Investment Insights Podcast: Loud Headlines

Rosenberger_PodcastAndrew Rosenberger, CFA, Senior Investment Manager

On this week’s podcast (recorded September 30, 2016), Andy reviews recent media headlines, including Deutsche Bank and OPEC, and if the news is more bark than bite. Quick hits:

  • Deutsche Bank shares set a new all-time low on September 29 and stock is now down almost 50% year to date.
  • Deutsche Bank needs to raise enough capital to alleviate investor concerns or financial authorities will have to step in to backstop the bank.
  • While the ghosts of Lehman Brothers may still haunt the minds of investors, it seems unlikely that financial authorities haven’t learned from 2008 and would be willing to take the same risk with Deutsche Bank should they fail.
  • Saudi Arabia agreed to limit future production of oil, and while there’s been a lot of skepticism that this new agreement will do anything to reduce oversupply and increase prices, it is the first time there’s been any sort of agreement out of OPEC since the sell-off began in 2014.
  • Given all the headlines, it’s easy to miss the more-positive news that has been released, like housing data and low unemployment.

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

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.

How to Become an Informed Consumer of Financial News

Dr. Daniel CrosbyDr. Daniel Crosby, President, IncBlot Behavioral Finance

Whenever given a microphone and a stage, I take the opportunity to warn investors and financial professionals alike against the harm of keeping too close a tab on the financial news. Since my exhortations to turn off the TV are so roundly ignored, I’ve decided to take a new tack—exchanging media abstinence with “safe watching” as it were. With investors, as with unprepared teenagers, the only sure-fire way to avoid trouble is to leave it alone altogether. However, being the realist that I am, I hope to provide some tips for safe viewing that will allow you to indulge without contracting “media transmitted irrationality.”

Of course, the irony of warning you about the ills of financial media via, well, financial media, is not lost on me. However, the very fact that you are here means that you may have a problem. Gotcha! It is a strange thing that an awareness of current financial events can lead to worse investment outcomes. After all, in most endeavors, greater awareness leads to improved knowledge and results. So what accounts for the consistent finding that those who are most tuned in to the every zig and zag of the market do worse than those who are less plugged in?

Informed ViewingThe first variable at play is timing. I won’t bore you with an extended diatribe on short-term market timing, but the fact remains that average equity holding periods have gone from six years to six months in the last five decades. This national case of ADHD has been precipitated in part by advances in trading technology, but is further exacerbated by the flood of information available to us each day. Unable to separate signal from noise, we trade on a belief that we are better informed than we are.

Another damning strike against financial media is that the appetite for new content flies in the face of investing best practices. Warren Buffett famously advised investors to imagine they have a punch card with 20 punches over the course of an investing lifetime. By espousing this strategy, Buffett encourages a policy of fewer and higher-quality stock selections, encouraging downright inactivity in some cases. Compare this time-tested approach with the demands placed on the financial press. Each night, Jim Cramer picks 10 stocks to pass along to his viewers to help sate the national appetite for cheap investment advice and the erroneous belief that more is better. Cramer has used up his whole punch card before Wednesday, and it’s not because it’s a sound investment strategy, it’s because it sells commercials.

Consumers of financial media who fail to account for these sorts of perverse incentives can feel disillusioned when the advice of such vaunted “talking heads” leads them so far afield. Conversely, a more informed consumption of media can enable each of us to separate wheat from chaff and learn to recognize a bona fide expert from a circus clown in a $2,000 suit. The following tips are a great place to start:

Evaluate the source. Does this individual have the appropriate credentials to speak to this matter or were they chosen for superfluous reasons such as appearance, charisma or bombast?
Question the melodrama. While volatility can be the enemy of good investing, chaos and uncertainty are a boon to media outlets hungry for clicks and views.
Examine the tone. Does the report use loaded language or make ad hominem attacks? These are more indicative of an agenda than an actual story.
Consider motive. News outlets are not charitable organizations and are just as profit-driven as any other business. How might the tenor of this report benefit their needs over yours as a decision maker?
Check the facts. Are the things being presented consistent with best academic practices and the opinions of other experts in the field? Are facts or opinions being expressed and in what research are they grounded?

Financial media is always going to have an angle, but so do you and so does every person with whom you’ll interact. That being so, the best strategy is to become skeptical without being jaded and cautious without being paralyzed by fear. If you found yourself thinking, “Who the hell is this guy to lecture me on media consumption?” you’re off to a good start.

Views expressed are for illustrative purposes only. The information was created and supplied by Dr. Daniel Crosby of IncBlot Behavioral Finance, an unaffiliated third party. Brinker Capital Inc., a Registered Investment Advisor

Not Who You Think by Michael Zebrowski, Chief Operating Officer, eMoney Advisor

When asked to identify their most formidable competition, most advisors point to the advisor with the fancy office, lots of back-office support, fully integrated technology, and the book-of-business torn from the society pages. While such advisors do pose a threat, they probably are not enticing your clients so much as the computers those clients have on their desks.
The digital era has transformed the investment landscape, including the way in which clients manage their financial lives. More and more comfortable with online services for education and information, clients are intrigued by how well technology can help them organize their financial worlds, and they are migrating to direct-investment platforms, such as Fidelity Brokerage Services, LLC, The Vanguard Group, Inc., Charles Schwab & Co, and TD Ameritrade, Inc.
This trend is probably more pronounced than one might imagine:
• According to Cerulli Associates, Inc., direct-investment platforms grew from $2.6 trillion in 2008 to slightly under $3.7 trillion in 2010. This increase represents a two-year growth rate of 19%.1
• In contrast, the growth rate for the traditional channel, over the same period, was only 14%. Cerulli ranks direct-investment platforms as the second biggest distribution channel after the wire houses.2
• This direct platform growth happened organically and did so in spite of a lackluster market. In 2000 eTrade and TD Ameritrade had combined assets in the $53 billion range. In 2011 they accounted for nearly $426 billion in assets.3
Growth Drivers
There are a number of factors driving the growth of personal financial management platforms, including investments made in some key areas:
• Advertising and Marketing. With nearly $1 billion a year spent on advertising and marketing combined, self-directed investment platforms have become media darlings.4 No matter what information your clients seek on the Internet, they are likely to come across an ad or sponsored material from a personal financial management provider. The same goes for watching television, reading magazines or books, or driving on the highway. Direct-investment platform ads are everywhere. With so many dollars fed by personal financial management providers into both new and old media channels, no wonder anti-advisor headlines such as “Financial Advisors Are Biased, Study Finds”5 are on the rise.
• Education. Successful personal financial management sites have incorporated “research amenities” and robust client educational materials. When a consumer enters a certain section of the website, educational content appears. Users do not have to search for more information. It is just a click away.
• Technology. Personal financial management sites are focused solely on the consumer. Made as simple as possible, they are straightforward, intuitive, and interesting. They make trading easy and inexpensive.
• Client Service. While the sophistication of the support is debatable, one point is irrefutable: “help” is waiting in the wings 24/7. Many of the top self-service investment platforms have made enormous investments in call-center infrastructure to ensure that financial professionals are available at all times to answer customer inquiries.
The increase in personal financial management systems is a trend to watch. Clients, however, will always need financial advice. Their desire to work with a knowledgeable professional, someone who can help remove obstacles and keep them on the path to fulfilling their goals, will endure. As life gets more complicated, the need to work with a trusted financial professional will only increase.
The content above is from Michael Zebrowski of eMoney Advisor has not been produced by Brinker Capital, nor does Brinker Capital make any claims or warranties to its accuracy. Views expressed are those of Michael Zebrowski of eMoney Advisor and do not necessarily reflect those of Brinker Capital.

1 Osterland, Andrew. “Advisers blind to threat of direct investing, study shows.” Investment News.
February 21, 2012.
2 Ibid.
3 Pew Research, 2010.
4 The Nielsen Company, 2009.
5 Berlin, Loren. Huffington Post. March 27, 2012.