Random Performance

You may have heard of a big game happening in Atlanta on Sunday: Super Bowl LIII. (Do you remember what the Roman Numerals equate to?) The City has spent the past several weeks preparing for the estimated 150,000+ out-of-town guests to arrive, while over 1 million people are expected to attend the series of festivities leading up to the game.

This year’s match-up pits the Patriots vs. the Rams – two very different organizations. The Patriots are led by 41 year-old quarterback Tom Brady and coach Bill Belichick, who need no introduction. This organization has been the gold standard of the NFL for the last two decades, having been to 9 Super Bowls and winning 5 of them (much to the dismay of Atlantans).

On the opposite side of the field are the Los Angeles Rams, led by a 33 year-old energetic coach in Sean McVay and a 24 year-old quarterback, Jared Goff. The Rams are new to Los Angeles as of 2016, having spent the previous 20 years in St. Louis. By all accounts, a young organization in the NFL.

That’s right, the Patriots’ quarterback playing the game is 8 years older than the Rams’ head coach, and he was basically graduating high school when the Rams’ starting quarterback was born! But here they both are, playing a final 60 minutes to lift the Lombardi trophy and be crowned the champions.


If we look back at the performance of the NFL’s two leagues – the AFC and the NFC – over the last 10 years, is it any surprise that the Patriots and the Rams are playing in the Super Bowl?

The following charts show the playoff seeding of the AFC and NFC over the last 10 years, from 2009-2018. Note that it does not show how those games actually played out (i.e. #6 Atlanta beat #3 Los Angeles in 2017) because there is no final seeding after the games are played – just that the winners advance.


When looking at the NFC, what are your takeaways? Is it clear who was the best team over this decade? Atlanta has made the playoffs 5 times, but has nothing to show for it. New Orleans has 6 appearances and 1 Super Bowl victory. 40% of the time they didn’t even make the playoffs. Philadelphia has 5 appearances and 1 Super Bowl victory. 50% of the time they didn’t even make the playoffs. Green Bay has 7 appearances in the last 10 years but “only” 1 Super Bowl victory…should those odds be better? Meanwhile, the NY Giants have missed the cut on 80% of the last 10 playoffs, but they have the same number of Super Bowl victories as Seattle, New Orleans and Philadelphia.

The truth of the matter is that in hindsight, we could say that the Green Bay Packers appear to have been the cream of the crop in the NFC for much of the last 10 years. I think that is a reasonable statement. But in any given year, there was no guarantee what would happen, and certainly no accurate forecasts at the beginning of the season.

Now let’s look at the AFC. This one is a little different in that it is pretty easy to notice that the league was dominated by just a few teams. The aforementioned New England Patriots, the Denver Broncos and the Pittsburgh Steelers. In hindsight, we feel pretty good about saying, “Well, no wonder these teams were in the playoffs nearly every year and winning Super Bowls. Any fool could have predicted that.” Truth is, they might be right; but this has more to do with each of those teams having dominant, long-term quarterbacks that led their teams to victory. Tom Brady, Peyton Manning and Ben Roethlisberger are all future Hall of Famers.


Picking one of these 3 teams, you like your chances of being right. However, Pittsburgh made the playoffs just 6 out of 10 years; Denver just 5 out of 10 years. They each have 1 Super Bowl victory over this time period. (Also note that Kansas City, Indianapolis, Cincinnati, and Baltimore all have 6 playoff appearances as well).

Ah yes, the New England Patriots. 10-for-10 in playoff appearances. 5 Super Bowls played in, with 2 trophies hoisted (one will be determined on Sunday). Well, there is such a thing as periods of out-performance, and they have certainly enjoyed that over the last decade. But it is just as important to note that they had just 5 playoff appearances in their first 25 years in the league!


The same holds true in investing. Each year, there are winners and there are losers among the different asset classes around the globe. Like the AFC and NFC playoff charts above, the below chart provides no decipherable information as to where the best place to invest your money is, or when.


Source: Dimensional Fund Advisors


Anything can happen from one year to the next. If you don’t believe me, take a look at what Emerging Markets did in 2008 and 2009.

So what can we learn from all of this?

First, that past performance does not guarantee future results.

Second, that it is impossible to predict what will happen. We’re fooling ourselves into thinking we have some absolute knowledge that, in reality, is based on bias or emotion.

Third, that there can be periods of out-performance (S&P 500 from 2010-present and the Patriots over the last 20 years) relative to peers as well as periods of under-performance (S&P 500 from 2000-2009 and the Patriots of the 1970s and 1980s). However, there is no data to suggest that it is likely to persist in the future.

One thing we can all agree on: it is time for Tom Brady to retire.

"Should I..." Series: Invest Now or After Election Day?

I have money in savings and want to invest it. Should I wait until after Tuesday, November 6 – the midterm elections – to get my money invested?

No matter who you are, there are likely two things that have crossed your mind recently: market volatility and political discourse. Thus, it would seem natural that both factor together when deciding whether now is the time to invest idle cash.

I was recently asked this very question, and along with that, I was asked what the market did recently. My response was that the market was higher than where it was a week ago and lower than where it was a month ago.

But so what? That is what the market has done. It does not tell us anything about what the market will do. And there is certainly no such thing as what the market is doing. Notice the subtle, but extremely important, differences there.

Markets don’t always act in ways that we think are rational. It is impossible to silo independent drivers of what makes the market go up or down for any given period of time. Election day, tariffs, taxes, earnings reports, jobs reports…these are all just some of the factors that we’ve heard about recently which work in beautiful harmony and can impact what drives market movements. Or at least our perception of what drives market movements.

To decide whether now is the time to get cash invested, focus instead of what you know and what you can control:

1.       We know that mathematically speaking, a dollar invested today has a higher expected return than a dollar invested tomorrow. Simple enough concept, but there is more to it than that behaviorally.

2.       How much cash am I looking to invest relative to my overall wealth or net worth? Is it a material amount or just another contribution in a long line of contributions?

3.       What is the money for? It goes without saying that if you’ll need this money for something in the short term, then it likely should not be invested at all. If this money is for long term wealth building and/or retirement, then it should be invested according to your overall investment strategy in accordance with your specific risk tolerance.

If you’re investing for the long-term and have an investment strategy in place, then what happens this week, next month, or the next 12 months is almost irrelevant. It’s also unpredictable.

Notice we haven’t even touched on the psychological factors that go along with sitting on cash. That is vitally important to understand, and we’ll cover that next time.

Wild Wild Week

Last week was a wild, wild week.

For a few days, it was one of those weeks where we were reminded what it feels like to lose money. On Wednesday, we experienced a very rough day in the market. S&P was down 3.29%, Dow down 3.15%, Nasdaq down 4.08%. In fact, it was the worst day in the market since February. Eight whole months – an eternity! Thursday was not any better.

Here comes Friday, with surging stocks and the S&P 500’s biggest gain since April 10. What are we to make of all of this?

If you’re like many, you turned to news outlets to get a better understanding and probably saw things like “Fed policy: crazy or sane?” or “S&P 500 rises for first time in 7 days” but still having “Worst month since March” but at the same time “Nasdaq has biggest jump since March.” By the way, all of the aforementioned headlines came in one 15-minute window on Friday morning. Make sense yet?!

To be blunt, I do not recommend you changing your investment strategy based on what happened last week, this past month, or even this year. If what happened last week has left you in emotional distress, you may need a reality check. Returns are only possible by taking risk. Rather than chasing returns, it’s imperative that you understand the risks you take in your investments.

Arguably the biggest rule about investing is that no one has a crystal ball. Worth repeating – no one can predict what will happen and when. It’s not cliché…it’s reality!

The best remedy for a week or month like we just experienced is having an investment strategy. Whether you are a DIY’er or work with an advisor, you should have a strategy and know what that strategy is well in advance of any shakeups.

However, even when we have reasonable evidence that a particular investment strategy will work, the hardest part is the discipline it takes to stick to that strategy through thick and thin.  It is so difficult because that little voice in your head says, “What if this doesn’t work anymore?  What if I’m wrong? What if my neighbor/friend is supposedly doing better than me?” Often times, that little doubt is all it takes to turn steadfastness into the emotional turmoil that has ruined generations of investors.

The key to successful investing as I see it is two things, listed in order of importance.

  1. Stay disciplined. This requires hard work. It’s easy to be disciplined when everything is going your way, but it’s much harder when the tide is turned against you.

  2. Remain diversified. Over-concentration of investments (to one company, one sector, one asset class, or one country) is one of the top reasons anyone ever ends up bankrupt and has a poor investment experience.

Last week was a wild, wild week. It felt like that 2010 Wimbledon match between John Isner and Nicolas Mahut. You know, the one that started on a Tuesday and ended on a Thursday? Where the 3rd and 4th sets went to a tie-break, and the match finally ended in the 5th set at 70-68. You remember, because it was emotional!

More About the S&P 500

Recently, we took a look at the S&P 500 which included a great visualization of the market cap of companies that make up the index. 

To many in the investment world, the stock market is still on its bull-market run (though there is some disagreement on the technical length of it). This means that companies which make up the index have grown in value as a whole. Individual companies have jockeyed for position with some being added to the list of largest 500 companies in the U.S. while others have fallen off.

Josh Wolfe brings us another great visualization comparing the 10 largest companies in the S&P 500, from March 2009 to August 2018. 

S&P 500 rank.jpg

Time surely flies, and there are so many historical lessons gleaned from market data. Arguably none more obvious than the rise of Amazon. But what about the tumultuous decade that Bank of America experienced? Or the fall of IBM, relatively speaking? Only three companies in the top 10 in March 2009 remained there in August 2018. 

Perhaps the most simple lesson learned from a chart like this is that we don't know what will happen in the future. What we believe to be the best companies at the current time may fall off in the not-too-distant future. Companies that we don't yet know anything about or are not evenly publicly traded may one day dominate the headlines and market share. 

About the S&P 500

The S&P 500 is an index of the 500 largest U.S. companies. It is market-capitalization-weighted based on those companies' values. When people talk about "the market," they are often referring to the S&P 500 (other times the "Dow" which is an index of just 30 stocks).

Michael Batnick, Director of Research at Ritholtz Wealth Management, took the finance world by storm recently by putting together the following chart and data. He points out that the market cap of the top 5 S&P 500 companies is $4,095,058,706,432 while the market cap of the bottom 282 S&P 500 companies is $4,092,769,755,136 (as of July 2018). 



What we can learn from this is that there are a few select companies that can control the narrative of "the market." These are companies that we all know, recognize, and may even love. But that should not dictate how we invest.

It's true that FAANG and other mega-cap stocks have performed well, but so have companies in other deciles of the S&P. It is just as important to remember that there are about 3,000 other publicly-traded companies in the US and thousands more abroad.


You CAN Have Too Much Money in the Bank

Diversifying your financial portfolio is the best way to ensure you are protected in all kinds of economies.  That means your investments in the stock market should be diversified, but it also means your money should be working for you in several different sectors.  Easily accessible savings or money market accounts, stocks, bonds, retirement accounts and real estate are all important to have in your repertoire.  Finding the proper balance is key.  This piece from explores the risks of avoiding risks.  When you keep a large percentage of your net worth in the bank rather than investing it, you miss out on returns that could mean a much more comfortable retirement.  It's worth the read.  Please feel free to contact me if you would like to discuss your own financial portfolio and whether it is setting you up for the future.

Pay Yourself First

Every time you order chicken breast and roasted vegetables instead of lasagna, you are making a healthy choice that, if you are consistent, will pay dividends to your future self.

Every time you decide to go to the gym, even though you are tired and would prefer to spend the time with Netflix and your couch, you are taking a step toward a healthier future.

But ask yourself this:  Are you taking steps to be sure your financial future is healthy?  

If the answer is no, the most important thing you can do -- consistently -- is very simple.  Pay yourself first.

When you work up your budget, the category at the top of the list should be SAVINGS.  This includes 401k and/or IRA if it is not automatically taken out of your check, an emergency fund savings account, an investment account, and a traditional savings account.

Paying yourself can easily be done by a direct deposit that you set up with your bank.  If the money goes out of your check and into savings automatically, you won't see the money, you will learn to live on the balance of our paycheck and you will be financially able to handle unexpected expenses that happen to all of us.  You will also be setting your future, retired self up for a comfortable life without having to worry about when your next social security check will arrive.

Let's take a look at each category:

401k/IRA - It is critical to be good to your future self by saving for retirement while you are in your early and peak earning years.  If you start early, the money you put away has decades to compound.  Most employers will match a certain percentage of the money you save.  Don't leave this free money on the table!  

Emergency Fund - Put money aside in an emergency fund for the unexpected -- your roof springs a leak, your hot water heater dies, you need expensive dental work.  Without an emergency fund, many people put these expenses on their credit cards and wind up paying that debt down for years.  In addition, a longer term goal is to save at least 3 months of living expenses in the emergency fund in case you lose your job and your income is interrupted.

Savings Account - This is for expected expenses that may not be included in your monthly budget.  For example, your twice yearly car insurance payment, saving for a vacation or for a new car. 

Investment Account - Watch your money grow when you invest in mutual funds and bonds.  It is simple to set up an investment account with a brokerage house like Vanguard or Fidelity, and if you deposit even a small amount each paycheck, you will see your money grow over time.  The stock market offers a potentially higher return on your money than a savings account and will help you keep up with inflation.

Investing In Gold - What Does Warren Say?

I talk to my clients all the time about the need to grow their wealth by investing in companies designed to generate profits for their shareholders, being consistent with investing and resisting the urge to take money out when the market goes through inevitable downturns.  


A few weeks ago, Berkshire Hathaway CEO Warren Buffett crystalized this advice with an example that I think is worth sharing.

Buffett talked about the difference between investing in stocks and investing in gold.  Gold is often considered a "safe" investment and one many people turn to when the markets are volatile.  

Here is what he found:

If you invested $10,000 in a S & P Index Fund in 1942 (the year he began investing), your investment would be worth $51 million today.

If you invested the same amount in gold in 1942, your investment would be worth $400,000 today.

"For every dollar you could have made by investing in American business, you would have less than a penny of gain by buying into a store of value which people tell you to run to every time you get scared by the headlines," Buffett said.

This example perfectly illustrates why it is so important to invest as early as possible and remain disciplined about staying in the market for the long haul.

Your future self will thank you.

Get Inspired by Sylvia Bloom

There was a news story a couple weeks ago about Sylvia Bloom, a legal secretary from Brooklyn, NY who died at the age of 96 after working at the same law firm for 67 years.  Her 67-year run is notable, but friends and family were astounded to learn shortly after her death that she had amassed more than $8 million dollars on a secretary’s salary.  Sylvia left some money to relatives and friends, but he bulk of her estate was donated to fund scholarships for needy students.

Reading about Sylvia’s story reminded me of another, similar story from a few years ago.  Ronald Read was a janitor who lived frugally and, seemingly, within his means.  He passed away at the age of 92 with a fortune of more than $6 million dollars, that he donated to a library and a hospital in his home state of Vermont.

What Sylvia and Ronald both had in common was smart spending and investing habits.  Neither one had a crystal ball.  What they did have was discipline.

Let’s break down Ronald’s potential investment timeline to see how his discipline paid off in a big way.

1945 - Lets say Ronald started investing in 1945 with $1,000.

Thereafter, he invested $50 a month, every month, until 2014.

1967 - It took Ronald 22 years to grow his investment account to $100,000.  That was in 1967. 

1965 – 1975 - Between 1965 and 1974, Ronald kept adding $50 per month, but the stock market was fickle and his account had ups and downs.  His account stagnated -- it totaled $93k in 1965 and $98k in 1974. 

Many people would have been afraid of the market fluctuation and gotten out during those years.

1989 - Ronald stayed the course.  By 1989, his investment account was worth $1 million.

1999 - Just ten years later, in 1999, it had grown to $5 million.

2002 - When an economic downturn hit, Ronald’s account shrunk to $3 million in 2002.  Many investors were spooked and got of the market at that point.

2007 -  Not Ronald.  He stayed the course and his account doubled, to $6 million, just five years later in 2007.

2008 - Another downturn followed, and he lost $2.2 million.  In 2008, his account had shrunk to $3.8 million.  Ronald didn’t flinch. 

2014 - He kept investing and in 2014, his account was worth $10 million.

I know most of us don’t have 60+ years to invest at this point, but Ronald’s trajectory illustrates the importance of consistency and of staying the course even in down markets.  After the time periods when his portfolio took the biggest hits, the largest gains followed within five years.

Take a look at Ronald’s chart below for some inspiration! 

1945 - $1,000

1965 – $93,000

1967 - $100,000

1974 - $98,000

1989 - $1 million

1999 - $5 million

2002 - $3 million

2007 - $6 million

2008 - $3.8 million

2014 – $10 million

The best investment advice you can follow is this:  start early and stay consistent.  History has proven that even investing small amounts – consistently – and staying the course in down markets, will pay off in the end. Let the market work for you!

So think of Sylvia and Ronald, and get started.  If you want some investment advice, please don’t hesitate to contact me.

Cobb Financial Advisor, Economist React to Stock Market's Fluctuation

Marietta Daily Journal:

By Ricky Leroux

Investors took a hit early Monday as stock prices saw a significant decrease, but in the afternoon, the market began to climb back after the initial decline, an example of why one local financial
advisor said he told his clients to stay the course.

Kenneth Baer, managing partner at east Cobb’s Baer Wealth Management, said Monday morning his firm had gotten a few calls from clients concerned about the market, but he and his staff attempted to reassure them.

“This is just part of the risk of owning stocks,” Baer said. “This is expected to happen. It’s not a matter of if, it’s just a matter of when. You have to understand and accept this risk with a
part of your portfolio if you want to achieve return over time.”

Baer said he’s told clients to “stay the course” and be disciplined in their approach to investment.

“That’s part of what we do here is to act, really, as a coach,” he said. “We’ve got a game plan, and we’re going to stick to that game plan. Now we might make adjustments down the road, but as of
right now, we’re going to make sure that we stay disciplined.”

Days like Monday are an example of why investors need a diversified portfolio, Baer said.

“To me, it’s just a blip on the radar,” he said. “Whether it lasts longer or goes deeper is unknown, but that’s why you don’t have a portfolio that’s 100 percent stocks. You have a portfolio that’s a mixture of stocks and bonds, and bonds have done well over the past few days and are doing well (Monday).”

Roger Tutterow, an economist and professor at Kennesaw State University’s Coles College of Business, said Monday morning’s drop in prices is simply a “market correction” after years of growth, but that doesn’t make it more palatable to see such a decline.

“It’s painful to watch for anyone,” Tutterow said. “We see that this dropped, really you’ve lost well over 10 percent of your value or 10 percent of the prices between the corrections we had late
last week and (Monday morning), but you also have to put things in context. We had a really strong run in the broad market from the summer of 2009 to date. Over long periods of times, these days of
volatility tend to wash out a little.”

Because it’s difficult to outguess the market in terms of timing, Tutterow echoed Baer’s comments, saying investors should keep a diversified portfolio and “ride the market” to benefit from the
recoveries that follow the downturns.

“The big worry I have is that many times when you see these kinds of events, after a lot of the damage is done, people sell their stock, and so they absorb the downturn, but then they’re not in place when there is a recovery,” he said. “In particular, during the market correction of 2008-09, there were a lot of investors who panicked toward the bottom and got out and so they absorbed the losses, but then they were not in place when the market started recovering in the
summer of 2009.”

Tutterow said investors who don’t need cash in the near term should try not to get distracted by these kinds of downturns and instead, focus on the silver linings.

“Remember that when prices go down, it means that there is an opportunity to buy,” he said.