The Market Volatility Survival Tool: True Grit

Originally in ForbesIs recent stock market volatility bugging you?

True Grit

Do you wince with every headline announcing Greece’s demise, China’s bubble(s), the Federal Reserve’s indecision or the Dow’s down day?

Do you sneak a peak at your portfolio’s performance more than quarterly (or perhaps even annually)?

Does market volatility tempt you to question your investment strategy, even if it’s well thought out and carefully implemented?

Does it weaken your resolve to resist the sky-is-falling siren song heard so frequently in the financial media, or the sales pitch du jour?

Having the right investment strategy is important—really important—and surely contributes to long-term success in building wealth. But no matter how superlative your strategy, it’s your willingness to stick with it that ultimately will help you meet your financial goals.

Short-Term Memory Threatens Long-Term Success

When it comes to investing, rely on long-term wisdom

Originally published CNBCWhen it comes to the market’s peaks and troughs, investors often don’t react as rationally as they might think. In fact, in times of extreme volatility or poor performance, emotions threaten to commandeer our common sense and warp our memory.

Don't Forget --- Image by © Royalty-Free/Corbis

It’s called “recency bias.”

What the heck is recency bias?

Recency bias is basically the tendency to think that trends and patterns we observe in the recent past will continue in the future.

It causes us to unhelpfully overweight our most recent memories and experiences when making investment decisions. We expect that an event is more likely to happen next because it just occurred, or less likely to happen because it hasn’t occurred for some time.

This bias can be a particular problem for investors in financial markets, where mindful forgetfulness amid an around-the-clock media machine is more important today than ever before.

Try thinking about it this way. In the high-visibility and media-saturated arena of pro sports, every gifted athlete knows that the key to success can be found in two short words: “next play.”

Does Greece Really Matter?

The Bigger Picture for You and Your Portfolio

Originally in Forbes“Greece is a tiny player in global capital markets. Its default is 100% certain,” says Larry Swedroe, Director of Research for The BAM ALLIANCE and the author of 14 books on investing, including his most recent, The Incredible Shrinking Alpha, co-authored with Andrew Berkin.

“The only question is how much and what they default on,” Swedroe continues. “But with a GNP that is similar to Rhode Island’s, Greece’s default should have little to no impact on the world’s economy, at least not directly.”

So why is everyone so worried?

Greek crisis

Because raging forest fires are kindled from a single, tiny spark. “Greece’s default could trigger a broader contagion, like a run on Portuguese banks or a lack of confidence in the ECU, that may have wider ranging implications for larger economies,” says Swedroe, my colleague.

You Can’t ‘Robo’ True Financial Advice

Originally published CNBCThe investing world is a better place, thanks to the advent of well-funded online investment advisory services.

Collectively dubbed “robo-advisors,” companies such as Betterment, Personal Capital and Wealthfront have managed in just a few years to do what the financial industry has failed to accomplish during a couple of centuries: provide quality investment guidance at a cost accessible to most demographics. It is a long time coming.

Adam Nash, Wealthfront’s chief executive, however, isn’t fond of the robo-advisor label.

robo advisor

The Disciplined Investor’s Worst Enemy: Tracking Error

Originally in ForbesLast year was a tough one for disciplined investors. Disciplined investors know that diversification is a key element of successful portfolio management. But investors who stayed the course and remained diversified were punished for it in 2014, at least in the short term.

Disciplined investors will continue to be taunted over the coming weeks and months by headlines touting the success of “the market” in 2014. “Which market is that?” many of them will ask.

Head in Hands

Well, “the market” we hear about most often is the Dow Jones Industrial Average, which represents only 30 of the largest U.S. companies trading on the New York Stock Exchange. A slightly broader barometer of “the market” is the S&P 500 index, a benchmark tracking 500 of the largest U.S. stocks. In this case, “the market” could more accurately be translated as “the U.S. large-cap stock market.”

2014 Asset Quilt

What is “the market”?  It’s actually a host of different markets in reality.  Pundits may entertain us with their prognostications, but one glance at this asset class quilt makes it abundantly clear that attempts to pick the next winner are in vain–or worse yet, counterproductive.

street signsWith markets entering a period of significant volatility this past week, CNBC was curious what type of discussions I’m having with clients.  I told them, in short, that I’m talking about ways that we, as investors, can benefit from market losses.

Date: October 17, 2014
Appearance: Gaining Through Market Losses – CNBC
Outlet: Street Signs on CNBC
Format: Television

3 Ways To Gain From Market Losses

Originally in ForbesEven if you get your daily news from one of those celebrity tabloid shows, you have probably still heard that the market has been more than a little crazy in recent weeks.

Indeed, the typically overstated “surge” and “plunge” headlines have been less hyperbolic of late, as the Dow Jones Industrial Average burps out daily gains and losses in the hundreds of points. But over the past several trading days, the results have been all red, and since Sept. 18, the market has taken back more than 6% of what it’s given so far this year.

Is this volatility the precursor to another market gutting? Or perhaps it’s just a momentary ebb in advance of a continued upward flow?

The answer is yes.

The market is in the business of rising and falling, and of making fools of those who attempt to predict which it will do next. But be sure that we will feel both the pain of another big drop—perhaps sooner rather than later—and the euphoria of another unprecedented gain.


Whether this very recent pullback happens to be the beginning or the end of something, most investors have already lost enough to benefit from it.

Benefit? Yes, you did read that correctly. Here are three ways to gain from market losses:

3 Reasons to Avoid ETFs: Advisor

Originally published CNBCExchange-traded funds—commonly referred to as ETFs—are all the rage. While there are several excellent reasons to use an ETF over the seemingly archaic traditional mutual fund, they are not a universally preferable solution.

First, to be fair, let’s review a few reasons why ETFs can be a better solution than mutual funds.

ETFs generally have lower associated costs than comparable mutual funds. This isn’t news, I know, but since costs are one of the few variables over which we have control as investors, I don’t mind flogging this deceased ungulate.


The expense ratio is the most obvious cost reduction. For example, the legendarily inexpensive Vanguard 500 Index Fund has an expense ratio of 0.17 percent, while Vanguard’s S&P 500 ETF has a barely noticeable expense ratio of 0.05 percent. This makes ETFs an ideal choice for investors making a sizable, broadly-based, one-and-done purchase.

The Real Danger In Overstating Returns (Like PIMCO)

Originally in ForbesAs if PIMCO needed any more bad press, The Wall Street Journal reported this week that the Securities and Exchange Commission is investigating whether the bond giant “artificially boosted the returns of a popular fund aimed at small investors.” While we should all be attentive to the results of this probe—because I’d bet my lunch money that its implications will be felt beyond just PIMCO—there is an even deeper issue to consider. And this issue has a more direct impact on our individual portfolios and money management choices. The real danger in overstating returns, and indeed the root of most financial missteps, is self-deception.


“How’s your portfolio?”

Who among us wants to feel like a failure? We’ll generally avoid experiencing this sensation at all costs. So, absent conspicuous success, we permit ourselves to believe that we’ve at least not failed, frequently through self-deception.