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.



Tyler Linsten Investing, Personal Finance

Possibly one in a million.

Possibly one in a million.

What does a picture of a sunset have to do with investing? Quite a lot, in my book, actually. I’ll quickly elaborate.

I live in a very scenic area of Seattle near Alki Beach so I find myself lucky enough to be in place to view a lot of beautiful sunsets. My phone’s full of sunset pictures. Most of them are just average, a few are pretty forgetful but then there is the picture above. It’s an absolute masterpiece. I may never again capture something so amazing. Yet, most importantly, I’ll keep trying.

This process is a lot like investing. It has parallels to a tenet I hope my clients are sick of me talking about: staying focused on the long-term. Keeping your portfolio allocated appropriately while remaining patient is going to eventually produce positive returns. It’s important to keep a process, regardless of short-term market results. If the process is sound it will produce returns over time. But only if you keep it up. Warren Buffett agrees.

With the same mindset, I’m going to keep my camera pointed toward the Olympic Mountains at sunset, hoping to one-up the above picture.

The market rewards patience. So does the Western sky.


War in the Middle East, Crashing Jetliners, Ebola…Oh My!

Tyler Linsten Investing, Personal Finance


Last week the world had its fair share of headline-grabbing events. Stocks, measured by the S&P 500 index, were down over 2.5%. Time to lighten up on your equity holdings?

Please don’t.

It’s a sad truth, but very bad things are going to continue to happen in the world. Every day, pundits will tell us there is a new threat to the global economy. They will tell us how this time it’s different in the Middle East, this time that dictator is a major threat to our livelihood and this time that virus is surely going to wipe out the population. Fear drives viewership and mouse clicks.

Sorry, pundits, but the truth is that this time is almost 100% certainly just like last time: a footnote in history. As investors and allocators of savings, we must tune out the short term noise and always focus on the bigger picture. Does a renewed conflict in Gaza materially affect the earnings outlook for US stocks? Does (unfortunately) another terrorist attack suddenly crater the value investors are willing to pay for those earnings? Probably not.

The human suffering and tragic story lines of all geopolitical events tend to resonate with certain investors who will overreact to the images they see. In turn, financial assets will fluctuate with this emotion. It is our job as investors and savers to look beyond this day-to-day drama.

Let’s look at stocks specifically. If someone wants to know why certain stocks went down on a given day, usually the true answer is, “well, some people wanted to buy and some people wanted to sell, it just turns out the price they settled on was lower today than the day before.” We rarely get that answer because it’s much sexier to attach a headline to it. The market is open five days a week. Stocks have to go somewhere and so sometimes they go up and sometimes they go down. Only when we start to attach themes will emotional overreactions begin to prevail.

At some point, a minor headline will turn into a major one and it will affect financial assets in a meaningful way. Investors must be ready to interpret that change and act accordingly. Until then, let’s stick to the plan.


The 1%

Tyler Linsten Investing



No, I’m not talking about the 99% versus the 1%. I’m talking about the most powerful force on earth: compound interest.

If an investor can earn an extra 1% on their investment portfolio, the effect of compound interest churned over decades reveals a massive windfall. It can be the difference between a comfortable retirement and a nervous retirement.

My goal as an advisor is to make sure every client gets that extra one percent. That said, my strategy to get there has nothing to do with making riskier investments or “beating the market.” It has everything to do with fees: my fees and the expense ratios of your investments.

“In investing, you get what you don’t pay for.” – Jack Bogle, Founder, the Vanguard Group

Let’s say you’ve got your money with Your Guy and he charges you 1%, while the mutual funds his company forces him to sell to you charge you an extra 1% in yearly expense ratios. Enter Alder Cove Capital. My fees, at 0.5% for over $100k in assets, are roughly half of what the average advisor charges for portfolio management and I am not bound by any agreement to sell you expensive investments. Quite the opposite – I can build your entire portfolio using low fees as a major factor going into the selection process. It’s very possible to build a suitable, diversified portfolio with a net, total portfolio expense ratio under 0.2%. No more huge up front commissions on mutual funds, no more Contingent Deferred Sales Charges and no more misaligned interests.

There’s your 1%.

It’s kind of a big deal: