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True Independence

Tyler Linsten July 30, 2015Uncategorized

What does “Independent Investment Advisor” even mean?

It’s a scary (financial) world out there. Just as the first season of True Detective had its gumshoes searching the seedy underbelly of Louisiana for a serial killer, finding a financial professional with your best interests truly at heart is a dangerous undertaking.

The process seems simple in principle:

You need advice.

Financial Person has the advice.

You have money.

Financial Person gets a little bit of the money for advice.

Case closed, the world is better off! A case study for the gains made by trade, both parties are now better off.

Unfortunately, as we know, the advice seeker is rarely better off. This is why the financial industry has the reputation it does.

Where does it all go wrong? Why do so many people get ripped off, sold bogus financial products while perpetuating a terrible feedback loop for the average investor where inaction, or poor decisions by going it alone, are the norm? The answer lies in incentives, but I believe that more specifically the level of independence a Financial Person possesses is crucial.

Nearly every Financial Person – the brokers, the insurance agents, the CPAs selling mutual funds, among others – are incentivized to sell. They claim to have the advice investors seek but are not required to put client interests above their own and they are beholden to the organizations they work for. Sell or find another job. They are agents of a bigger machine designed to squeeze the sponge that is the lowly advice seeker and his/her peers.

Ask yourself: who does this Financial Person serve? Do they have the leeway to recommend a product, or advise a transfer out, or any other decision that doesn’t have a direct pathway to monetization to them and their employer?

True independence as an investment advisor means I recommend any solution I deem suitable for clients. I don’t have a list of approved funds or products, I don’t receive commission and I have no boss. I don’t have the conflict of being pushed to boost this month’s bonus numbers for the firm I work for. My incentive is ultimately to be trustworthy, which is something that’s earned over time and cannot be packaged in a shiny prospectus, a finely tailored suit or implied with a name on a business card.

True independence allows me to be more like an Amazon.com, working to bring the lowest cost to clients, instead of running a shop where extracting the most revenue possible is my mandate. Simply put: I am betting that doing this the right way will resonate with clients. I am betting that, when educated about how the advice industry actually works, people will choose good advice over shiny objects.

Remaining independent – free from being a financial sponge-squeezer – is how I’ve decided to make my way as a Financial Person. It’s certainly not the path of least resistance to fame and fortune but working for the benefit of clients first is the only way I can be a Financial Person and sleep soundly at night.

Brokers are Bogeys

Tyler Linsten July 10, 2015Investing, Personal Finance

Do I play with custom, self-branded golf tees with cheesy slogans on them?

Yes, I do.

Thank You, Greece

Tyler Linsten June 29, 2015Investing

Markets reacted poorly to news out of Greece today. The country’s financial struggle has essentially been a practical joke for five years. Thankfully, the details don’t really matter to your portfolio.

Just like the details don’t matter when conflict in the Middle East flares up, as it perpetually does. Just like they don’t matter when other small countries get into trouble and the dreaded “d” word comes into play (default). Just like they don’t matter when a new disease shows promise of ravaging the entire world (but never does).

Show me a globe and a blindfold and wherever I lay a finger on land will reveal a country whose drama has roiled markets at one point in history. Today, it’s Greece. Next year it’ll be somewhere else.

The only thing that matters is perspective. If your portfolio’s value declined today then it’s important to thank Greece and the investors who panicked because they are serving as a reminder that patience and tolerating risk will forever be rewarded. The practice of giving no incentive to acting on impulse is the basis for the entire financial system – it creates the risk premium, in finance-speak – and by embracing this effect you will ensure yourself an advantage over everyone who acts on emotion.

Risk is rewarded. Patience is rewarded. Impulse is not.

Markets were down about two percent today and it’s something that will happen every so often through the course of any given year. If you lost “a lot” of money today then I suggest you thank Greece – the country’s drama show has served a reminder that you started today with a lot of money and you have ended the day, still, with a lot of money. It’s never bad to be reminded of a good thing.

Keep ignoring the headlines and keep your eyes on the target, soon enough you’ll be thanking yourself (maybe from a Greek island you purchased on Craigslist for twenty bucks).

Are You Ready for Your Portfolio’s Dustin Johnson Moment?

Tyler Linsten June 22, 2015Investing

Life is 10% what happens to you and 90% how you react to it.

-Charles R. Swindoll

#17 at Chambers Bay

I’m a huge fan of golf. It’s about the only stereotypical “financial professional” trait I have. I don’t sport a suit, I’ve never earned a commission and, hell, I don’t even have an office – but I do love me some golf.

Last weekend, the USGA brought our nation’s championship, the US Open, to the Pacific Northwest at Chambers Bay in Pierce County. This is like having your town host the Super Bowl so naturally I had to be there for at least one day. I was in full-on, giddy golf nerd mode. (Pictures at the bottom of this post!)

The big story out of the weekend was not so much about how the winner (Jordan Spieth!) played, but how the runner-up, Dustin Johnson, lost.

Johnson has a well-publicized problem with closing out tournaments. He’s got one of the most powerful swings in the game and always seems to be at the top of the leaderboard in every tournament he plays, but the guy just can’t close. This weekend was no different, except for the absolute brutal sequence of events.

Dustin choked in epic fashion.

He needed to make a twelve foot putt to win, or he could sink it in two putts to force a playoff. Even so, he three-putted, missing a three footer on his second putt. The color drained from his face and you couldn’t help but feel bad for the guy. Jordan Spieth was practically speechless, no doubt because he felt so bad for Dustin. Three-putting from twelve feet is something you’d expect to see a pro do once a year at very most – but Dustin did it to lose the US Open.

The US Open is the tournament you dream about winning as a kid. Dustin played 71 holes of excellent golf, not to mention a lifetime of preparation, only to let it slip away on the 72nd hole at Chambers. Demoralizing is an understatement.

So where’s the financial parallel?

You’re going to have a Dustin Johnson Moment in your portfolio. I can’t say when, but it’s coming. Tomorrow is one day closer to the next bear market and there’s a very good chance you’ll have a moment where you, too, feel demoralized.

There’s going to be a day, or a week, month or year, where it all just goes wrong. A good many folks had a “DJ Moment” in 2008 – financial markets were crashing and investors were similarly dejected after seeing their portfolios take haircuts of 50% or more. DJ Moment symptoms include loss of appetite, sleep disruption, nausea and/or extreme anger.

Many investors took to liquidating their portfolios in response to their financial DJ Moment – an action nearly all surely regret.

Missed 3-footer at the US Open and halved portfolio alike, it’s all about what you do after your DJ Moment. For Dustin, he’ll either use this golf tournament as a learning experience or it’ll mark the beginning of a steep decline into irrelevance with a significant haircut in earnings.

If Dustin uses this loss to improve his resilience and strengthen his resolve, then he’ll be much better off for it. Dustin could use this loss to springboard himself to major tournament victories.

The financial case is exactly the same: when the next bear market hits, investors will either panic and damage their financial outlook, or they will use the volatility and depressed prices to their advantage. Reiterating a commitment to a long-term focus, where short-term disruptions are barely meaningful, is a must when the next downturn arrives.

How will you know a DJ Moment is present, besides the symptoms listed above? The number one indicator is likely the desire to act. I can tell you, with a high degree of confidence, that the biggest obstacle between you and your goals is you “doing stuff” – especially in response to market selloffs. Financial returns and frequency of “tinkering” have almost a perfectly negative correlation. This effect is known as the Behavior Gap.

Translation: do less to earn more, especially in the face of feeling stress about losses. We need to accept that downturns are always a day closer but are a normal part of markets (just as losing is a part of golf). If we notice a DJ Moment developing, the best course of action is always to take a step back, remove our finger from the “panic” button and head to the practice green to work on our three foot putts.

Now, a few more pictures from the tournament: