Southern Hospitality

Tyler Linsten Uncategorized

Disclaimer: this post contains no financial material of any kind. It’s simply a post card from a really cool, under the radar place – the southern coast of Alabama. Maybe it’s a reminder of why we budget, save and invest accordingly…so there’s my financial spin on it, after all. 

Sometimes random trips are the best type and this was definitely one of them. If your next visit to the website gets redirected to “Mobile Bay Capital,” I hope you’ll understand why. It’s a beautiful place.


The sun sets over New Orleans


A pod of dolphins


Not pictured: full ocean view from porch



Saying goodbye via Louisiana









A Good Day for a Step Back – Q3 Client Letter

Tyler Linsten Client Letters, Investing

Sure, markets had their worst day of the year today. Every year has to have that day. Why not today? Maybe there’s another day in 2014 out there waiting to top today. I’m OK with that. You should be, too.

In terms of a long term investor’s portfolio, days like today mean almost nothing. Unless it’s your Mom’s birthday (like mine – Happy B-day, Mom!), then October 9th, 2014 will go down as another bump in the road on a ride that lasts decades. Every year will have a worst day, as well as a best day. If you’re a reader here you might have picked up on the fact that I think paying attention to the day-to-day rumblings of markets is a cancerous hobby.

Instead of worrying about October 9th, check out my 3rd quarter Client Letter linked below!


Zoom out, Says Ron Burgundy

Tyler Linsten Investing

Markets have shown some volatility lately. Possible culprits are Ebola, Hong Kong protests, ISIS, problems in Europe and the lists goes on (as it always does).  The important thing to remember is that fluctuation is to be expected, but we mostly just don’t remember what it’s like. If it feels like your portfolio has been obliterated then it’s quite likely you have been spoiled by five years of gains and just need a bit of perspective. No one is free of emotional bias – small losses today feel much bigger than they really are, but that’s completely normal at this point.

Let’s take a look using the S&P 500 Index ETF, SPY:

This first chart might sum up how you’re feeling lately. Nothing is going right. The line just goes lower and lower. Losses are really piling up. Every day feels worse than the next and it seems like something needs to be done to stop the bleeding. Is Congress going to act soon?

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If this unlabeled box of a chart above is solely determining your emotional compass towards your portfolio, you might be feeling a bit like Ron Burgundy:

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Next, we zoom out a bit to reveal not only the time period of the same chart from above (just ten days) but also the y-axis (percent gain/loss). This is pretty telling because the market is down less than three percent in this ten day time period. Not exactly a violent bear market.

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In the next chart we zoom out even further, to six months:

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A technical analyst would say there is nothing alarming about this chart. Two “higher highs” and we have yet to attempt a “lower low.”

Let’s zoom out even further to five years out, to the early stages of this bull market in equities:

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Moving even further out, to 20 years, shows that this “selloff” hardly even registers on the map:

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Sometimes, as investors, we need to take a step back and view current events with some perspective. Putting too much emphasis on recency can stir up unwarranted emotions, or worse – acting on them. So if you’re feeling uneasy about recent fluctuations, just zoom out and welcome the fact that some downside is a normal part of a functioning market.

The next bear market is always a day closer but it, too, is an expected phenomenon. No matter the length of a selloff, if we have healthy expectations and grounded emotions then we can be assured of avoiding a costly mistake.

Always Read the Label

Tyler Linsten Investing

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Or, Alternatively, Fun with Pictures!

You’d never put something in your body before knowing what’s going in, right? Yet, similarly, why do investors sometimes spend huge portions of their precious savings into investment vehicles they know very little about? Simply put, the creativity of marketers has spread beyond the pharmacy.

Just like any medication, it’s always wise to know exactly what’s going into your portfolio BEFORE you buy it. Have you heard of NyQuil’s latest miracle sleep aid, ZzzQuil? This achievement of modern medicine is no achievement at all – check out the labels to see why:

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Non-habit forming – sounds good so far! But what’s in it?

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Active ingredient: Diphenhydramine HCl 25mg. Sounds sophisticated enough to help me get to sleep, it must definitely be worth the price of 26 cents per Liquicap on Amazon.

But, wait – Diphenhydramine HCl 25mg sounds awfully similar to another product I’ve taken for my allergies. What was it called, though? Oh yeah – Benadryl! Let’s check the label on Benadryl.

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Hmm: I’m seeing Diphenhydramine HCL again, there must be something else going on here, right? Maybe a different amount or added ingredients? Let’s check the back of the box! The industry can’t possibly think we as consumers are this stupid – I don’t believe that. They would not repackage products to charge a premium price, that would just be wrong. Let’s look at the back:

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Diphenhydramine HCl 25mg! And guess what – it’s 16 cents per capsule on Amazon. Well, that’s pretty sneaky.

It gets even worse, as I’m sure you might have concluded by now. The generic version of ZzzQuil and Benadryl is MUCH cheaper. It can be had for 1.52 pennies per 25mg! That’s a 90% discount versus Benadryl.

In summary: the same exact product but it’s being packaged as something else with a premium price attached. So what’s the point?

The same exact process happens in the investing world and individual investors have been duped worse than those who buy ZzzQuil or Benadryl.

Why is it worse? Because various products are being packaged as something “special” or “premium” when in fact they are WORSE PERFORMING and MORE EXPENSIVE. In this case it’s not just that the same product is more expensive like Benadryl or ZzzQuil. An inferior product in the investing world is actually more expensive!

In other words: you pay more for less, instead of more for the same like with ZzzQuil. Let’s get back to the pictures.

Here’s a Fancy Fund name with a fancy executive summary:

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Translation: we’re going to engage in a risky strategy of selling options (the equivalent of picking up pennies in front of a steamroller) to hopefully produce income while we also make other bets with your money. Yikes.

How much do they charge for this questionable strategy of capital management?

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A more prudent investor might invest their capital into an inexpensive index fund like SPY. It would provide income via dividends and capital appreciation from the principal investment. “Income + Appreciation” sounds pretty comparable to the ultimate objectives of our fancy sounding “Equity Premium Opportunity Fund.” How do these two strategies compare? Let’s take a look:

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That’s right – the “boring” option of investing with an index fund outperformed the Equity Premium Opportunity Fund by nearly 50% over the last five years. Here’s the kicker: the Fancy Fund is literally TEN TIMES more expensive than the passive index fund. Infuriating – worthy of popping some ZzzQuil, er, Benadryl, er, Diphenhydramine HCl 25mg.

The tactic prevails everywhere you look in the investing world. Outside of index funds, virtually every mutual fund, most closed end funds, SMAs and even some ETFs all exhibit the same strategy: a variation of a guy (or gal or guys and gals) at a desk trying to beat the market while charging you up to, or exceeding, a 1000% markup to effectively fail. And that’s not including any commissions or front-end sales charges.

Here’s another special one: The New Economy Fund. Another very Fancy Fund name.

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The New Economy Fund sounds awfully like a description for the NASDAQ stock exchange. They both consist of companies set to “benefit from innovation, exploit new technologies or provide products and services that meet the demands of an evolving global economy.”

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The New Economy Fund Top 5 holdings of Netflix (tech), Gilead (biotech), Google (tech), Thermo Fisher (biotech) and Alexion (biotech) sure sounds like something close to the NASDAQ 100 Index.

Why, here’s the description of the NASDAQ 100 itself:

“The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology.”

How does our Fancy Fund, The New Economy Fund, fare against the boring NASDAQ 100 index?

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Up over 100% over five years is something to be proud of – except when compared to the much cheaper, and much better performing, option of investing directly with the boring index. The NASDAQ 100 index fund beat The New Economy Fund by over 50% over five years, all while including an expense ratio 75% lower than the Fancy Fund.

Underperformance persists across the universe of actively managed funds. It is a well-known fact that a majority of “guys-at-desks-trying-to-beat-the-market” fail to beat their benchmarks, while extracting exorbitant fees from (unfortunately) willing investors.

The charade of most actively managed funds is much like the sleight of hand we see with everyday consumer products. The unfortunate reality is that the prevailing deception is magnified when looking at the effect in the investing world versus small purchases at the pharmacy. The Fancy Fund phenomenon bilks funds from investors making the most important purchases of their lives – how they invest and prepare for the future.

The solution? Simple – remaining diversified in a portfolio of low-cost index funds.

When it comes to portfolio management, it matters very much whether or not investors are paying for generic.

Money + Emotion = Less Money

Tyler Linsten Investing, Personal Finance

Or, Why It’s Never Smart to Trust Blanket Statements, Built upon Emotional Bias, on Investing

When it comes to allocating savings (aka Investing), a surprising amount of reward will come from the decisions you don’t make. Not sure what to do? Try doing nothing.  In most instances nothing is very much something. Markets should be considered to be one of the most manipulative, conniving and destructive forces in existence – and guess what, the psychological/behavioral interference they create have a direct line to the levers you pull when making important decisions about your money. Needless to say, this is a very dangerous combination. Hence, the title of this post: Money + Emotion = Less Money.

Even the smartest participants will inevitably make wrong decisions at the absolute worst times. The best traders/investors are not immune, they’re only marginally better at containing their fallibility to Mr. Market’s brutal ways. If you think you’re set up to lose at a casino then try taking the same setup and add your entire life’s savings in chips on the table, the players seated next to you are whispering conflicting advice in each ear, the dealer is slowly stealing chips from you as you look away and, oh yeah, someone just incited panic by setting off the fire alarm. Try making the right decision under those conditions at the casino. That’s the market. The only way to survive is by sticking to your plan and sitting on your hands until the right cards present themselves.

Charlie says it best.

We are over five years into an unrelenting bull market. Five years of gains for bulls and five years of losses for those who didn’t participate has surely created plenty of behavioral bias in both groups. The winners are likely thinking very highly of themselves (overconfidence) and the losers are waiting with bated breath for the next correction so they can say they told us so (confirmation bias). Each bias is dangerous and each is guaranteed to be costly.

Taking recent results and extrapolating them far into the future is not a new concept but I’ve recently seen a few articles and blog posts regarding active management and efficient markets. The main argument against analysts/managers and for efficient markets is that stocks are now priced so accurately there is no need for individual fund managers or analysts to identify and correct any mispricing.  Sure, it’s a very defensible statement to make after a five year run where “active managers” have been trounced, but does that mean markets are really efficient? Not even close. Markets are made of people. People, especially when it comes to markets, are nowhere near sane operators – especially when there’s money on the line. Not even close. Five years is a blip on the screen when compared to a meaningful timeline. Decades are what count – we must not put too much value on recency.

I’m a huge fan of passively investing via index funds and in no way do I think individual investors should be timing the market or picking stocks for short-term gains. Individual investors should stay away from trying to do too much, but that doesn’t mean the market is efficient. Nor does it mean investors should pile into actively managed mutual funds (I would never recommend an active mutual fund). There is still a place for professional investors to actively manage portfolios for sophisticated clients in need of very specific levels of risk, return or diversification. After all, the stocks in an index have to be priced by somebody.

What happens when emotional bias gets in the way of reason?

Exhibit One: 

No comment necessary.

Exhibit Two:

Jim Cramer’s now-infamous call to pull out of the stock market for five years in October 2008.


In summary, I simply mean to say it’s typically unwise to make, or believe, very bold, blanket statements based on a small amount of data or time. Typically this is emotional bias disguised as careful analysis. Beware of phrases like “never again,” “the new normal,” “XYZ is dead” and/or “ABC is now impossible.” History is always repeating itself, or at the very least it rhymes. This is especially true with financial markets so it always pays to limit exposure to investing pundits/”gurus” and the media interests they serve. Stick to your plan, leave active trading to the pros and approach everything you see with a heavy dose of skepticism.