Diversification: The power of winning by not losing

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital 

The image is indelibly etched in the mind of baseball fans everywhere. In 1988, an injury-hobbled Kirk Gibson, sick with a stomach virus to boot, limp-running around second base and pumping his fist. Without a doubt, Gibby’s homerun is one of the most memorable in baseball history, setting up the Dodgers for an improbable Game One “W” and eventual World Series win. But in remembering the heroics of the moment, we tend to forget all that came before.

The score at the time of Gibson’s unexpected plate appearance was 4 to 3 in favor of the Oakland Athletics, whose mulleted (and we now know, steroid-fueled) superstar Jose Canseco had hit a grand slam in the first inning. Canseco had an outstanding year in 1988, hitting .307 with 42 homeruns, 124 RBIs and, eye-popping by today’s standards, 40 stolen bases. Loading the bases in front of Canseco was massively risky as was throwing him the hanging slider that he eventually parked over the center field fence. But riskier still was sending Gibson to bat sick with the flu and hobbled by injuries sustained in the NLCS. That we don’t perceive it as risky is an example of what psychologists call “counterfactual thinking.” It turned out in the Dodgers favor, so Tommy Lasorda is viewed as a strategic genius. But had it not, and simple statistics tell us that getting a hit is never in even the best hitter’s favor, Lasorda would have been a goat.

Just as we laud improbable and memorable athletic achievements without adequately accounting for risk and counterfactuals, we do likewise with large and singular financial events. Paulson’s shorting of subprime mortgage products. Soros shorting $10 billion in currency. These events are so large, so memorable and worked out so favorably that we ascribe to them a level of prescience that may not actually correspond with the expected level of risk-adjusted return. A friend of mine once joked that, “every man thinks he is ten sit-ups away from being Brad Pitt.” Having observed significant overconfidence among both professionals and novice traders alike, I might similarly assert that “every stock market enthusiast thinks that (s)he is one trade away from being George Soros.” The good fun we can have talking about, “The Greatest Trade of All Time” notwithstanding, most real wealth is accumulated by not losing rather than winning in spectacular fashion.

Diversification.Power of Winning by not Losing

The danger in taking excessively risky bets with the hope of a spectacular win is best illustrated by what is formally known as variance drain. Variance drain is the difference between mean return and compound return over a period of time due to the variability of periodic returns. The greater the variability from peak to trough, the more the expected returns will deviate negatively. Confused?

Say you invest $100,000 each in two products that both average ten percent returns per year, one with great volatility and the other with managed volatility. The managed volatility money rises 10% for each of two years, yielding a final result of $121,000. The more volatile investment returns -20% in year one and a whopping 40% in year two, also resulting in a similar 10% average yearly gain. The good news is that you can brag to your golf buddies about having achieved a 40% return – you are the Kirk Gibson of the market! The bad news, however, is that your investment will sit at a mere $112,000, fully $9,000 less than your investment in the less volatile investment since your gains compounded off lower lows.

A second, behavioral implication of volatile holdings is that the ride is harder to bear for loss-averse investors (hint: that means you and everyone you know). As volatility increases, so too does the chance of a paper loss which is likely to decrease holding periods and increase trading behavior, both of which are correlated with decreased returns. Baseball fans know the frustration of watching their favorite player “swing for the fences”, trying to end the game with a single stroke of the bat, when a single would do. Warren Buffett’s first rule of investing is to never lose money. His second rule? Never forget the first rule. The Oracle of Omaha understands both the financial and behavioral ruin that come from taking oversized risk, and more importantly, the power of winning by not losing.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800-333-4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

Communication, trust & stewardship: the key elements of a successful wealth transfer

Coyne_Headshot-150x150John Coyne, Vice Chairman

Ask any advisor who has been at it for a while, most clients come to them having spent more time planning vacations than planning for retirement. Similarly, parents spend their working lives preparing money for the family, but don’t prepare the family for the money.

Research supports both sentiments. Forty-five percent of parents remain close-lipped on the topic of wealth, while only 4 percent of those surveyed indicated they hold regular family meetings where money is the main topic.

Whether talked about or unspoken, the next generation stands to inherit a good deal of wealth. Industry experts estimate between $30 to $41 trillion will transfer from the Baby Boom generation to Generation X and Millennials over the next 30 years. Another reality is that in the majority of instances, seven out of ten, the second generation loses the wealth it inherits. In 90 percent of families studied, the money disappears by the third generation.

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Research cited in a 2014 Forbes article set out to better understand the shirtsleeves to shirtsleeves paradigm. It found that communication and trust played a far more influential role in predicting the success of the intergenerational transfer of wealth than planning or investments. Six out of ten of those who lost their family fortune blamed their condition on a lack of communication and trust in the family. Nearly a quarter of the respondents indicated their heirs were not prepared financially to inherit the wealth. Interestingly, only 3 percent attributed the losses to poor planning and investments.

The more the next generation knows of your hopes and dreams for the assets you’ve accumulated and plan to leave behind, the better positioned they will be to conduct themselves as financial stewards. Heirs inherit assets. Financial stewards assume the responsibility of caring for the wealth to benefit the family.

Below are five ways to encourage financial stewardship among heirs:

  1. Introduce the concept of family wealth planning. Begin to explain how family values contributed to the creation of the wealth, and how financial resources helped past generations achieve individual and family goals. Emphasize the notion that in order for wealth to serve multiple generations, family members must talk openly, trust each other and act as financial stewards.
  2. Create a family mission statement. Like a corporate mission, a family mission defines the full scope of the family’s wealth, its values and why money is important.
  3. Expand decision-making powers. The education-by-inclusion approach has proven quite successful in preparing the next generation for the assets it will one day inherit. Instead of you and/or your spouse making all of the financial decisions, you could gradually involve the next generation. Philanthropy and family vacation planning are the most common places to expand the decision-making dynamic in the family. To start, you provide parameters, set a budget, and establish your voting authority, but later take a step back and let your heirs develop a plan.
  4. Conduct regular meetings. Make legacy discussions part of your family’s calendared events so you have a forum for an open dialogue about your family’s values and vision for the future. Many families plan these discussions around events intended to create a shared experience, make memories and have fun. The activity doesn’t matter. Rather, building trust, cultivating harmonious relationships, having candid discussions and creating a healthy decision-making environment matter.
  5. Introduce your advisory team. Include your financial advisor in family meetings so children and grandchildren know where to turn when the time comes. A financial advisor can help set achievable investment goals and maintain reasonable performance expectations. When an advisor monitors, tracks and communicates progress toward goals, family members can more easily refrain from acting on short-term market conditions.

For 30 years, Brinker Capital has served financial advisors and their clients by providing the highest quality investment manager due diligence, asset allocation, portfolio construction and client communication services. Brinker Capital Wealth Advisory works with business owners, individual investors and institutions with assets of at least $2 million. To learn more about the services available through Brinker Capital Wealth Advisor, click here.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

A battle of wits with the market

Williams 150 X 150Dan Williams, CFA, CFP, Investment Analyst

One of the greatest temptations of investing is trying to increase investment performance by continuously buying stocks right before they go up and selling stocks right before they go down. As a theoretical matter “timing the market” seems simple as in retrospect the overreactions or ignorance of the markets are clear. Yet, in practice, the task is regarded mostly as a fool’s errand as the timing always seems to be off.

The extremes of market movements relative to economic reality is not a new observation. In his 1949 book, “The Intelligent Investor,” Benjamin Graham asked readers to imagine themselves as a partner in a business with a fellow named “Mr. Market.” On a daily basis, Graham’s Mr. Market becomes wildly optimistic or pessimistic about the business’ value, therefore, is always trying to sell out or buy you out. Graham notes that an investor finds himself in that very position when he owns a listed common stock. The problem is that we are not separate from Mr. Market. Rather, we all contribute a little of ourselves to create this Mr. Market and what he feels, we collectively feel. When he is panicking and wants to sell, so do we. When he is euphoric about market prospects and wants to buy, so do we.

Additionally, Mr. Market is smart most of the time as he knows just about everything we collectively know, and given available information is approximately right about most stocks most the time. This is the oversimplified basis for the Efficient Market Hypothesis (EMH) that states that the market incorporates all relevant information efficiently and accurately into market prices. So what is to be done?

Timing the market

 
As always, I find a movie to reference. This time I am drawn to a scene in “The Princess Bride” where our protagonist, Westley, sits down to play a game of wits with the mastermind bandit, Vizzini. In the scene, two glass of wine are poured, Westley poisons one glass of wine, but mixes up which is which and places both glasses on a table. Vizzini then gets to pick which glass to drink from and Westley is compelled to drink the other. Vizzini, after thinking and overthinking all of the factors to consider and even switching the placement of the glasses on the table while Westley is distracted, takes a drink from one of the glasses and drops dead. We then find that Westley had actually poisoned both glasses and had previously made himself immune to the poison used. Therefore, the whole game of wits was moot.

Similar to trying to beat the market through market timing, the battle of wits Vizzini was engaging in was with himself. Westley instead played the game right by avoiding the game of wits by doing work beforehand. This is exactly what Graham prescribed for investing.

Graham felt through the deep fundamental analysis of individual securities an investor could know with a reasonable degree of confidence what the price/value of a security should be. This value is adjusted to new information that fundamentally changes the business prospects, but most often the investor just patiently waits for Mr. Market to make a mistake. Like Westley, the intelligent investor just waits for Vizzini to drink.

The moral of the story is that to outperform the market you must either do your homework (independent analysis to make yourself immune to the poison of market noise) or do not play the game at all (buy and hold a proper asset allocation and ignore the market noise). In neither case, do you try to use your own emotional intuitions to outthink and time the market.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

New year, new solutions

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

There are few traditions as optimistic in spirit as resolution setting. While losing weight, enjoying life more, and living a healthier lifestyle typically top the resolutions charts, many Americans seek to create better financial outcomes in the upcoming year. The GoBankingRates.com 2017 Financial Resolutions Survey listed ‘save more, spend less,’ at the top of the list of financial resolutions, followed by paying down debt and increase income.

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If you aim to create better financial outcomes in the upcoming year, and beyond, here are five steps to bring you closer to your goal:

  1. Look within. The more you know about investment principles and the long-term historical record of the market, the better outcomes you can expect to achieve. Making your investment education a priority is proven to make a significant difference in outcomes. The American Association of Individual Investors (AAII) found that investing knowledge enhances risk-adjusted returns by at least 1.3% annually. Over 30 years, the improved portfolio performance can lead to up to 25% greater wealth.
  2. Control what matters most. What matters even more than picking the right stock, is controlling the impulses and biases that prove self-destructive, like trying to time the market or trusting your gut. For better investment outcomes, you must know your emotional triggers and come up with strategies to defuse them from sabotaging your success.
  3. Think purchasing power. Purchasing power is the most common objective and destination of a long-term investment strategy. It is the experience most investors want. Investors know they like the lifestyle they now enjoy and want to do what is needed to keep that lifestyle in the long-term. To do so, you must appreciate multi-asset class diversification and accept market volatility to increase future purchasing power.
  4. Benchmark against your goals, not market indices. Instead of looking to the Dow Industrial Average to gauge the adequacy of your performance, look to your goals. Personal benchmarking motivates positive savings behavior and helps you tune out the noise of the markets. Don’t allow yourself to get bogged down, nor hyped up, by the current buzz. Instead, let personal goals and the long-term historical market record guide your decisions.
  5. Stack the deck. By working with a trusted advisor who provides behavioral coaching, you stack the deck in your favor. Research has found that when an advisor applies behavioral coaching, performance increases from 2-3% per year. In times of uncertainty and market volatility, which you are bound to encounter, your advisor will help you stick to your financial resolutions.

For 30 years, Brinker Capital has provided investment solutions based on ideas generated from listening to the needs of advisors and investors. From being a pioneer of multi-asset class investments to using behavioral finance to manage the emotions of investing, our disciplined investment approach is the key to helping investors achieve better outcomes.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

Start the New Year off right: Resolve to read more

Solomon-(2)Brad Solomon, Junior Investment Analyst

Many New Year’s resolutions focus on developing healthy habits. An important one to keep is intellectual curiosity. In no particular order, below is a reading list for 2017. Some deal more directly with finance than others, but they each explore economic, sociopolitical, cultural and behavioral issues that are ultimately relevant to global markets.

  1. Nation on the Take: How Big Money Corrupts Our Democracy and What We Can Do About It. Wendell Potter & Nick Penniman, Bloomsbury Press, 2016.

Nation on the Take explores the evolution of lobbying in the United States and the increased role of money in politics following the Citizens United case of 2010. What is most satisfying about the book is the extent to which its authors manage to remain nonpartisan, calling out Republicans and Democrats alike. If your New Year’s resolution involves lowering your blood pressure, I advise against skipping over this suggestion.

  1. Hillbilly Elegy: A Memoir of a Family and Culture in Crisis. D. Vance, Harper Collins Publishing, 2016.

J.D. Vance’s Hillbilly Elegy details the disenchantment of Appalachia in a view that manages to be impartially critical but also remain in solidarity with the region. This book seems to be making its way onto every “essential reading” list, and deservedly so given its relevancy to the foundations of the new wave of populism that is still working its way across the globe.

  1. Nothing is True and Everything is Possible: The Surreal Heart of the New Russia. Peter Pomerantsev, Public Affairs Publishing, 2015.

While Charles Clover’s more recent Black Wind, White Snow overtly concerns itself with the Kremlin as its sole subject, Nothing is True is a wide-ranging, colorful firsthand account of the backwards elements of Russia’s culture. A poll of a certain political party recently showed that 37 percent of respondents view Vladimir Putin favorably, versus just 10 percent in July 2014. As America’s attitude towards Russia evolves, this book is a warning to think twice before offering such a seal of approval—a stark illustration of just how diametrically opposed many Russian norms are relative to those of the U.S.

  1. The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal. Ludwig Chincarini, John Wiley & Sons, 2012.

Chincarini’s The Crisis of Crowding could best be described as a mathematically detailed, focused version of Scott Patterson’s The Quants. The book analytically decomposes the 1998 collapse of Long-Term Capital Management and the 2008-09 Financial Crisis, exploring the common thread between them in that both resulted partly from incomplete pictures of risk in behaviorally erratic systems.

  1. Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat Casinos and Wall Street. William Poundstone, Hill and Wang, 2006.

Like the preceding choice on this list, Fortune’s Formula is a technical treatise of a subject that often gets “glossed over” despite its critical importance to markets. The author manages to explore the mathematically weighty Kelly criterion in a boiled-down, coherent, and practically applicable framework.

  1. Personal Benchmark: Integrating Behavioral Finance and Investment Management. Chuck Widger and Daniel Crosby, John Wiley & Sons, 2014.

Financial advisors do their clients a great service by educating them about investing best practices, but at times of volatility, logic is often thrown out the window. As the authors wrote in the book, “While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.” The authors provide a framework for embedding good behavior into the investment process.

  1. The Laws of Wealth: Psychology and the Secret to Investing Success. Daniel Crosby, Harriman House, 2016.

And if you are looking for a list of rules to follow in the year to exercise good investing behavior, The Laws of Wealth helps keep you on the straight and narrow. The book provides clear, concise direction on what investors should think, ask and do.

Once you finish these books, more books can be found from the recommended lists by The Economist, Financial Times, and Bloomberg

Enjoy, and happy New Year!

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

 

Investment Odyssey

Dan WilliamsDan Williams, CFA, CFP, Investment Analyst

In Homer’s Odyssey there is a memorable section where Odysseus and his crew must shutterstock_369235274sail past the island of the lovely Sirens. He has been warned to plug his crew’s ears with wax so that they will not be susceptible to the Sirens’ call. However, wishing to hear the Sirens’ calls for himself, he orders his men to tie him to the mast of the ship and ignore his future orders until they are clear of the island.

The need to stay the course and to ignore distractions are relevant to many facets of life, but I find special meaning related to long-term investing. When people think of investment risk they normally focus on the volatility seen in recent investment returns. However, the returns of a random month, quarter or even a year has an overrated impact on an account’s growth over a 10+ year horizon.

Tolerance for this volatility/risk typically has more to do with investor psychological make-up than the mathematical impact of these short-term returns on much longer term account performance. For me, this volatility and other market noise represent the Sirens that threaten to take investors off course. Two investors who are the same in every other way and invest in the same portfolio, will have a different investment experience based on how often they look at their account and how they feel about what they see.

In other words, similar to Odysseus’ crew, the journey can be made less stressful and easier by turning off the noise. While feelings and emotions are important considerations, as lost sleep and stress meaningfully impact a person’s well-being, a better course is set by focusing on more objective investment risks. Among the most relevant objective risks for investors is shortfall risk.

Shortfall risk

Most investors invest to fulfill a future goal/need years in the future. Shortfall risk is simply the risk that the money allocated and invested to this future goal/need proves to be inadequate to pay for it when the time comes. This risk is very real and goes well beyond how an investor feels about it. If an investor needs $100,000 a year in retirement but finds that due to insufficient account growth he or she can only sustainably take out $80,000 a year from his or her portfolio at retirement, the math will simply not work. No solace is offered by the smooth but inadequate investment journey of an overly conservative allocation when the investment goal is not achieved.

Addressing volatility

The challenge is often to achieve the long-term returns that can meet account balance requirements, volatility must be taken on. While Odysseus could have taken a long detour around the island of the lovey Sirens, his goal of getting home in a timely fashion would not have been met (and for those who know the story, he had a deadline). Similarly, an investor could ensure a very smooth investment journey by investing in a portfolio dominated by short-term bonds, but could find investment account growth inadequate to meet the goal of the investment. The good news is that if investors can find a way to plug their ears to the noise, they can get the longer-term returns they need and minimize the stress of the volatility along the way.

Multi-asset class goals-based investing is one way to have the investor take a longer view on his or her investing to see past the present sirens of volatility and recent returns to the goal at the end of the investing horizon. Without the ability to take the long-run prospective, we are like Odysseus hearing the Sirens call. Without an advisor to keep the ship on course, the journey is potentially doomed. Investing is only successful if the investor can stay the course and stay invested. The importance of keeping the investor from letting the heart rule the head is one of the most important roles of the investment advisor.

Brinker Capital understands that investing for the long-term can be daunting. That’s why we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Give thought to how you give this holiday season

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

The holidays represent a time when many Americans express love and affection with gifts. Gift giving serves many purposes in our society. It helps define relationships, express feelings, show appreciation, smooth a disagreement, share good fortune, and strengthen bonds. While the joy of giving is undeniable, excessive spending could put your financial goals in jeopardy and ultimately stand in the way of happiness.

The American Research Group projects that the average person will spend $929 on gifts this holiday season. To put this amount in perspective, consider the following:

  • Last year, the average consumer spent $882, so this year consumers believe they will spend on average $47 more than last.
  • The last time consumers spending exceeded $900 was in 2006.
  • We’ve had a somewhat steady climb in spending since 2009 when the average person spent $417.
  • Gift spending peaked in 2001 when the average person spent $1,052 on holiday gifts.

live-simplyAs with any benchmark, the amount of money “the average person” spends on holiday gifts should bear little relevance on your spending. Whether you spend more or less than this projection is a personal choice that is best made with intention and with your own financial situation and goals in mind. These common holiday spending triggers, however, could get in the way of mindfulness and prompt you to spend more than intended.

Keeping up with others. If you try to match the amounts spent by colleagues, friends, family or peers, you could find yourself spending beyond your means and putting your financial goals in jeopardy.

Trying to be fair. A common cause of spend creep happens to create a sense of balance or fairness. When you overspend on one relative, you may be inclined to create equalization by matching the dollar value of gifts for others.

Just getting it done.  For some, holiday shopping is just another task in an already long list of things to accomplish by the end of the calendar year. It’s easy to overspend if you haven’t committed to a spending budget, decided who to buy for and what to get, and taken the time to seek out the best deals.

Autopilot. Sometimes we gift without considering whether the expenditure aligns with current realities. As families evolve, a discussion about how each member would like to celebrate the holidays may be worthwhile. For example, as your extended family grows, it may make sense to discuss a kids-only gift policy, put monetary limits on spending, or do a gift swap.

Self-purchases. Nearly sixty percent of holiday shoppers (58%) will buy for themselves and will spend on average of $139.61 doing so. This year’s projected self-spending is up 4% from 2015 and is at the second-highest level in National Retail Federation survey’s 13-year history.

The holidays only come once a year. Many people enter the holiday season as they would a free zone. They buy until they get to the end of their ever-growing list of recipients. They decorate until every square inch reflects the feeling of festivity in their heart. Unfortunately, many people do so without regard to the implications on short and mid-range financial goals and thus experience feelings of regret.

The act of gift giving has tremendous intrinsic and extrinsic value. A growing body of research suggests that the most important way in which money makes us happy is when we give it away. Gift giving at the expense of long-term financial goals, however, will bring anything but happiness.

Temptations beset all sides of the path to your financial dreams. During the holidays, temptations may take an altruistic form but still involve spending for today’s pleasures and forgetting about the Future You. This holiday season, give thought to how you give because the Future You is depending on your ability to be mindful, spot (over)spending triggers, and positively influence your ability to endure.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor

Addressing post-election anxiety

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Global events, such as the intensely divided presidential election that we just lived through, are certain to generate some periods of market volatility of varying lengths in addition to a significant amount of stress. However, we urge financial advisors and investors to retain a few dos and don’ts to help manage post-election anxiety:

Don’t equate risk with volatility. Volatility does not equal risk. Risk is the likelihood that you will not have the money to live the life you want to live. Paper losses are not “risk” and neither are the gyrations of a volatile market. Long term investors have been rewarded by equity markets, but those rewards come at the price of bravery during periods of short-term uncertainty.

Do know your history. Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. The economy continues to grow (slowly) and most quality of life statistics (crime, drug use, teen pregnancy) have been declining for years. Markets have always climbed a wall of worry, rewarding those who stay the course and punishing those who succumb to fear.

Don’t give in to action bias. At most times and in most situations, increased effort leads to improved outcomes. Investing is that rare world where doing less actually gets you more.

Do take responsibility. Most investors are likely to tell you that timing and returns are the biggest drivers of financial performance, but research tells another story. Research suggests that you are the best friend and the worst enemy of your own portfolio. Over the last 20 years, the market has returned roughly 8.25% per annum, but the average retail investor has kept just over 4% of those gains because of poor investment behavior.1 At times when market moves can feel haphazard, it helps to remember who is really in charge.

Don’t focus on the minute to minute. If you are investing in the stock market you have to think long-term. As mentioned above, you can avoid action bias by not checking your portfolio status all day every day, especially during times of higher volatility. Limited looking leads to increased feelings of security and improved decision-making.

Do work with a professional. Odds are that when you chose your financial advisor, you selected him or her because of their academic pedigree, years of experience or a sound investment philosophy. Ironically, what you may have overlooked is the largest value he or she adds—managing your behavior. Studies put the value added from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime, and the power of financial advice quickly becomes evident.

Source: (1) Dalbar, Inc. Quantitative Analysis of Investor Behavior. Boston: Dalbar, 2015.

Views expressed are those of Brinker Capital, Inc. and are for informational/educational purposes.  Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital’s Investment Management Group. Information contained within may be subject to change. Diversification does not assure a profit not guarantee against a loss.

Veterans Day: A time to say thank you

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer

Today we recognize those who have sacrificed careers, precious time with loved ones, and even their lives to answer our country’s call to service.

Please take a moment out of your busy day today to attend a Veterans Day event in your area or simply say thank you to those who are currently serving or have served in the military.

On this Veteran’s Day, we say thank you to our veterans at Brinker Capital—Chuck Widger, Tom Daley, Jimmy Dever, Lee Dolan, Jay O’Brien, Jim O’Hara, Jeff Raupp and Bill Talbot—and to everyone who has served and protected our country.

To be born free is an accident.
To live free is a privilege.
To die free is a responsibility.
–Brig. Gen. James Sehorn

If you’re looking for additional ways to get involved, click here for ideas.

Brinker Capital, Inc., a Registered Investment Advisor

Being right for the wrong reasons

Andy RosenbergerAndrew Rosenberger, CFA, Senior Investment Manager

Investors betting on a Hillary win should be grinning ear-to-ear with the outcome of the election. Picture this for one moment. Imagine if I had told you last week who would win the election – but nothing else. Odds are, particularly after listening to the “experts” that you would have sold everything. Maybe if you’re the type who likes to speculate, you would have also used those cash proceeds to short the market, buy some VIX, or perhaps buy long-term Treasuries. After all, the standard meme was Trump = Bad for Markets, Clinton = Good for Markets. Good thing that crystal balls don’t exist. It’s a classic case of being right for the wrong reason. Or, taking the other side of the coin, being wrong for the right reason. As we all digest the outcome of events and try to comprehend what this all means, here are a few ruminations that come to mind:

  • Event-driven investing is REALLY hard. Event-driven investing is the idea of speculating on the outcome of a specific event. It sounds easy. But think about all the factors that go into it. You have to be right on calling the outcome. You have to be right on how the market reacts to that outcome. You have to know how much is already discounted into the market already. You have to have better information than everyone else. You have to structure the trade in such a way that it’s profitable. Like many things in life and investing, it sounds easier than it is.
  • Income relative to duration matters. In one single day, over a year and a half worth of income was wiped out for anyone investing in long term Treasuries. Prior to the election, the 30 year bond was yielding approximately 2.6%. The Wednesday after the election, the Barclays Long Term Treasury Index was down -4.14%. So now investors will have to wait over a year for the income generated on their bonds to make up their losses. Or, maybe they could try out some event-driven investing tactics mentioned above.
  • Volatility is dynamic. When regimes change, low volatility may suddenly be high volatility. It seems like a no-brainer. You can outperform the market with less risk by simply investing in stocks with lower volatility. Forget that it’s the topic du jour. Forget that there are immense amounts of money flowing into this group of stocks. Forget that valuations for these types of stocks have never been higher. It’s worked in the past. Well, until it doesn’t. I acknowledge it’s only one day. But yesterday’s dramatic underperformance of low volatility reemphasizes the point that there’s more to investing than simply investing in what worked historically.
  • Consensus is usually right…until it isn’t. Unlike low volatility stocks, just a few months ago everyone hated financial and healthcare stocks. After all, the yield curve was going to stay flat forever hampering banks and insurance company’s ability to generate returns. Separately, politicians were going to destroy the profitability of pharmaceutical companies by reversing sky-high drug prices. Bad fundamentals. Check. Bad technicals. Check. Market experts agree with you. Check. Unfortunately, when these views reverse, as we’ve seen as of late, they do so extraordinarily fast.
  • In statistics, sample sizes do not represent the overall population. How is it that in an era of big data and interconnectivity that our methods for predicting elections have gotten worse, not better? Certainly the migration away from landline phones and the shy Trump voter effect were both major factors. But anytime we talk about polling, we have to remember that we’re taking small samples of a very large population. I, for one, have NEVER been asked by a polling authority who I’m voting for. With over 119 million voters this election, I would imagine there are quite a few others who weren’t part of the sample size either. Statistics matter but so too does the means with which they are applied.
  • Politics can be very emotional for individuals. Particularly within investing, emotion and outperformance rarely coincide with one another. Investing is hard enough as it is. Billions of dollars of research has been dedicated to the art and science of getting a competitive advantage over other investors. And most haven’t been very successful.

The bottom line is that investors should focus on the long-term outcome knowing that over time, Democrat or Republican, 2% growth or 4% growth, Fed rate hike or no rate hike, that their investments will work for them in the long-term.

Brinker Capital understands that investing for the long-term can be daunting, especially during a time like this but we are focused on providing multi-asset class investment solutions that help investors manage the emotions of investing to achieve their unique financial goals.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor. 

Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss. Past Performance is no guarantee of future results.