Rebalance Our Investments? How Often? Part II

I wanted to publish this second part to what I started some time ago.  Unfortunately a couple of deaths in the family, Christmas, and the holidays all conspired to take my focus away from completing this.

Originally, I wanted to get this done as a means of recommending people rebalance their portfolios in the fall/November time frame.  As we can see, now, despite seasonality being in our favour, the markets are off the November highs.  It should go to make the point that seasonality is the probability of an event, not the certainty of it occurring.  Me, I will continue to play the probabilities, make corrections when proved wrong, and keep my losses to a minimum.

History says this year (2015) is normally the strongest in the four year U.S. election cycle.  Whether we have already pulled those gains forward into the end of last year, or no, remains to be seen.  That is, in fact, the reason we need to rebalance our investments by taking profits and readjusting our asset allocations back to "normal".

 Wishing you all the best for 2015.

Rebalance Our Investments? How Often? (Part I)

Sell In May
Few advisors will ever tell us to "Sell in May, and go away".  While I believe in the affects of seasonality, the argument has been made that abandoning the stock markets every May, may not be as reliable as some studies would indicate.  For one, the cost of getting in, and out, again, can amount to something large.

Part I
If not abandon, should we, at least, rebalance our portfolio?  How often should we rebalance, anyway?  In this, and the following post, I would like to examine these questions.  First, Part I presents a concept necessary to understanding Part II which I will post later.



Comments?

The Value Of Professional Financial Advice

Mr. Greg Pollock, President and CEO of Advocis

 on Lang and O'Leary

Where To Find It
After seeing the President of Advocis on the Lang and O'Leary Exchange, I couldn't refrain from posting this.  I have not connected the link to the image because CBC requires you to watch 10 minutes of commercials to see a couple minutes of programming.  I don't want to waste your time, so will give you an overview, but if you really want to see the clip, be forewarned.  The segment starts around 28:50 in the clip.  http://www.cbc.ca/player/Shows/Shows/Lang+O%27Leary+Exchange/ID/2438219196/

Concerning Fees...
Mr. Pollock doesn’t want to see choice in how advisors are regulated, which I can understand, but he does want choice in how they are compensated.  He says eliminating advisor commissions on mutual funds would result in less advice for Canadians.  To me, the irony is that  advisors are the reason Canadians are so deep into mutual funds in the first place.  In Canada, we can buy better investments than mutual funds, but rarely can we pay more than we do for mutual funds.  Apparently, that is not one of Mr. Pollock’s concerns.

Surprise!!
Regardless, Mr. Pollock and his Advocis organization www.advocis.ca need to get their facts straight.  Advocis likes to claim financial advisors are the reason that clients have more financial assets than people who don’t get the advice of an advisor.  The truth is, the study, “New Evidence on the Value of Financial Advice” by Dr. Jon Cockerline, https://www.ific.ca/wp-content/uploads/2013/08/New-Evidence-on-the-Value-of-Financial-Advice-November-2012.pdf/1653/ only included people who were happy with the advice they were getting (those who were, obviously, making money) over periods of time, in the “advised“ group.  Their results were compared to another group (anyone not currently dealing with a financial advisor) which included anybody who left their advisor because they were not making any money, or worse, were losing money even at the advice of their advisor!  Guess which group came out ahead?

Good Advice?!?
In actual fact, the report states, “The large difference in assets that is observed may be the result of other variables besides advice.”  Since advice, alone, failed to account for the gap in performance, the report goes on to explain how an increase in the rate of savings for advised accounts could explain the difference.  It is not surprising to think people would direct additional money to advisors they were happy with, while others don’t, particularly after being unsuccessful in the past (even with the “help” of an advisor).  

What the study actually proves is that people who find a good advisor should take their advice!  While Advocis may not be lying to us, they sure as hell aren’t telling us the truth when it comes to the true value of  professional financial advice.

Has your financial advisor made you money?  Any idea how much that advice cost you?

Jim Cramer Says, "Discipline Trumps Conviction"

How Much Is Enough?
I love how Cramer talks about going to movies to distract himself from the stock markets when his fund was up big going into the end of the year.  I can't say that is the approach I am taking, but currently I am very, very careful about putting new money into this market.  Not everyone has the luxury of sitting, watching the markets, and being able to day trade.  Still, with most price charts running up into the top right corner of the chart, it would seem to me to be a good time to shorten one's investing horizon. Why give up all, or even most of those hard earned gains?

Setting Targets
To me, this speaks to the importance of setting targets, then taking profits as those targets are achieved.  Fund managers are all in at this point, and pushing hard on the few stocks showing the most promise - not a good time to be in more speculative stocks.  The personal investor has the distinct advantage of being able to get in and out of the market very quickly.  Most personal investing goals for the year, if they were in any way reasonable, should already have been met.  Time to spend more time at the movies!

How is your portfolio doing?

Tolerance - A Trader's Mindset

Truth
I am increasingly amazed by the quickness of people to condemn others.  Examples include road rage, comments on the internet, political parties, and yes, even participants in the stock market.  Somebody once said, "Just because we disagree, that does not mean we should be disagreeable".  Disagreeing is normal - attacking the person we disagree with is not.  It is almost as if proving the other point of view as wrong, automatically proves us to be right.  Worse yet, assassinating another's character proves that they deserve no say in the matter, even when the two are not even related. Often the truth lies somewhere in between various points of view.


Once And For All
What works for one, seldom works for all.  I have to laugh at the advertisements which suggest if we are not using their solution, or their product(s), that can only mean we are obviously doing it all wrong.  The fact they try to suggest that they know what is best for me, without even knowing me, is comical, if not misguided. But to attack me because of what I believe, is nothing but intolerance, plain and simple.  When did we become so intolerant of other points of view?  Maybe it just goes hand in hand with our intolerance of other people who don't look like us.

Buy and Hold
Can we really believe there is only one correct approach to the stock market?  Again, I laugh when "experts" look down their noses in disdain at anyone they believe is behaving contrary to their "buy and hold" approach.  It is as if traders are of the lowest class of people while (buy and hold) investors are what everyone should aspire to be.  Clearly, there is no such thing as timing the market, so not only is anyone attempting it, ignorant, they are probably really, really bad at managing their financial affairs, as well!  Not.

Trading Costs
One of the reasons many can't believe timing the market could ever work, despite evidence to the contrary, is the so-called high cost of trading.  Everyone knows, the more we trade, the less we earn.  I have just discovered an interesting concept which would help explain why that is not always the case.  Next time, I will go into more detail.

Mindset Matters
I did not start this blog post with the mindset that all traders are tolerant, and all investors are not.  Believe it or not, markets actually represent people of all viewpoints.  What one person wants to sell, is exactly what another wants to buy.  We don't (and shouldn't) judge the person on the other side of the trade.  The market is able to exploit any weaknesses we might possess, and makes us pay the price, no matter what our strategy.  Still, if there were only two choices, (which I don't believe is true),  I think I would rather be less wealthy and tolerant of others, than rich and falsely believing I was smarter (and hence, better) than everyone else.  Why? Because being able to let go of judgement, I believe, makes me a better person as well as a better trader.

What are your thoughts?

Looking Ahead With Christine Hughes

Click Here To See The Video

Quantitative Easing
Christine Hughes, of Otterwood Capital Management says the driver of equity markets has been quantitative easing by the US Federal Reserve.  This approach is hugely beneficial to the banksters, and as a result, the financial markets, but does nothing for job creation.  Even with a new Fed. Chairperson, she expects more of the same next year, despite rumours of the Fed. withdrawing stimulus.

Japan
Not so for Japan.  She feels it is only a matter of time until Japan defaults on its huge government debt.  Because government bonds in Japan are owned mostly by the Japanese, she sees the affect of a default being even worse than would normally be the case.  In the case of a world-wide liquidity event (banksters unwilling to lend to other banksters) she says there will be no government bail-out next time.

Next Year
It isn't all bad news, however.  At least for next year, she sees as much as a thirty percent return on US equity markets next year.  Just don't confuse that with the beginning of a long term bull market (no matter what those selling financial products are going to say).  My father always told me, "The bigger they are; the harder they fall!"

What do you think, much higher, or much lower from here?

Wealth Of Habits

Habit
People who lack the wealth they desire, lack the habits that produce wealth.  There is much material on the habits of successful people, not the least of which is Stephen Covey's "Seven Habits of Highly Effective People".  This video is a high level review of that popular, and successful book.



Character
There are multiple takes by numerous people on which habits are important, and how many there are.  Let me make it simple.  From everything I have seen and read, wealthy, healthy and successful people have three character traits which allow them to maintain the appropriate habits.  They are: focus, discipline, and connection.

First Things First
Wealthy people focus on the things that are important to their goals (which they have written down) and accomplish those tasks before they become incredibly urgent.  They have the discipline to put first things first and to also make time for exercise, friends and family, and learning.

Common Good
Zig Ziglar has always maintained we can get everything in life we want, if we just help enough other people get what they want.  An understanding that we, collectively, are greater than the sum of the parts is often missing in all aspects of life, today.  Anything we do to undermine any of the parts (people) of that whole is detrimental, not only to them, but to our success, as well.  The common good, as well as our own, is best served through an attitude of humbleness, and gratitude.

While character is something that can take a life-time to build, habits, only take about 30 days.  Good habits build good character.  You too could be on your way to a healthy, and wealthy future, in just about 30 days.