Markets

Hope and Opportunities for the Retail Investor

December 25, 2019 by Hans Blake, CFA, CPA

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on hope for the retail investor. Because retail investors tend to struggle to outperform, we want to ask Larry what opportunities are available for them. Larry believes there are great opportunities for retail investors. Academics have converted Alpha into data that allows retail investors to invest “like Warren Buffet.” This is due to academics basing their investment philosophy on research, a.k.a. factor-based investing. Typically, there are extra or unique risks (independent factors) present with factor-based investing. Therefore, these investments have delivered above-average returns. Between 300-600 factors have been identified (as mentioned in Larry’s book). However, we tend to only think that there is a handful worth investing in. If you are an Intelligent Investor who wants to explore Factor-based investing, go to our blog page. Also, you can check out Larry Swedroe’s book Your Complete Guide to Factor-Based Investing here. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining the Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing. In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com. Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp. Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

Greed & Chasing Alpha

November 13, 2019 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on how greed and chasing alpha makes it difficult to outperform. We’ll discuss how there has been a change in the landscape due to the increase in money chasing. Larry points out the fact that there were almost no hedge funds in the 1950s. However, he talks of the “Golden Era” of hedge funds around the turn of the century. There was a growing increase in the number of mutual funds and the generating of big alpha. As money began pouring in, much of alpha began to lose value. This was due to the small amount of money, and factors not being well-known or exploited. Consequently, today much of alpha has been converted into beta and eliminated. This over-crowding resulted in more money, more competition, and fewer victims. As a result, these factors ultimately raised hurdles for active managers. At Intelligent Investing, we believe in the importance of independence and not chasing after alpha. We understand that independent bookstores and independent coffee shops have a different feel from Barnes and Noble and Starbucks. Independent financial firms have a different feel from big-name investment firms. We are locally owned and operated boutique wealth management firm, and feel this keeps us close to those we serve. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

The Paradox of Skill

October 16, 2019 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on the paradox of skills. This is the third issue that makes Alpha become elusive. Larry explains two thoughts that need to be considered. First, most people fail to understand the difference in competition. In a one-on-one competition, the successful competitor wins, or outperforms, by a significantly higher percentage than his opponent. The collective wisdom of the market, however, is the tougher competition. Second, Larry expounded on the increase in education within financial institutions. Interestingly, this increase in skill level is needed to generate Alpha. Larry states that this is a big problem consequently for the active world. At Intelligent Investing, we believe that no advisor can consistently deliver outperformance. As Nick Murray says in one of his books, “Adam and Eve were goal-focused investors…until the serpent told them they could be–with just a little guidance from him–smart enough to outperform. Remember, outperformance is the apple. Don’t bite into it. To learn more about the other reasons Larry believes the Quest for Alpha is so difficult, visit out blog section at investedwithyou.com/blogs We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

The Shrinking Pool of Victims

September 11, 2019 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on how the shrinking pool of victims makes it difficult to outperform. In his book Why Alpha is Becoming More Difficult, this is the second issue. Referencing William Sharpe, Larry notes that if one investor outperforms the market, consequently somebody else has to underperform. Larry points out the high percentage of trading done by individual investors in the 30s, 40s, and 50s. Today, more trading is done by institutional investors, high-frequency traders, etc. Two problems have arisen because of this switch. First, people are abandoning active management due to its bad history. Second, and consequently, those who have underperformed are abandoning active management. Larry states that there’s not enough alpha to go around, and he asks the question, “Who is left to exploit?” As the pool shrinks, it is becoming harder and harder to outperform. At Intelligent Investing, we believe that no advisor can consistently deliver outperformance. As Nick Murray says in one of his books, “Adam and Eve were goal-focused investors…until the serpent told them they could be–with just a little guidance from him–smart enough to outperform. Remember, outperformance is the apple. Don’t bite into it. To learn more about the other reasons Larry believes the Quest for Alpha is so difficult, visit our blog section. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Academics Converting Alpha Into Beta

August 21, 2019 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on how academics converting alpha into beta make outperformance difficult. Prior to 1992, only active managers had exposure to market beating stocks. In this episode, Larry details the history of alpha and outperformance and what changed for passive investors. He refers to a white paper titled, The Cross-Section of Expected Stock Returns written by Fama and French. This paper altered the landscape of investing because of it’s 3 factor model. Now passive investors have the ability to gain exposure to the same markets in a much more tax efficient manner. At Intelligent Investing we believe that Asset Allocation, or the long-term mix of stocks, bonds, and cash is the primary determinant of the variation of returns a client can expect. As a result, we focus on creating an appropriate blend that has a dual focus- maximizing returns and minimizing risk. To learn more about our asset allocation and our other wealth management practices, visit to investedwithyou.com/philosophy. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Time In Markets Is Important, Not Timing Markets

August 15, 2019 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Fear is Back

We have recently seen an uptick in volatility and fear. As you can see from this Fear & Greed Index, which represents what emotion is driving the market now, there has been an increase in fear.

Timing Markets

As you can see from the chart below from J.P. Morgan, time in the markets is what matters. On the left, you will see what most investors focus on…the short term. Going back to 1950, in any given 1 year period, the S&P 500 was anywhere between -39% and +47%. That is quite a volatile swing. It’s no wonder that investors typically jump from the ship too early, and lock in permanent losses. This misbehaving is compounded by investors waiting on the sidelines in cash, while markets rapidly recover. This misbehaving means they buy high, sell low, and repeat.

Time In Markets Is Important

An intelligent investor will reflect on the right-hand side of the chart and realize that although in the short run, anything can happen, a disciplined long-term approach will smooth out the ups-and-downs, resulting in a potential for a greater chance to succeed. The problem is that the constant 24/7 media doesn’t help investors with their constant focus on fear, because let’s face it—fear sells. Even in the above example, having a hypothetical 50/50 portfolio of stocks and bonds over a 5-year rolling period didn’t produce a negative return. Will this chart repeat in the future? Probably not exactly, but having a long-term approach and diversified portfolio may give you a better chance of meeting your long-term goals than having a short-term mindset.

Time in markets is important... not timing markets. Share on X

Intelligent Investing is dedicated to improving investor behavior by being a behavioral coach through the market cycle rollercoaster that we get by participating in markets. If we can help you stick to your financial plan, please let us know. We work predominantly with high net worth individuals and institutions who want to become Intelligent Investors.

How’s It Going To End?

July 18, 2019 by Hans Blake, CFA, CPA

The Truman Show is a 1998 science fiction film featuring Jim Carrey as Truman Burbank. Truman, the unsuspecting star of The Truman Show, a reality television program broadcast live around the clock worldwide, spends his entire life in the fictional seaside town of Seahaven Island. This giant set equipped with state-of-the-art technology can simulate day/night, weather conditions, and has thousands of cameras to watch him. During his college years, Truman was supposed to fall in love with and marry co-student and actress Meryl. Instead, he fell for Sylvia, an “extra.” Sylvia warns Truman his “reality” is fake. Outside of the show, Sylvia has become part of a “Free Truman” campaign that demands the end of the show and Truman’s freedom. Sylvia helps Truman realize he is a pawn within a greedy corporation and wears a red sweater with a pin that says, “How’s it going to end?”

The question on Sylvia’s button may be the same question on your mind when it comes to the market. How is it going to end? When is it going to end?

What is a Bull Market?

First, let’s define a bull market. A bull market is a market pattern that occurs when prices keep rising up 20% from a previous drop of 20%. A bull market can refer to the securities market (like stocks and bonds), but can also refer to other markets like housing.

How Will This Bull Market End?

The U.S. economic expansion entered a record 11th year, while the bull market in equities is a few months older. You may be asking yourself the same question Sylvia’s button asked. The three Ts– Trump, Tariffs and Trade wars, can be a wet blanket on the embers of growth, but the market can still go higher. The adage, “Bull markets don’t die of old age” may be true, but attempting to time when to get in and out of markets can be futile and dangerous to reaching your long-term financial goals. Always keep in mind that the bottom of a bear market is the start of the next bull market, and also remind yourself of your personal time horizon. The truth is nobody knows how the current bull market is going to end.

When Will This Bull Market End?

There is no expiration date for bull markets. Nobody has a crystal ball to say when the bear market will begin and how long it may last, which is why we believe it is prudent to maintain a diversified approach and focus on the things you can control and not let fear or greed dictate your next move in your portfolio.

Maintain Discipline

Warren Buffett famously said that like dieting, successful investing is far easier to understand than to accomplish—because it requires discipline. At Intelligent Investing, we monitor and rebalance portfolios with the goal of maintaining the amount of risk we jointly agreed to take. We have a strong philosophy and set of processes that strive to reduce the emotional component of managing wealth.

Preparing for the Next Drawdown

Remember your history. Big equity drawdowns happen time and again and tend to drag down typical investor portfolios with them. The S&P 500 drawdowns worse than 20% have happened 11 times since 1926. We will have a bear market, but studies have shown that attempting to tactically avoid the next equity selloff is likely to disappoint investors. Diversification and discipline are still investors’ best bet.

We are long-term wealth managers. We try not to get caught up in the loud noise of the markets and we encourage you to do the same. If you’d like a financial accountability partner who can help minimize financial stress to maximize your life, let us know.

The Difficulty of Consistently Outperforming the Market

June 27, 2019 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Larry Swedroe on the difficulty of consistently outperforming the market. Over time, the markets are becoming more efficient, consequently making it harder for active managers to outperform. In this episode, Larry explains some reasons why there’s little to no evidence of persistence of outperformance. We have several upcoming podcasts that will feature Larry, so be sure to subscribe to our podcasts, if you haven’t already. He breaks the numbers down using an example from Charles Ellis’ white paper. According to Larry, if we look at history, around 20 years ago only 20% of managers were outperforming before taxes. After taxes, it was about 10% and currently, it is approximately 2% of managers outperform before taking into consideration taxes. Unfortunately, no advisor can consistently deliver outperformance in the market. At Intelligent Investing, we believe the dominant determinant of long-term, real-life returns will be the behavior of the client and advisor. This is why we strongly believe in behavioral teamwork. To learn more about our behavioral coaching, go to our philosophy page. You can also read “The Loser’s Game” by Charles Ellis here. We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.