Cultivating a 'Firmness of Character'

Benjamin Graham said what investors need, but few have, is a “firmness of character.” What he was referring to is the ability for investors to keep their emotions in check.
Investing success is more influenced by DQ than IQ. Our Discipline Quotient, or ability remain disciplined during emotional times, is what sets investors apart. Exercising investment discipline is a difficult endeavor, but it’s not impossible.

A Reliable Forecast for 2018

Before I get into my market forecast for 2018, I want you to consider why forecasts are so alluring to investors like ourselves. What is the force that influences us to make decisions based on forecasts? There is ample evidence that expert forecasts are correct only half of the time, yet we are still attracted to them. Why?
You may not be able to put your finger on it because our attraction to forecasts is largely subconscious. It boils down to how the brain likes to operate. Our brain is a planning machine; it finds much contentment and peace in being able to plan. When we don’t know what the future holds, we can’t plan with certainty. This bothers the brain. So it, subconsciously, seeks for some sort of certainty. And forecasts, especially confident ones, provide an illusion of certainty. 
We are subconsciously attracted to forecasts even though we consciously recognize that forecasts historically have not been very accurate. We fix this problem by giving greater weight to forecasts that (1) confirm what we want to happen (2) are more confident than others. But these don’t improve the accuracy, just our perception of accuracy.
My Forecast
I am quite confident in my forecast for 2018. To be fair, it was the same forecast I had in prior years and will likely be the same forecast in future years. Why wouldn’t I keep it the same…it has an overall accuracy very close to 100%.
The economy/market will do something that surprises us
Investors who watch the market often will experience more stress and greater unhappiness than those that don’t
No one will be able to predict what will happen perfectly, but it will all seem obvious in hindsight
You will be tempted to abandon your plan at some point based on expert forecasts and/or short-term market performance
Investors that focus on those things they can control (i.e. your reaction) will have a better investment experience than those that focus on what they can’t control nor predict (i.e. What’s XYZ going to do?)
Investors who abandon their plan to chase a “winning investment” or “sure thing” will have lower long-term returns than investors who stick with their plan
You may be frustrated that my forecast doesn’t say anything about where the market will go or what sector to invest in. Sorry to disappoint. But understand that in my ___ years advising clients, I have learned that the best results are obtained by those who have the discipline to ignore the distractions and stick with the plan we have developed. 
I wish you all a prosperous, fulfilling and happy 2018.  Thank you for allowing me to be your trusted partner along the journey.  

Filter Failure

We are inundated with information and data these days – most of which serve to distract us from more important things, yet they are effective nonetheless. And for some reason our brain really likes distractions.

Power of Headlines

Headlines exist for one reason – to get you to read, click or tune in. The real purpose of headlines is not to inform, it is to get you hooked.

Our brains love headlines! We don’t have a lot of time, and we are constantly being persuaded to look this way or click over here. The brain often lends attention to those things we can learn in two seconds without using any brainpower. Headlines provide that material.

The Value of Cash

As investors, we have great difficulty valuing cash correctly. We take shortcuts and seldom analyze things from more than one point of view. Understanding the value of cash, from different angles, can help you make better decisions with your money.

What’s The Yield?

Can You Hold a Winning Asset?

It is every investor’s dream to invest early in a company such as Microsoft, Apple or Amazon. Oftentimes the media reports on how much we would have made had we invested early on. For instance, a $10,000 investment in Amazon at its IPO would be worth $4.9 million today (49,000% gain).  

Market Indexes Aren't Diversified as You Think

It is very common in our industry to compare personal portfolio returns to indexes. Two of the most common indexes referenced are the S&P 500 and the Dow Jones Industrial Average, also known as “The Dow”. Investors compare personal return to indexes, or benchmarks, to give them a sense of whether the portfolio is doing as it should…kind of a check and balance. That is a reasonable use of indexes, but unfortunately many investors are taking it too far. 

The Dow

Selecting Your Investment Benchmark

Investors often compare personal portfolio performance with some stock market index, a benchmark. While the comparison may be easy to make, it is seldom a valid comparison. What we are actually doing is comparing apples to oranges. 

What Dow 20,000 Means

Not much. For the media it means headlines and talking points. For traders and speculators, it may be an excuse to make some trade based on expected short-term outcomes. For investors, it means nothing – except for its potential to distract you from what really matters. 

It’s nice that stock market indexes are increasing, but what does it really matter that the Dow hit 20,000? Sure, it’s a nice round number with lots of zeros. But there is really no difference between the Dow hitting 20,000, 20,126 or 19,944.

What a Year!

This is always a good time for people to look back on the year and take personal inventory.  For investing, the personal inventory often takes the form of behavioral inventory. We cannot control the news, economy or market, but we can control our reactions to external events. So how did you do this year?