t that I wish misfortune on anyone, but I am a firm believer in Stein’s Law. Herbert Stein was an American economist and his law was written for investors, but it applies across the board to every other activity. His law states, “If something cannot go on forever, it won’t.” I am pretty confident that base jumping, with its zero margin for error, is not an activity someone can do for a long time without a disaster happening.
Sometimes the investing world gets its own version of base jumpers. These individuals see something exciting going on and feel the need to jump into the action without fully considering the risks involved. At first it may seem like a good idea and the more times another participant has a successful landing, or in economic terms – makes money – the more additional investors want to join in. It’s human nature to not want to miss out on a perceived great opportunity.
Thinking back on my own experiences in the investing world, I remember the disastrous silver crash of 1980, the dot.com bust of 2000 and the real estate market bubble of 2006, to name a few. In each of these situations investors got so caught up in rapidly rising prices of an asset that they forgot to consider if prices had any relation to real value. They saw other people jumping in and walking away with huge profits, and so they wanted to have their own shot at the same profitable experience. They failed to recognize that a rapidly rising price may not coincide with rapidly rising value.
Base jumping is an exciting activity, but how long can one continue to survive with so much risk? Likewise, jumping into a sky-rocketing investment seems like a fun idea, and it can be tempting watching other investors making money without you. But before you strap on that financial wingsuit, consider Klein’s Law. Ask if these rising prices can go on forever and if not, how will it affect you if it happens to be on your personal jump that it all comes crashing down.
I remember many lessons in my youth about postponing today’s wants in order to reap a better reward tomorrow. The ability to do so is often a defining quality that separates those who are successful in life from those who are not. It is easy to look at others and think how lucky they have been; to be jealous of those who have great educations, wonderful jobs, or a solid retirement portfolio. We can feel sorry for ourselves and think that others have had bigger breaks, more valuable connections, or richer uncles. In most cases however, it comes down to sacrificing something today for something better tomorrow.
Some years ago check cashing stores began to become very popular. People who could not wait until Friday to get paid could, for a fee, cash a postdated check a week early at one of these establishments. Customers who frequented these businesses were often unaware of the high costs of the service, yet were likely the least able to afford it.
A new disturbing trend is developing today in which workers can use smart phone apps to get paid on a daily basis rather than waiting for payday. A popular fast food chain recently reported that 70% of its employees were currently using the app, which charges a $2 per day fee. The chain reported the wonderful results the app was providing, stating that absenteeism was way down as employees were much more likely to show up for work if they could be paid immediately. Though it may provide benefits to the restaurant, little benefit comes to an employee whose money management skills are already so poor that they need to be paid daily to survive. With the growing popularity of apps such as these could we be creating an entire generation that has no ability to budget, or to save?
If you cannot save money, if you lack the discipline or skills to budget at even a minimal level, then it will always be difficult for you to obtain the lifestyle you desire. It will also leave you constantly at the mercy of the ups and downs of the economy. You will have no ability to weather the storms, nor the benefit of being able to take advantage of opportunities that come your way.
Consider this. If your income was suddenly cut off, how long could you pay your bills before running out of money? If it is 6 months give yourself a high five. If it is 3 months you are doing better than most. Keep up the good work. If it is less than one month then you are living on the edge of a precarious cliff and need to adjust your financial habits immediately. We are currently experiencing a strong economy. Use these good times to set aside some funds and prepare yourself for the tough times that most certainly will happen again.
At this time of Thanksgiving, I feel to share some thoughts about being thankful. Gratitude may not seem important from a financial planning perspective, but I believe it sits near the very top of the desirable qualities which can greatly add to an investors success and happiness.
I have often said I have never had a client run out of money. With that in mind, I ask people to recognize the high probability of success for those who are willing to follow even a modest financial plan. It is always sad when someone with adequate resources for a good life continually complains or worries about not having enough. I sometimes jokingly tell people that success in investing is not measured by how big of a boat your kids buy after your funeral.
I remember a couple some years ago, not unlike many other couples I have known, wherein the husband was a complete miser. He complained continually about not having enough money, and worried daily about the dollar value of his account. His wife, on the other hand, was always cheerful and appreciative of the good job her husband had held for 35 years, and the abundant retirement they had been blessed with. She enjoyed life and wanted to use the resources they had to build good memories together and with their kids. He, on the other hand, was unhappy that others appeared to have more, and that what he had was far less than what he had hoped for. Even though in his 70’s, his focus remained on trying to build ever more wealth at the expense of enjoying the wealth he already had. He would not allow his wife to spend the money they had saved, less it reduce his portfolio in the years to come.
When that gentleman reached 75 he passed away. To the very end, he never really appreciated the wonderful life he had. His lack of gratitude made it impossible for him to enjoy the fruits of a lifetime of hard work and saving.
Within a couple months of his death his wife came to visit me. She had just returned from a lovely cruise with her married children and wanted to show me the photos. She was never one to be wasteful, but she appreciated life and learned to enjoy the retirement funds they had carefully saved. She and her children were finally building the memories she always wanted her retirement to provide.
If you are not grateful for what you have, you can never fully enjoy it. Like the miserly man you will spend your life always looking over the fence at those ever greener pastures. You may even take risks you shouldn’t take to get to that pasture, never realizing how green the grass is right beneath your feet. Take time this holiday weekend to be truly grateful for all you have been blessed with, and you will find that life magically gives more to those who appreciate what they already have.
In last week’s column I referred to a computer glitch that led to incorrect pricing on a widely held investment, and the potential for investors to react too swiftly without properly evaluating the situation. After feedback from some readers I decided to give more details on what actually happened, as the cause of the glitch brings up a concern investors should be aware of.
Occasionally, investors may receive solicitations from individuals who are interested in buying one of their investments. Just as you might receive a letter in the mail offering to buy your house for cash, you may also receive offers to buy items held in your investment portfolio. Although most people are naturally suspicious of unsolicited cash offers for their home, there is nothing illegal or inherently wrong with a legitimate offer to buy something that you own. Each party is free to negotiate a deal or walk away.
When similar types of offers are made to investors, great care should be taken to evaluate them. Some offers may be in the best interests of the investor while others may include an offer price well below what the investment is actually worth. The latter usually comes on very official looking letterhead and sometimes they are confused as having come from a known or trusted source. It may also include a negative portrayal of the investment to encourage acceptance of the offer.
Though unsolicited buyout offers for various investments are common, and can be a legitimate business tool, they sadly may also be an attempt to take advantage of an unsuspecting investor. In cases where the offer is below, or far below current market value, the offeror may simply be fishing for someone who might accept or sign the offer without properly reviewing it.
The computer glitch of which I spoke last week occurred when an individual somewhere accepted such an offer at a price far below the then current asset value of the investment. A computer picked up the transaction and assumed the price had dropped dramatically and thus changed the price across the board. There was a moment of panic I am sure, until it was realized what had happened and the price was corrected.
The world is full of people who would love to separate you from your money. Sometimes they use outright fraud and at other times they hide among legitimate business practices to avoid detection. Sending you an offer in the mail to buy one of your investments at below market value may be deceptive but if done according to regulations, it is completely legal. For your own protection you should thoroughly research any offer and never sign anything until you are satisfied it is in your best interests. If you have a financial advisor, always speak to them directly before signing anything, even if it appears to have come from them.
This week a computer glitch at another national firm resulted in an incorrectly low price on a largely held investment. The first reaction by many could have been to panic. I asked my office to get on the phone and do some old fashioned research before jumping to any decisions. We determined the price change was without merit and so we waited patiently until the word came back that it was a computer error. Afterwards we talked about how simple computer errors like this could be disastrous to investors if they have become wholly dependent on computers.
I recently completed my annually required flight training. With modern technology, flying an airplane is not particular difficult after you get the hang of it, consequently much of our training centers around what to do when the computers fail.
My flight instructor had me put on a hood to prevent me from seeing outside the airplane, then he initiated a full electrical failure. I had no instruments left except a compass, an attitude indicator and an altimeter. Then he told me to land at the Albuquerque airport. I had no way of knowing where I was or where I was going, and I was having to maintain the plane in steady flight without all my wonderful technology. I was able to land safely by having Air Traffic Control give me carefull verbal instructions to the end of the runway while tracking me on radar.
Investors have almost unlimited tools today. The apps with their allocation algorithms seem to be endless. Many investors and even advisors have subsequently turned much of their decision making over to technology. This has been a wonderful benefit to investors just as so-called glass panels have been great for pilots. But if investors are no longer able to make decisions without these tools, then I feel they are just as much at risk as a pilot who cannot fly without a computer.
I had a grandpa who was a very successful investor. He had a book of stocks that was mailed to him every month and most of his research was done with that little book. Every time I visited he would pull out that book and we would talk about different companies and how to value them. He died before computers and cell phones yet he was better at investing than most people I know today.
Every pilot knows that technology sometimes fails. It fails in the investing world as well. Being unprepared to take over when it fails, or being unable to determine if it is working correctly in the first place, puts an investor at risk.
Many investment accounts are becoming automated. If you are not staying current in your personal investing skills, computer glitches like the one that happened this week could wreak havoc on your portfolio. Like a good pilot, always be prepared, or make sure you have an advisor who is prepared, to take over lest a computer crash result in a personal crash that could be much worse.
The ancient and wise king Solomon famously lamented that there is nothing new under the sun. Obviously he never owned a cell phone. In our modern world we have become obsessed with that which is new.
Recently I was reviewing some of the modern airplane technologies and found myself dreaming about how I would love to have some of the new gear. After spending about 20 minutes lost in my dreams of a better system, I remembered that the current technology in my airplane was installed a mere 4 years ago, and at the time it was “state of the art.” Yet here I was dreaming of replacing it with the next new thing. The truth is, the new tech was not substantially different from what I already had, but it was a bit prettier.
We seem to face the same emotional challenge with our cell phones, or other gadgets. As soon as the next version is announced with all of its “gotta have” new features, suddenly whatever we currently own no longer satisfies our needs. How many teens have last year’s dream game console sitting in a pile with all the prior years’ models? How many boxes of functioning cell phones sit in our closets? Constant technological advancements have made us a wasteful society.
I visited with a friend who sells real estate and he commented how modern home buyers are so much different than ones of the past he used to work with. “Everyone now wants a new home,” he said.
Oddly this same behavior is exhibited by some investors. Some fail to recognize that “new” or “different” does not always mean better, yet we have become a bit of a disposable society and this expensive attitude has crept into many areas of our lives.
In a twist on this topic an older couple was in my office when the husband’s phone rang. He promptly pulled out his cellular flip phone and silenced the call. Judging my thoughts by the grin on my face the man said, “Hey, it’s a phone and it works.” This experience got me thinking about the level of waste we have become accustomed to.
I am not suggesting we shouldn’t enjoy nice new things, but am more reflecting on whether this tendency has gotten a little out of control. People come to a financial advisor largely for help with investing. In short, they want to protect and increase their wealth. It doesn’t take long for an advisor to learn that making a lot of money does no good if basic principles of resource management are not understood and practiced. Too many fail to recognize that one of the first and fastest steps to increasing your personal wealth is to reduce your level of personal waste; to manage better what you already have. Only then will we have the wisdom to determine if that “new thing under the sun” is something we need to spend our resources on.
I sat on my porch one day and looked over at the lights and noticed they were covered in spider webs. I grumbled to myself about those dumb spiders and how I would need to clean those webs off yet again. Then I promptly forgot about it.
A few nights later I was sitting on my porch looking out at the beautiful city and noticed the normal activity of bugs swirling around the porch lights. Suddenly a light went on in my own head, as I came to two realizations. The spiders were certainly not dumb at all. Even though lights are not part of their natural habitat, they had learned that they did a great job of attracting dinner. The second thing I learned was that nature had not been so kind to the insects who, after almost 200 years have still not learned that flying into lightbulbs rarely ends well for them. This brought me to the very unscientific conclusion that spiders are much smarter than insects.
I considered, from an investor point of view, what are some of the lightbulbs out there that might attract investors and that could be used by ill-meaning financial spiders to trap their next victim? Immediately I remembered a comment a client had just made to me. “Dan, we seniors love free food.” And so it is that free food does a great job of attracting retirees. There is nothing inherently wrong with offering food as a legitimate advertising tool, but investors would be wise to be aware of the potential for spiders to be spinning webs in the vicinity of any free meal.
Clubs and other affinity organizations attract a lot of good people, and successful people, but are also known to be places where financial spiders may hang out. They act like a part of the group, appearing to have honorable intentions, while quietly spinning webs to trap unsuspecting victims. It is sad but true that many frauds are perpetrated by those who have worked themselves in to a position of trust.
The next thing that came to mind oddly was church, of all places. Many good people are attracted to church and they view themselves, and others who attend, as being honorable and trustworthy. This natural sense of trust has occasionally also attracted a few spiders. I say this carefully so as not to offend, but it is well known that ill-meaning people sometimes take advantage of the inherent trust that exists among church members.
If you read the regular fraud reports from the State Division of Securities you will find that after all these years of investor education, the financial spiders continue to attract victims to their webs. Let’s learn a lesson from real spiders and always be on the lookout for their creepy financial counterparts. There is nothing wrong with going towards the light, but anything good that attracts people can also be used by unscrupulous spiders who are just looking for their next meal.
Launa and I recently watched an old movie classic, Frequency. In this movie the main player finds a way to communicate with his friend who is living 30 years earlier. Among the advice he gives his friend of the past is to remember one word, “Yahoo.” The friend is confused but as the movie ends, this same friend has become very wealthy and is shown driving a car whose license plate reads “I Yahoo.” Of course the irony of the movie was that just as it was being released in early 2000, Yahoo’s high flying stock was crashing down with the dot.com bubble collapse. Too bad the guy from the future didn’t alert his friend of when to sell.
When you consider the great stock disasters of the past, names like Worldcom, Enron, Lehman Brothers and Washington Mutual come to mind. We make fun of these companies today, but often forget that each was once an icon in their field. Worldcom was a huge success until antitrust law investigations exposed one of the biggest corporate frauds in history. Lehman Brothers was respected and considered by some too big to fail, just before their demise brought the financial world to its knees. Washington Mutual became the biggest bank failure in history after being one of the nation’s most successful banks. And finally Enron, the iconic symbol of corruption and failure, was named by Fortune magazine, not once but several times, "America's most innovative company.”
So what company do you own in your portfolio that you feel is too big to fail? Could such a company even exist? One mistake investors make is to own too much of a single company. This can be especially true if you own a significant amount of stock in the company you get your paycheck or your pension from. One of the great tragedies of the Enron failure was that so many of its employees and pensioners had large portions of their retirement also tied up in the company stock. I run into this same situation with retirees quite regularly, which can result in the classic case of having too many eggs in one basket, and experience teaches us that there is no one corporate basket too big to fail.
As we study stock market history we find many examples of failures of once great companies. These should remind us that no matter how good it may look today, be very cautious about having too much of your retirement dependent upon a single company. Remember that historic corporate failures usually became historic because the thought of failure was so out of the question at the time.
Look at your portfolio and carefully consider every position. Ask yourself a simple question. What would happen to me if this single company were to fail? If the answer to that question scares you, I would consider reducing the position regardless of how much I loved the company.
The Saint George Marathon is one of the premier marathons in the nation, and certainly one of the most beautiful. It’s a point to point run through some of the most amazing scenery in the world. For several years I had the privilege of working at the marathon, sometimes spending time with the athletes before the race and sometimes greeting, and often catching them, at the finish line.
This year I waited with my family at the finish line for two of our boys who were running for the first time. I watched as hundreds of runners, having just run 26 miles, plodded past us. I could only imagine what they must be feeling. The look on their faces told the story of perseverance against great opposition, mixed with a glimmer of hope at the end in sight.
Marathon runners are a unique group. Unlike other sports where the athletes tend to have similar builds, long distance runners come in all shapes and sizes. Some of the folks I saw running across that finish line, I would have never expected to see accomplishing such a feat. I have learned over the years that finishing the race is less about size and strength than it is about commitment and perseverance. A marathon runner doesn’t need to have the body of an athlete; they just need the heart of one.
It has been said that investing for retirement is a marathon, not a sprint. It is wrong to think that in order to be financially successful you have to have a six figure paycheck, or a rich uncle, or be born in the right neighborhood. You don’t need to be a top financial athlete, you only need to have a strong commitment, and persevere.
Another thing I love about marathons is how victory is measured. Since it was their first marathon, our two boys measured success by their ability to finish the race. In a marathon with thousands of entrants, only a very small handful are actually trying to come in first. The rest are competing against no one but themselves, and measure success by how they personally finish the race. It is an odd sport where victory even comes to he who finishes last.
I asked one of my sons his secret for completing the race. His simple answer was, “I just kept on running.” And so it is for those who want to retire successfully. You don’t need to be the fastest, you don’t need to be the smartest, and you don’t need to be in the best shape to begin with, you just need to keep running. Keep doing those little things that lead to financial success, and one day you will see the finish line in sight. It won’t matter how anyone else finishes, it just matters how you finish.
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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