Investment Insights Podcast – July 10, 2015

Bill MillerBill Miller, Chief Investment Officer

On this week’s podcast (recorded July 7, 2015):

What we like: Harvard study shows when there’s debt relief as part of the solution, countries tend to recover and thrive more quickly

What we don’t like: The emotional impact the Greek crisis has on investors, chiefly contagion and anger

What we’re doing about it: Touting behavioral finance; investors shouldn’t allow this anger or fear to dictate their investment decisions; encouraging the themes found in Personal Benchmark: Integrating Behavioral Finance and Investment Management 

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.

 

Hang Your Hat on This: Watermark Consulting’s Consumer Experience ROI Study

Sue Bergin@SueBergin

Lacking a crystal ball, many investors, advisors, analysts and researchers look for something dependable that may aid in their ability to predict stock performance.  The trends and studies sought out can range from analyzing relationships between the countries of origin of Sports Illustrated swimsuit models, Super Bowl Champion football teams, and Boston snow accumulations and the stock market.[1]

For a more enlightening stock market predictor, however, turn to Watermark Consulting’s 2013 Consumer Experience ROI Study.

Watermark’s research shows a substantial performance gulf between companies who deliver a positive customer experience and those that do not.

Using model portfolios of the Top 10 (Leaders) and Bottom 10 (Laggards) publicly traded companies in Forrester Research’s annual Customer Experience Index ranking, Watermark has demonstrated a compelling link between consumer experience and stock price.

Over a six-year period, customer experience leaders outperformed the broader market, generating a total return three times higher on average than the S&P 500.  By contrast, the Laggards trailed the S&P 500 by a wide margin.

As Watermark Founder Jon Picoult points out, the analysis reflects over half a decade of performance results spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

Customer Experience Leaders Outperform the MarketWhile it’s important not to make investment decisions based solely off of one dataset, Watermark’s study is one that you can hang your proverbial hat on when considering investments in people or processes that enhance your clients’ experience.


[1] MSNBC’s 11 Most Shocking Stock Indexes. http://www.cnbc.com/id/29257460/page/1

Attitudes Towards Risk and Their Impact on Children

Sue BerginSue Bergin

An investor who is unaccepting of some investment risk limits potential opportunities for significant growth in their portfolio.  Even so, many such investors are satisfied as long as they remain in the black.  An argument of lost opportunity costs falls on deaf ears.  When you, as their advisor, point out that they are limiting their future growth potential, they are ok with it.  But, what if they thought that their risk aversion might have negative consequences for their children.  Might they look differently at their attitudes towards uncertain investments?

shutterstock_59441101A recent U.K. study shows that children of risk-averse parents scored lower on standardized tests.  They were also 1.34% percent less likely to go to college than children of parents who are more accepting of risk. [1]

According to the researchers, risk-averse people by their very nature may be unwilling to make inherently uncertain investments.  For example, they may be not be inclined to fund a private school education because they cannot be assured (guaranteed!) that it will result in greater successes for that child. Put another way, aversion to risk makes a person less likely to invest in their child’s human capital.

The researchers hint at another possible explanation for the phenomenon. They suggest that attitude towards risk reflects cognitive abilities.

For those of us who work with some incredibly bright, risk-averse clients, the first explanation seems more plausible.


[1]Parental Risk Attitudes and Children’s Academic Test Scores:  Evidence from the US Panel Study of Income Dynamics. http://links.mkt3142.com/ctt?kn=34&ms=NTIxMjM4MAS2&r=MTgxMDg2Njg2MjgS1&b=0&j=NTk5OTYzNTMS1&mt=1&rt=0