Archive for the 'Retirement Planning' Category

A Productive Use of Time

A book review by Jim Kilgore CFP® and Bill DeShurko

There are thousands of books on the market aimed at individual investors who are attempting to go it alone and invest on their own.  Whether that be for retirement or some other financial goal, investing is a challenge… because the market does not always go up!

In Why Bad Things Happen To Good Investments, William Hepburn walks the reader through some of the most important concepts to understand regarding investing and managing risk.  He explains why buying a basket of stocks, mutual funds, or ETF’s and holding them forever does not always have the intended result and gives many examples where an active investment strategy can be superior to the buy and hold strategy.

We are in the business of investing and financial planning and we have read hundreds of books on investing over the years.  Mr. Hepburn’s writing style is such that anyone can read this book and understand the concepts he is trying to teach.  The book truly is written to the amateur investor looking to educate themselves on how to do it wisely.  Mr. Hepburn does not use a ton of heavy math and statistics and he is still able to explain things concisely. That said, there is much information in here for the experienced professional and individual alike.

Jim: One of the quotes I really enjoyed from the book was the following “There is an old saying on Wall Street that bulls can make money and bears can make money, but pigs and sheep get slaughtered.  The way to protect yourself from these emotional risks is to have systems and the discipline to stick with them.”

I think my favorite part of the book is how Mr. Hepburn explains to the reader over and over how Wall Street says one thing to the individual investor about how to invest, but does something entirely different with their own money.  If for no other reason, you need to read this book about how Wall Street does not have your best interest in mind, but rather their own. (Bill: especially if you think you are learning anything useful from watching the “business” news channels all day!)

Chapters 16 and 17 on Hedging and stops are invaluable to helping an individual investor and professionals alike limit the downside in their portfolios and is worth the price of the book by itself.

Bill: I’d also add that I first met Mr. Hepburn at an investment conference back in the 1990’s when you were a pariah in the industry if you recommended anything but buy and holding Morningstar ranked 5 star mutual funds. Well before that strategy was debunked, Will was a leader in the field of active portfolio management in the independent investment advisor arena.

As investment professionals, we highly encourage both do it yourself investors and those working with advisors to read this book. We don’t think you’ll be disappointed. Remember:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Mr. DeShurko is the Managing Member of 401 Advisor, LLC an independent registered investment advisor. Jim Kilgore is an Investment Advisor Representative of 401 Advisor, LLC. They are also  registered representatives of Ceros Financial Services, Inc. (Member FINRA/SIPC).  Ceros is not affiliated with 401 Advisor.  The views expressed are those of Mr. DeShurko and do not necessarily reflect those of Ceros Financial Services, Inc., its employees or affiliates.

Past performance does not guarantee future results.  There is no guarantee that any investment or strategy will generate a profit or prevent a loss. 

401 Advisor Podcast

Bill and I take great pride in providing you with relevant and timely information regarding the market and the economy.  Which is why we are excited to announce we have just released the first episode of our podcast on PodBean, and within the next few weeks we will also be on iTunes and Stitcher.  PodBean is a very popular podcasting platform and they have an app available for download in the App Store for iPhone and so does Android.

The goal of the podcast is to deliver the same relevant and timely content in a different format for people who would rather listen than read.  It also gives you the opportunity to stay connected with us on your daily commute or if you want to listen while you are doing some work around the house. 

The plan is to have one episode per week where we give our insights on the market, economy, retirement savings, taxes, estate planning, or one of the many topics pertaining to financial advice.  Then, a second episode that will be more of a question and answer format, where we will answer your questions you send us through email.  Send your questions to jim@401advisor.com and will answer them as they come in.

I hope you will like and subscribe to the podcast so you can get notified of the newest episode.  I have provided a link below, so you can try it out.

https://www.podbean.com/eu/pb-ffe5b-d97cf1

Bill and I want to thank you for your support, and we hope to hear from you soon.

Jim

“Lies – damn lies – and statistics”

I love statistics. My favorite book is “Money Ball” by Michael Lewis about how Billy Beane turned around the Oakland A’s baseball team with the help of Paul DePodesta. The two combined to rethink how to evaluate talent – removing the “gut feel” of a scout and replacing it with a new look at the performance statistics that really mattered. Since their system came up with different attributes than most other talent evaluators, they were able to acquire good players “on the cheap”. His team did make it to the American League Championship game, but not to the World Series. But it was still quite a turn around.

But to the point, one thing that Money Ball highlighted is that statistics, by themselves don’t suggest a course of action. Statistics need to be interpreted. What is important or relevant is most times open to debate and still subject to human bias. Thus the interpretation that statistics (and I will qualify with misused statics) are nothing more than damned lies!

For the past several years, and especially last year the financial media and talking heads insist on talking down the economy and raising the specter of the imminent recession/market crash. Had an investor listened, they would have missed out on one of the best years ever in terms of the S&P 500’s return. Despite my more paranoid nature, we stayed pretty much invested throughout the year. I attribute this decision to focusing on the statistics that matter to the market and ignoring those that don’t.

One example is debt. And in this case, I am only talking about consumer debt. Analysts spend a lot of time talking about the volume of debt. With debt levels at record highs, a recession is most certainly around the corner. Instead they should be talking about the number of dollars consumers spend on servicing the debt. And only then, in relation to the dollars available to make those payments. Debt does not become an economy wide problem unless increasing numbers of people can’t make their payments. Below is a graph from the St. Louis Federal Reserve that shows the historic amount of household debt payments as a percentage of disposable income (after tax income).

While the percentage is rising, it is currently near an average level of the last 40 years or so and well below pre financial crisis and tech wreck levels.

What this tells me is that the consumer is pretty healthy. The economy is still nearly 70% consumer driven, and the consumer relies on debt. Debt servicing payments have room to grow, especially if incomes continue to rise.

What Does Matter?

The corollary to the debt is too high argument is that, if interest rates increase rapidly debt service costs will rise and the graph above could start looking ugly soon. Yes, and if monkeys start falling from the skies. I grew up in the 1970’s, the years of double-digit inflation, (inflation is what drives interest rates higher). 90% of economic thought at the time revolved around inflation. Inflation was talked about more than debt is today. I was schooled on inflation. I too am paranoid about the prospects for inflation. But guess what? It is just not on the horizon. Remember one phrase – global capacity utilization. There is just no price pressure on anything that can be manufactured overseas. Country of origin doesn’t matter. And the world is full of unemployed people that will work for a lot less than Americans. The Steve Jobs of the business world will continue to pay sustenance level wages to women and children around the world as long as a sustenance level wage is the only alternative to no wage.

Where we do see inflation is in services. Tradesmen are in high demand and so far, you can’t fly in a plumber from China to remodel the bathroom and then fly them home for less than the cost of the local plumber! But such services are still a small enough part of the overall economy that they haven’t had a major impact on the overall national numbers.

What are we Watching?

In addition to the graph above we have a systematic approach to looking at the economy. A non-emotional statistics driven flowchart of steps taken to interpret data. We look at things that history and economics say really matter. Things like money supply – the biggie! Not the yield curve that everyone else is obsessed with, but the forward yield curve and for the market it’s always all about future earnings.

As we have transitioned into a new calendar year remember too that 2020 is all but in the books for the stock market. While the election process is likely to cause more than normal volatility, the market’s focus has turned to 2021 and that crystal ball is still pretty hazy.

The best advice we offer, is the same advice: Make a plan and stick to it, that way you are not emotionally reacting to the story, and the bad statistics, of the day.

For a plan for your portfolio we are always here to help.

Bill DeShurko, President and Portfolio Manager

James Kilgore, CFP

Ofc: 937.434.1790 Bill@401Advisor.com or Jim@401Advisor.com


bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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