Posted by Wyatt on November 13, 2015

Know Your Money Managers – 1.0

I often ask folks about their current and past money managers. Whether they are prospective clients or it comes up amongst acquaintances in general conversation; I consistently find that people do not really know much about their money managers or how they operate.
These holds true among self-managers too. I will learn that someone is a self-manager and ask them about their investing strategy and nine out of ten times they are unable to articulate in any decipherable way what their investing philosophy or strategy is.
I plan to occasionally write posts about money managers. These posts will range from how various firms are structured to how various managers collect fees, and most importantly how they create and implement recommendations for their clients.
I am using the catchall term of money manager, because the list of what these professionals refer to themselves as is very long. There are financial advisors, financial planners, wealth advisors, investment advisors, wealth managers, investment counselors, financial advisers, and investment advisers to name a few. Others refer to themselves simply as money managers.
The list of how they refer to themselves is endless, and sadly there is little set standard for this. A professional at Northwestern Mutual may refer to himself as a financial advisor, but only sell insurance products and do no portfolio management at all. Another professional working for Morgan Stanley may refer to himself as a financial advisor and do portfolio management, but sell no insurance products.
I personally refer to myself as an Investment Adviser, but could just as easily use one of the above mentioned titles.
One thing a money manager can’t just throw around though, is a professional designation such as CFP, CFA, and CPA. Those designations require meeting certain requirements, passing tests, and paying a board annually to renew the designation. There will likely be a post in the future covering professional designations.
Posted by Wyatt on October 30, 2015

Warren Buffett: Enter the Danger Zone

 

Warren Buffett, chairman of Berkshire Hathaway Inc., left, speaks to David Rubenstein, co-founder and managing director of the Carlyle Group, during the Economic Club of Washington dinner event in Washington, D.C., U.S., on Tuesday, June 5, 2012. Buffett said he doesn't expect another U.S. recession unless Europe's crisis spreads. Photographer: Andrew Harrer/Bloomberg via Getty Images

Warren Buffett is an inspiration to investors, he is someone that all investors should have high respect for. Buffett is an investor that is certainly worth studying and he is certainly deserving of the “highest form of flattery, mimicking.” The benefits of understanding Buffett and following his maxims are never ending.
All that said, I consider Buffett to be perhaps the most dangerous person to investors. Whence the title of this post. The reason Buffett is so incredibly dangerous to most investors is that he is often asked “what do you think typical retail investors should do?” His reply is always short, straightforward, and logical. It typically involves buying into an index fund (usually an S&P fund) and holding for a long period of time.
The problem with this is that Buffett is speaking from what “he” would do if “he” were a typical investor. Buffett is always logical, he separates emotions from his investments, and he is a master at seeing the big long-term picture. Buffett ignores the noise of today and sticks to his plan.
The problem though is that overwhelmingly your typical investor is not able to do any of those things, as shown by countless studies and statistics. My own personal experience dealing with clients confirms this also. Even investors that hire a professional money manager typically change managers multiple times over what are short-term investment periods.
It is not easy sticking to any plan, and it is definitely not easy sticking with a true indexing plan. It requires an great deal of discipline that Buffett certainly has, but many investors lack.
Following Buffet’s advice can and will work, but know that when go for it, you will be entering The Danger Zone.
Posted by Wyatt on October 26, 2015

A Bullish Indicator

Looking at valuations, the P/E on next year’s S&P 500 earnings estimate is 16.2. That is right in line with the S&P long-term average of 16. That on its face seems bullish to many investors, that stocks are “not overbought” so to speak. Remember though, that 16 is the long-term average P/E meaning it is taking into account bear markets and bull markets.
Average returns for stocks are, in actuality, very unusual. The same is true with valuations. Bull markets are inherently above average, and we should expect the valuations to be the same. The fact that 6 years into a bull market and P/E is not into the 20s (above average), to me indicates there still may be a lot of room for stocks to run.