Memorial Day: In honor of our heroes

beaman 150 x 150Noreen D. BeamanChief Executive Officer

For more than 150 years, our nation has observed the Memorial Day holiday — a day designated to remember the sacrifice made by those who gave their lives defending our freedoms and the safety of our nation. Across the country this weekend, we will honor all our veterans and their commitment to safeguarding our security.

On this Memorial Day, let us be mindful of our heroes — taking a moment to recognize with appreciation and respect our nation’s champions. I ask that you take time to gratefully remember, appreciate, and honor both the service and the ones who provided it.

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Getting your investments up to bat

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

With spring comes my favorite time of the year. Yes, the weather improves and the days get longer. However, for me, it is baseball season and corresponding fantasy baseball season that excites me. Baseball more than the other major sports is a game of statistics. It is engineered to be a series of one on one duels between a hitter and a pitcher such that individual contributions can be isolated. However, much like investing, a focus on the short-term and randomness leads even the most astute into a false knowledge of skill, and it is only through long-term analysis can truer knowledge be gained.

Consider a single at-bat between a hitter and a pitcher. The outcome is going to be a hit, an out, or a walk. If a hit occurs, especially if a home run, it is assumed that at least at that moment the hitter is very good and the pitcher is very bad. If an out occurs it is assumed the reverse. If a walk occurs the hitter has managed the least favorable of the positive outcomes and the pitcher has let the least unfavorable of negative outcomes happen. There is additional analysis that can be taken into the semantics of these three outcomes but the point remains that we have a data point of an individual success or failure. Similarly, in investing over the course of a quarter or year of performance of an investment fund we have an outperformance, underperformance, or an approximate market return relative to the corresponding benchmark and again additional stats can be gleaned from the performance such as standard deviation, upside capture, or attribution by sector selection vs. security selection.

In both cases after a short time period, a game for a hitter/starting pitcher or a quarter of performance for an investment fund, the temptation is very strong to extrapolate the just observed outcomes into the future. A successful hitter could have been lucky or was going against a poor pitcher (or a good pitcher who was having an off day). Similarly, an investment fund could have made a few lucky stock picks or was in a market environment that simply worked well with the strategy’s style of investing.

getting your investments up to bat

So does this mean we ignore the statistics of the short-term? That is, of course, foolish as the short-term is what happens as we build the data for the long-term. We always want to know what happened as it helps guide us to what will happen. It is simply wise to temper the conclusions we can draw from data over short periods. It is also humbling to know that even with ample data that can provide very close to proof of past greatness, it can never be fully relied on to provide future insight. At this point, I would say we have enough data to say Babe Ruth was a very good baseball player. However, he has been dead for about 70 years (so he is in a bit of a slump) and even if we through the miracle of science could resurrect a 30-year-old Babe Ruth, it is not a certainty he would achieve the same greatness in today’s baseball landscape. Similarly, an investment fund or strategy type that achieved great success over the long-term in the past may not achieve it in the future.

So where does this leave us? The recognition of great skill recognized solely in the short-term is unreliable and the great confidence we can achieve through the very long-term analysis thereof is not very useful. This leaves us striving for the middle ground. We look at performance data of at least a few market cycles and we additionally gain extra insight through qualitative data by talking to our investment managers and understanding the how of what they do. Through this process, we strive to send the right people up to bat and hopefully, we deliver more winning than losing seasons.

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.

Introducing Brinker Capital RIA Services

Marino_R 150 x 150Roddy Marino, CIMAExecutive Vice President
National Accounts & Distribution

For 30 years, Brinker Capital has helped advisors provide better outcomes for their clients. Building on that track record, we are thrilled to announce the launch of Brinker Capital RIA Services. This recently established division focuses on better serving RIAs, who are experiencing rapid growth by bringing together like-minded partners, a fully-digital platform, and a team of experienced professionals to support the business.

In the video below, Brendan McConnell, Chief Operating Officer, discusses Brinker Capital RIA Services with Matt Ackerman of InvestmentNews and the reasons behind the launch.

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To learn more about Brinker Capital RIA Services, register for a webinar on Wednesday, February 21 at 4 PM ET. Frank Pizzichillo, Managing Director, RIA Platform Services, and I will discuss the guided and open-architecture investment solutions; multi-custodial flexibility; proposal and reporting technology; and the dedicated support team.

Brinker Capital is a privately held investment management firm with $21.7 billion in assets under management (as of December 31, 2017). For 30 years, Brinker Capital’s purpose has been to deliver an institutional multi-asset class investment experience to individual clients. Brinker Capital’s highly strategic, disciplined approach has provided investors the potential to achieve their long-term goals while controlling risk. With a focus on wealth creation and management, Brinker Capital serves financial advisors and their clients by providing high-quality investment manager due diligence, asset allocation, portfolio construction, and client communication services.

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 Bitcoin primer

Dressel 150 x 150Ryan Dressel, Investment Analyst

There is a famous scene in Seinfeld, where outspoken character George Costanza pitches a TV studio executive “a show about nothing.” When pressed to elaborate, he simply re-iterates “nothing!… that’s the show!” I jokingly refer to this scene when people ask about Bitcoin, and if it’s a good investment. The parallels to “nothing” are plentiful: Bitcoin is not tangible, it is hard to find, nobody is responsible for its success or failure, and the buyers and sellers in the marketplace are untraceable ghosts. If the above is true, how can one explain Bitcoin’s meteoric rise in price and press coverage?! The price of one Bitcoin has risen from approximately $1,000 to $13,600 over the past year. The number of searches for Bitcoin on Google has exploded by 4,200% since July.

What is Bitcoin and why are people so interested in it?

Bitcoin is one of many digital currencies that have gained popularity since 2009. It has no value by itself; it only has value because an ever-growing community of Bitcoin adopters have agreed to trade goods and services in exchange for a higher amount of the digital currency, to which the community has trusted each other to do the same. This basic concept is no different than the use of fiat currencies such as the US dollar or the British pound. But that’s where the similarities end.

Today’s fiat currencies are managed by central banks around the world. The US dollar is regulated by the Federal Reserve, the Yen is regulated by the Bank of Japan, and the Pound Sterling is regulated by the Bank of England, to name a few. Conversely, Bitcoin is autonomously managed within an open source network of computers known as “blockchain.” Think of blockchain as a community of referees that allow two parties to make an exchange. The rules that the referees use to enforce an exchange can be reviewed by anyone that is part of a network. Every transaction prior to the one being made must be reviewed before it can take place, hence the term “blockchain,” which is intended to make the network more secure with each transaction.

To visualize the application of blockchain, think about a transaction at a farmer’s market. If you use a dollar to buy a vegetable, the farmer puts his faith in you to truthfully hand over a dollar that can be used to buy other goods & services and assumes it is not fake and that you won’t just steal his vegetable. On the other end of the transaction, you put your faith in the farmer that his product has all the properties of a vegetable as advertised, and does not contain defects such as poisonous pesticides. Additionally, nobody but you and the farmer knew that transaction occurred and nobody reviewed the accuracy of the exchange except you and the farmer.

Conversely, a digitalized farmer’s market transaction using blockchain would be reviewed by every computer that is part of a network (consisting of digital farmers and digital vegetable buyers). The predefined rules of the blockchain are also reviewed to ensure that all qualifications are met by both parties before one item is exchanged for another. If any criteria are not met, the exchange will not occur. After all criteria have been met, each party is rewarded their contractual obligation. This technology can be used to exchange Bitcoin, as well as a seemingly infinite amount of applications involving two or more parties i.e. physical property exchange or even corporate mergers.

blockchain 2Graphic Source: Thomson Reuters

Why adopters love blockchain

The primary benefit of blockchain technology is that it breaks down the barriers of trust, allowing any two parties to transact directly with each other without the need for a third-party to broker a deal. This creates transparency that we simply do not have today. Our third-party brokers take many forms, ranging from banks to cashiers, to Facebook, to Lawyers. These intermediaries act as agents of two or more parties, but you cannot see every message, transaction, or exchange that happens within them. Blockchain provides complete transparency for all to see.

In the example of the farmer’s market exchange, the dollar that was used to buy a vegetable is an example of a central repository holding information. The dollar had a state-sponsored (US government) serial number on it that is part of a taxable transaction. In the case of Bitcoin, no third-party owns the record, there is no third-party manipulating the data or supply of a good or currency. Cryptocurrencies rely on this benefit and offer additional benefits such as the ability to make transfers without geographic limitation, the finality of settlement, lower transaction costs compared to other forms of payment, and the ability to publicly verify transactions.

Today’s fiat currencies are also underpinned by central banks, tax systems, judicial systems, militaries, and any number of other connections to a governing body. The freedom from these agencies is very enticing to Bitcoin users. In areas outside of the developed world, this technology could be life changing due to corrupt governments manipulating currencies or transactions.

Buyer beware

History has shown that innovation and competition are great for markets and consumers. If credit cards weren’t accepted, we’d still be using paper and coins to make purchases. Prior to paper and coins, different societies used items such as beaver pelts or stone carvings as currency. Without currency, one would have had to travel great distances to make physical exchanges with their personal items of value.   Despite the innovative allure of Bitcoin, it is important to recognize its shortcomings as well.

To date, no cryptocurrencies have been registered with the SEC, whose stated mission is to protect investors, maintain fair, orderly, and efficient markets, and to facilitate capital formation. As such, no licenses are required to sell Bitcoin, which makes the cryptocurrency market subject to volatile market manipulation and scams such as scalping, “pump and dump,” and other types of fraudulent schemes.[1]

Cryptocurrencies such as Bitcoin are not backed by any government body, and thus are not regulated and could be subject to illicit transactions. Buyers and sellers remain anonymous, which holds nobody liable if a transaction fails on either side (Kim Jong Un has even been linked to the marketplace[2]). The ability to exchange Bitcoin for traditional currency is subject to change at any time, without notice. Cryptocurrency networks are also subject to malware and hacking.

Even though the number of exchange platforms is emerging, it is still not very easy to trade Bitcoins for goods and services. Bitcoin and other cryptocurrencies are also extremely volatile, which displaces one of the most important features of fiat currency: a stable store of value. How can buyers and sellers expect to make a transaction if the exchange rate of Bitcoin changes substantially every 2 minutes?

Despite the innovative advances in blockchain, it is important to remember that the technology is in its infancy. Both improvements and loopholes are being added every day. Bitcoin shares features of a currency, commodity, or a security, but is nothing more than a figment of our human imagination. One might say it’s a show about nothing!

[1] https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11
[2] http://money.cnn.com/2017/12/12/technology/north-korea-bitcoin-hoard/index.html

 

Thank You, Veterans

beaman 150 x 150Noreen D. BeamanChief Executive Officer

Tomorrow, we recognize those who have sacrificed careers, time with loved ones, and even their lives to serve our country. Please take a moment out of your busy Saturday 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 Veterans Day, we say thank you to the veterans in our Brinker Capital family: Chuck Widger, Tom Daley, Jimmy Dever, Jay O’Brien, Jim O’Hara, Jeff Raupp, and Bill Talbot.

For additional ways to give back to Veterans, click here.

Brinker Capital, Inc., a Registered Investment Advisor

A tale of two billboards

O'Hara 150x150Jim O’Hara, CISM, CISSP, CEH, Information Security Officer

Imagine a plush community of beautiful, sprawling estates where each property is protected by a high-end security system.  Now imagine two enormous billboards along the nearby interstate.  Once per month, the first billboard displays a list of newly discovered flaws in the community’s security systems.  The second describes methods to repair the same flaws.  Which billboard would be more closely watched?  Who would be watching it?

By now it’s common knowledge that the Equifax breach was a direct result of the company’s failure to properly maintain a webserver.  What’s less talked about is the fact that the exploited Apache Struts flaw had been published and rated “Critical” by security authorities well in advance of the breach.  Even less discussed is Equifax’s admission to knowing of the vulnerability at the time of breach, but not applying the associated patch, which had been available for months.

Software patching is essentially the 2-billboard scenario described above:

Billboard #1:  The Common Vulnerabilities and Exposures (CVEs) database.  Maintained by the Cyber Security FFRDC, and funded by the Department of Homeland Security, the CVEs database is an ever-updated list of all known software vulnerabilities.

Billboard #2:  A collection of patches and other mitigating controls issued by software providers and security authorities, designed to mitigate the vulnerabilities listed on Billboard #1.

The primary shortcoming of this system is the vulnerability information on Billboard #1 is almost always newer than the remediation information on Billboard #2.  While most software providers strive to release patches concurrently with the publication of the corresponding CVE, this is not always possible.  This occasionally creates a period of time when hackers can use the CVE data to attack vulnerable systems.  In fact, Verizon’s 2015 Data Breach Investigation Report found that half of published CVEs are used to successfully compromise some systems within two weeks.  Hackers are keeping a close eye on the CVE database, and working quickly to weaponize new information it provides.  So, for users and IT departments, it’s an unwinnable race, right?  Not so fast.

The tale of two billboards

The same Verizon study also found that 99.9% of system compromises occurred more than a year after the associated CVEs and corresponding patches were made public.  So, while the hackers may be fast, there is plenty of blame left for the victims –  99.9%, in fact.  Going back to our community of beautiful, sprawling estates, this suggests that even if home owners are bothering to read Billboard #2, many are not acting on the information it contains.  Equifax.

The key to keeping systems protected is a strong patch management program.  Responsible organizations put in place policies, procedures and systems necessary to ensure vulnerabilities are quickly identified and thoroughly mitigated.  Despite a strong patch management process, however, it remains possible that an attacker may find and exploit a vulnerability not yet listed in the CVEs database.  This is known as a “Zero Day” attack.  In order to mitigate Zero Day attacks, organizations must utilize a layered defense-in-depth strategy, which would include implementation of controls such as malware detection software, next generation firewalls, intrusion detection/prevention systems (IDPS), and data loss protection (DLP) technologies.

What can individual advisors and clients do?

 1. Ensure your operating system and software are configured to update automatically.  Waiting for an update to install can be frustrating, but it’s nothing compared to the sinking feeling you’ll experience if your system is compromised.  As a bonus, you’ll no longer see those annoying reminders in the task bar.

2. Consider installing malware detection software on your computer.  This would be in addition to any anti-virus solutions already installed.  There are many free and low-cost malware detection and eradication options available.  Research the tool before installing to ensure it is legitimate and properly supported.

3. Encrypt critical and sensitive data.  Password protecting spreadsheets, Word documents, and PDFs containing sensitive data will greatly reduce the impact of a Zero Day attack on your computer.  The attack may compromise your system, but it won’t be able to decrypt your protected files.  This could spare you many uncomfortable phone calls.

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.

What we can learn from Hurricanes Harvey, Irma

Dressel 150 x 150Ryan Dressel, Investment Analyst

Over the past few weeks, Hurricanes Harvey & Irma grabbed our collective attention as we watched the fury of mother nature unfold in Texas and Florida. While images of the damage can be jaw dropping, what’s more amazing is the strength of communities coming together to assist those affected. In today’s digital age, acts of heroism, generosity, and courage were on display via social media for the world to see. Examples included neighbors forming a human chain through floodwaters to help a woman in labor make it to a fire department truck; drones that located stranded families on roof-tops; a Delta Airlines pilot who flew into the violent, outer bands of Irma to pick up one last group of passengers desperate to flee the island of Puerto Rico; and Houston Texans star J.J. Watt, who single-handedly generated $30 million in aid (and counting).

The financial impacts of the two storms will no doubt be meaningful. Fortune estimates the loss could be as high as $180 billion for Harvey[1], while estimates for Irma range from $30 to $60 billion. This includes damages to property, infrastructure, crops, natural resources, small businesses, transportation, and unemployment. Political hurdles stand in the way, but the United States has the resources to rebuild.

As an investor, these events remind us that storms can be unpredictable, no different than financial markets. Government officials have many tools at their disposal to handle the unexpected, such as communications, shelters, curfews, utility companies on standby, rescue vehicles, and storm monitoring to name a few. Money managers and fiduciaries also have tools, such as asset allocation, diversification, performance analysis, or monitoring financial conditions including interest rates, liquidity, political risks, valuations, and corporate growth rates among many more.

The emotional mindset of an investor is no different than that of anyone awaiting a hurricane. Prepare for the worst, hope for the best, and expect to be surprised. Or, as Benjamin Franklin said, “by failing to prepare, you are preparing to fail.”

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.

[1] http://fortune.com/2017/09/03/hurricane-harvey-damages-cost/

September 11, 2001: A day to remember

beaman 150 x 150Noreen D. Beaman, Chief Executive Officer

As today marks the 16th anniversary of the September 11 terrorist attacks, we remember those who lost their lives and honor those still fighting for our freedom. We grieve, empathize, and reflect on the day’s events that forever changed our country. From the pain of this unspeakable tragedy, American’s came together to build a stronger, more resilient community.

Since then, we continue to come together in times of adversity. Whether it be Hurricane Katrina, Super Storm Sandy or most recently, Hurricanes Harvey and Irma, the people of this country always can be counted on to reach out and help those in need.

In response to Hurricane Harvey’s destruction, Brinker Capital employees generously donated to the Houston Food Bank, which provided 36,960 meals to help those affected by Hurricane Harvey. Additionally, Brinker Capital will be taking new donations to help those who have been displaced by Hurricane Irma in the coming days.

On behalf of the Brinker Capital family, our thoughts are with the everyday heroes who have helped make our nation stronger today.

Investment Insights Podcast: Forgotten fundamentals

Holland_Podcast_150x126Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded September 1, 2017), Tim discusses how recent current events are not fundamental to the market’s long-term performance.

Quick hits:

  • In the first half of 2017, the S&P 500 delivered year over year earnings growth of 12%, driven by double digit gains in both the first and second quarter.
  • The robust earnings performance of the S&P 500 is important for several reasons.
  • The underlying economic and market fundamentals are what matter most over the long term, and for the time being the news on both fronts is much more good than bad.

For Tim’s full insights, click here to listen to the audio recording.

investment podcast (9)

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

Investing in Game of Thrones

Williams 150 X 150Dan Williams, CFA, CFPInvestment Analyst

Nothing else could make me, and many others, actually look forward to Sunday night like Game of Thrones. Of course I felt a need to draw some wisdom to the investment world from this show if for no other reason than I get to relieve my separation anxiety from the many months until the show comes back for its final season. Thankfully this season lends itself easily to the task.

For those unfamiliar with the show let me sum it up as briefly as possible (warning vague spoilers). There exists a continent called Westeros that is divided into numerous houses/kingdoms that swore fealty to the House that sits on the Iron Throne. In the recent past, there was a rebellion that disposed of the longstanding ruling House Targaryen and drove the surviving member(s) of the house off the continent into hiding. The show opens with a member of House Baratheon sitting on the throne. Well, that king gets killed “by accident on a hunting trip.” His best mate, who is head of House Stark, becomes involved in investigating the situation in the capital city and gets beheaded. House Lannister slides onto the throne by a member of the house being conveniently married to the former king. This whole situation causes much trouble as House Stark wants revenge, House Targaryen and Baratheon want to take back the throne, and the rest of the Houses see opportunity to reposition themselves. A bunch of people kill some other people by various methods. Some body parts get cut-off. Some dragons show up. Some people come back from the dead by unnatural methods. Really a classic story. So that is it.

Wait! I forgot! Up north there are reports of a huge frozen undead army being formed that threatens to sweep down and kill everyone. This threat is summed up as “Winter is coming.” No biggie, right? Oops!

GOT.Winter is Coming
The parallel that can be drawn to the investment world is that while people are chasing and comparing themselves to each other’s performance and asset class benchmarks, they take the eye off the primary goal – survival. The Houses all want more castles and the glory to sit up on the Iron Throne while John Snow, one of the show’s main protagonists who has been positioned up north for the majority of the show, said this season “If we don’t put aside our enmities and band together, we will die. And then it doesn’t matter whose skeleton sits on the Iron Throne.”

While we are not necessarily battling our neighbors – like the houses of Westeros – for bragging rights of investment returns, it is still the wrong struggle to have. The great threat to the north is our inability to meet our goals due to poor investment planning. We can go off track by spending too much or saving too little. We can take on too much or too little risk or invest in the wrong account types. We can be operating tax inefficient. We can fail to insure against the unlikely but devastating potential life events. Planning with an advisor should be focused on setting a path that provides the best likelihood for success against this enemy of insufficient assets for our goals rather than the bragging rights of a few year of investment returns.

During this season, attempts were made by John Snow to refocus the warring houses to the real threat of the north. This threat has been lurking for all seven seasons of the show and the big question is – is it too late for them? Similarly, the challenge of investment goal planning is easiest when taken on as early as possible or before winter comes. The adviser’s role is similar of that to John Snow’s, get their clients to start to properly prepare as early as possible for the threats that matter.

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.