Dis and Dat - Happy New Year - January 2010
Happy New Year
“Now there are more overweight people in America than average people. So overweight people are now average... which means, you have met your new years resolution”.
~ Jay Leno.
It's that time of year again to make New Years Resolutions. As you may recall our objective in this communication piece is to point out some items which are popular but could be harmful to your investment strategy. You may also recall that Dalbar studies tell us the average investor underperformed both the S&P 500 and the average mutual fund by pretty significant margins. With the wild swings in prices over the last few years, I imagine this has continued.
I have recently read that it is more beneficial to break down resolutions into small, bit size pieces, instead of huge, unrealistic changes. As an example, usually it is said, “I will lose 30 pounds this year.” Instead, you may vow to walk 30 minutes just one day in January, and double that each month until you are accomplishing this five to six days a week and a new habit is formed.
Along those lines, a few investment traditions occur this time of year which may do more to make your returns closer to that of the average investor than you would like. First is the effect of judging your portfolio on performance as of the end of the year. If we are honest with ourselves, the value of our portfolio on December 31st at 3:00p.m. has very little to do with whether or not we have a proper investment strategy to meet our long-term goals. Yet the most harmful part of this tradition could be the tendency of investors to take action on the “calculated results”. The average investor goes through their portfolio and sells the poor performers and buys the hot, popular investments; essentially, selling low and buying high. A lot of investors also change investment managers on the same basis. If you are attempting to avoid some of the average investors "mistakes" then avoiding this tradition may serve you well.
I have recently run across John Wooden's pyramid of success, in which a lot of the objectives he states is in attempting to avoid emotions. I thought it would be interesting to mold the pyramid toward investing. We will surely not attempt to swallow this elephant all at once, but instead break it down into bite size pieces. We will begin as Wooden does in his book, “The Essential Wooden,” with the cornerstones of its pyramid.
He begins with avoiding the fascination of focusing on wins to determine or define success. This comes from a man who "won" a lot. His cornerstones are industriousness and enthusiasm. We have enclosed his pyramid for you to review.
It states that under industriousness "success travels in the company of very hard work. There is no trick, no easy way." We may add or mold it toward being a successful investor requires hard work. There is no Holy Grail, so quit searching for it. You need to review your expenses, and cash flow needs, which then should be communicated to your advisor. You should question whether your withdrawal is realistic to your portfolio size and asset composition. Also, learn the objectives and risk of the three fundamental asset classes -- cash, income investments, and common stock equity. This way, you can provide your advisor with an informed decision on your target allocation for each category. Meeting with your advisor regularly is essential.
For enthusiasm, Wooden states "your energy and enjoyment, drive and dedication will stimulate and greatly inspire others." We would add or mold it with this your investment and financial success is important not only for you, but your beneficiaries as well. For that reason, you should enjoy and strive for financial success, so that you may show, inspire, and benefit your loved ones or inspired causes.
We hope this is beneficial in some way to keep us from being satisfied with the average effort that Jay Leno describes above.
See you next time.
James Pope
The S&P 500 is an index which is typically used to gauge the performance of the stock market in general. You cannot invest directly in an index. Past performance is not a guarantee of future performance. This is not an offer to sell or buy securities nor is it designed to provide individual investment or tax advice. Investments do involve risk and you should review all advice in light of your personal situation. An investment cannot be made directly into an index. The information contained above is based upon the opinions of James Pope and Shane Haag of Diversified Investment Strategies, LLC and is not guaranteed.
Please remember to contact Advisor.Investments in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct Advisor.Investments to effect any specific transactions for your account. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.
Advisory Services through Advisor.Investments • A doing business as name of Diversified Investment Strategies, LLC, an SEC Registered Investment Advisor • Insurance Services through Advisor.Investments: Main Office and Mailing Address: 11939 Bricksome Avenue, Baton Rouge, LA 70816
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Past performance may not be indicative of future results. The above individual account performance information reflects net of applicable transaction fees and other related account expenses. Account information has been compiled solely by Advisor.Investments, has not been independently verified, and does not reflect the impact of taxes on non-qualified accounts. In preparing this report, Advisor.Investments has relied upon information provided by the account custodian. Please defer to formal tax documents received from the account custodian for cost basis and tax reporting purposes. Please remember to contact Advisor.Investments in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct Advisor.Investments to effect any specific transactions for your account. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.
