First, the stocking stuffer: Warren Buffett’s annual shareholder letter is out today.
Second, the present under the tree that likely actually has an effect on you is Vanguard’s latest announcement of cost reductions. Fellow investing cheapskates, it’s time to do a little dance.
Vanguard’s news is particularly celebrated on this blog because most clients have a majority of their portfolios invested with Vanguard funds. The highlights:
In 2001, Jack White “borrowed” the lyrics for The White Stripes song “The Union Forever” from the highly regarded film Citizen Kane. Warner Bros famously threatened a lawsuit in 2003. Little did he know, by refreshing one particular quote White resurfaced a great, if not obscure, piece of investing advice. Picture it as an investor self-talking down their own inner demons:
“Well, I’m sorry, but I’m not interested in gold mines, oil wells, shipping or real estate.”
A resourceful YouTuber created a mashup of The White Stripes song with clips of Citizen Kane, and I’ve started it at the relevant passage below:
What’s my point? It’s simple: the percentage of people who are stock market tinkerers — read: uninformed, woefully inept — is shockingly large. Charle Foster Kane, as resurrected by Jack White, knew his forte was not the seemingly mundane and always risky task of investing in particular industries. He just wanted to run a newspaper and left the finances to his hired hands.
Want to buy a stock on a hunch, especially when you haven’t done a lick of homework or listened to a conference call?
“Well, I’m sorry, but I’m not interested in gold mines, oil wells, shipping or real estate.”
Disaster averted.
Sitting on a boatload of cash because you’re waiting to time the market and get in to some “good names” at a later date?
“Well, I’m sorry, but I’m not interested in gold mines, oil wells, shipping or real estate.”
Problem solved.
Ever used the word “play” in reference to an investment? Like, “what’s a good oil play?”
“Well, I’m sorry, but I’m not interested in gold mines, oil wells, shipping or real estate.”
Pain avoided.
The Citizen Kane line always used to make me feel a bit uncomfortable because I, too, used to be one of those woefully inept investors. It’s true. I thought investing was about picking the right gold mine, oil well, shipping company or piece of real estate. I thought shunning the exercise of picking stocks or timing markets meant I was shunning all of the education, training and experience I’ve accumulated, but it wasn’t!
Investing has to be the only industry where the more you learn, the closer you are to realizing what you have been told is important is actually mostly crap. There’s no way around it and you have to go through it to make it to the other side. Reaching the other side is not paid with tuition but with personal mistakes and lessons learned.
Repeating a mantra that shuns an investor’s urge to “make it big” or to be really smart, is going to have a very high return-on-repetition. Don’t like Citizen Kane’s version? Try this one:
“Well, I’m sorry, but I’m interested in low costs, diversification, long-term focus and simplicity.”
Smart = Stupid. You’ll just have to read it.
[gview file=”https://aldercovecapital.com/wp-content/uploads/2017/01/Q42016ClientLetter.pdf” save=”1″]
It’s that time of the year.
Everyone’s favorite four letter word – budget! – strikes fear into the hearts of even the most nerdy. Only a small percentage of the population embraces budgeting and usually it involves a weird combination of cash and envelopes. This isn’t a call to join the envelopers.
I’m with the rest of the world: I don’t like budgeting. I don’t recommend people create rigid budgets. I do recommend, however, that people do a reasonable assessment of their annual spending. A no-BS assessment, to be perfectly clear. It’s not a “budget” in the sense that it involves painful decisions or spending cuts. This is an assessment of how much it costs to live your life. Not how you’d like to live, but actually how you live it today. You might be surprised, good or bad, but at least you’ll know.
There should be ample scribbling. It should take time. Not five minutes of time. Many logins will likely be reset or used for the first time in months. Papers will be shuffled. It should be done once a year, every year. This will simply be a starting point, a reference, for other financial matters in your life like how much to contribute towards retirement or, yes, how much to cut back in certain areas.
On spending, people either “get it” or they don’t. It’s a binary situation. The best way to get it is to commit to being familiar with your cash flow. Spending less than you earn has probably the highest ratio of obviousness-to-actual-use of all pieces of advice, but the first step is knowing where you’re at. So grab a coffee, a calculator, a writing utensil and get to work!
Download the one-pager “What’s Your Number” worksheet right here!
There is an extremely powerful myth embedded in nearly every individual investor at birth. The myth says you can “trade” your way to millions if you just have the right idea at the right time, if you have just the right technology, or if you could just translate how awesome you are at your day job into “investing.” Sadly, this infection is either outgrown or it lives within its host forever. A good tool to diagnose it is judging your reaction to the commercials below. If they inspire you, you’re in trouble. If you laugh, then you’ve outgrown the myth and probably make sound investing decisions.
Here are 2016’s worst financial commercials:
Note: Interactive Brokers is missing from the list this year as gesture of mercy.
This one is standard retail brokerage material. The aging white guy with a family. The house on the lake. The double monitors. The extra time and money to burn on trading. Most importantly: a major emphasis that it’s all about possessing a smart “idea” as the key to investing success.
Yes, the dogs are cute. Yes, it’s a cute idea in general. No, it’s not right to tell “traders” that if they just keep it up (read: pay commissions) then they’ll make it big someday.
There’s not much I can say about #3. Just put on your tin foil hat and enjoy. Oh, and make sure you don’t try to fry up your golden egg. Don’t forget: “It just takes ONE call” (to ruin your financial life).
I thought the brokerage industry was done with these crappy gimmicks but Fidelity wants to let you know you can snap a photo of a product and BUY BUY BUY the stock of the company immediately. But they didn’t let up there: you can also see an “equity summary score” of “top analysts” (so worthless). They finish by reminding you that should you decide to act on your ill-advised idea, you can do it cheaper at Fidelity than with Schwab, TD and ETrade. So, there’s that.
OH BOY. This one. Schwab gave us a full minute and they needed every second for all of the juicy peccadilloes. Again, we have the middle aged white guy. This version seems to be constantly over-caffeinated. Again, he has multiple monitors. He works on his own motorcycle. He scolds the kids. He’s a doctor who asks “really good questions.” These examples are all table stakes in 2016, so what REALLY separates this one from the rest is our Bradley Cooper lookalike “trading coach.”
Doctor White Guy calls in to Bradley, wanting to know about buying a stock “on its next pullback.” Bradley has at least five monitors so this dude is definitely LTCM-smart and he probably CRUSHES IT at trading so that’s why he’s working 9-5 for Schwab. He fires up the stock ticker Doc White Guy is flirting with. Little does Doc White Guy know, Bradley is about to upsell him on a risky options trade! Doc White Guy LOVES IT because it “sounds interesting.” Thank goodness Schwab implies its “Options Specialists” are fiduciaries (ha! right!). Doc White Guy likely hangs up the phone feeling so smart about the potential of his trade, and it’s just too bad he couldn’t self-diagnose his trading delusions.
Don’t forget to check out 2015’s crop of winners! There was also a late entrant from Interactive Brokers.
