3 Things 8-30
08/30/2021 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One Why The “Average Investor” Underperforms The Market According to marketwatch.com, the 20-year annualized return of the S&P 500 was 7.68% while the average equity fund investor’s return was 4.79%. In trying to account for the gap, those researching it often look at fees as they assume they’ll account for the bulk of the difference there. What they are finding is that fees aren’t the biggest issue, human behavior is. Yes, there are times when competing needs for capital or lack of capital are the chief cause, but at least half of the time, psychology is the cause of the investment shortfalls. Specifically, investors tend to make emotional decisions in both directions. When the market is going up, they get excited and follow the herd in. When the market is going down, they get nervous and follow the herd out. They buy high and sell low, in other words, because their emotions get the best of them. So what to do? Well, Dana Anspach of thebalance.com has four pretty good tips on how to avoid succumbing to bad investing impulses: "1. Do Nothing A conscious and thoughtful decision to do nothing is still a form of action. Have your financial goals changed? If your portfolio was built around your long-term goals (as it should be), a short-term change in markets shouldn't matter. 2. Know That Your Money Is Like a Bar of Soap To quote Gene Fama Jr., a famed economist, “Your money is like a bar of soap. The more you handle it, the less you’ll have.” 3. Never Sell Equities in a Down Market If your funds are allocated correctly, you should never have a need to sell equities during a down-market cycle. This holds true even if you are taking income. Just as you wouldn’t run out and put a for-sale sign on your home when the housing market turns south, don’t rush to sell equities when the stock market goes through a bear market cycle. Wait it out. 4. Trust That S cience Works A disciplined approach to investing delivers higher market returns. Yeah, it’s boring; but it works. If you don't have discipline, you probably shouldn't be managing your own investments. I’d add to that list number five, which would be, find an advisor you can trust.
Thing Two Are Monopolies Ever Good? Maybe they’re never good, but they’re probably better than the alternative in at least a few cases like the military and the electric grid. Those cases aside, monopolies are bad because the lack of competition drives up prices and tends to drive down quality over time. That’s why, going all the way back to 1890 and the Sherman Antitrust Act, Congress has sought to preserve, “free and unfettered competition as the rule of trade.” That’s also why, if you can take them at their word, politicians, from time to time, go after this or that Big Industry. They believe consumers are being harmed by the lack of competition. So why is it that Congress hasn’t gone after Big Education? There is virtually no competition so: 1) prices are rising constantly 2) quality is demonstrably poor and worsening 3) the education insiders are getting comparatively rich (in pay and lifetime benefits) off the backs of their “customers”. And to make matters worse, Big Education actively and successfully thwarts efforts to introduce competition with its stances against innovations like vouchers and charter schools. Surprisingly, at least half of Congress supports Big Education’s anticompetitive stance. Well, maybe it’s not such a surprise when you consider their personal interests in getting re-elected and then align those with Big Education’s interest in keeping the game closed to new competitors – and then remember that people tend to vote their interests. Even though it all makes sense, it doesn’t mean it’s right. Financial advisors are fiduciaries – that is, by law, they have to act in the best interest of their clients. Congress made that so. Isn’t it time that they made “public servants” (including themselves) fiduciaries as well?
Thing Three Just A Thought “Nothing strengthens authority so much as silence.” ― Leonardo da Vinci