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KJCE 1370AM>Audio on Demand>>WorthPointe Wealth Watch, 2/9/14

WorthPointe Wealth Watch, 2/9/14

Feb 9, 2014|

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It's time for work quite well watch -- Christopher man's life. Partner and founder of worst point so we'll see. Tired of the same sales pitches disguised as financial advice -- is a certified financial -- -- will give you. You facts about investments. Explain this statement by. A little fun doing now -- first. Good afternoon. Austin, Texas this is Christopher -- like. Time hero of my associates. Who I'd like to announce themselves now but we are a wealth management firm with offices in San Diego and Austin and we're going to be spending a little time -- -- each week on Sundays at 330 to talk about financial planning topics. That hopefully. You'll find interesting fellas wanted to chime in and tells ER. My name is Scott O'Brien I am a certified financial planner and our partners here at the horse point. My name is Kermit Johns I am wealth advisor of your worst point in Austin. -- and my name is Morgan Smith I'm a certified financial planner and partner were -- as well. Morgan just moved here from San Diego. And once -- this a little bit your first impressions about Austin morning. It's been a busy life and Christopher and move across country area progress countries Solomon house buying a house fund and a new. And in new home governing new babies so if you get questions I'm hearing answer man. And it just an awesome there're a lot of these California and so on appear in the us shores of Austin for a but I don't wanna make Austin California. You know we just wanna. Uplifted a little bit. So. -- just wanna say before we get into this that we are big social media users we would invite you to find it worth point. On FaceBook. Linkedin and Twitter by typing in and the name -- point. And -- point has an. You can also find -- on the Internet at work point radio dot com. And if you're interested in a discovery meeting a second opinion or to register for one of our webinars seminars that's where you do it. Sony just wait right into the day's topic. Which is what we call we finance geeks call the efficient market hypothesis. This is first coined by a guy named -- farm in the sixties. It just so happens that his firm is the largest investment firm and Austin has called dimensional fund its over the corner 360 NB caves. And he sort of came up with this idea. -- market itself that is the sort of the collective wisdom of all investors. Was actually smarter than anyone of us. And you know considering that all those nice homes and and the Hamptons in the a lot of tall buildings in New York City are paid for by the idea that. That if you give your money -- professionals or if you do your homework you can beat the market you know it was a pretty disturbing idea. So you know that we we don't believe that markets are pretty efficient but wanna talk about today is is whether that's baloney. Or whether it's the truth what do you gentleman thing. It's not baloney that's for sure. But let's -- -- euphoria move on let's go ahead and all agreed to call this mouthful efficient market hypotheses it EMH. Agreed. Yeah like a euthanasia and you got that radio audiences -- can put the -- that the very word hypothesis gets me it's different. So I like to give the analogy of Craigslist because like you know I just moved into -- house and trying to buy stuff from my baby. In mind my new home and fraternal -- so we don't know Craig's list. He -- the analogy that I -- is that. I can go out. That the samba -- -- to. Which you are how much is -- it. But -- Austin a bit you do I don't I guess what I confinement for fifty dollars cheaper. Open Oklahoma City. So. You know that that the Smart guy in -- says hey look. I found this great. Coffee table for fifty dollars less but you gotta go get it exactly that's the -- also have decent track those costs fuel is more expensive jewels. Did you didn't have to appreciation depreciation and drug giant fruit and little mining accident risk so bad but that's kind of the point. Behind our philosophy. On the -- is there may be good deals out there but after you get up all the costs. Let go on and drive in Oakland city get your copy -- it's not worth it. So that's an important thing to think about so what you're seeing is transactions costs matter. It time there's a lot of relief that it got the idea isn't finance but you get done subtracting the the tax cost in a pain in the professionals involved maybe there's nothing left over for you. That's that's a good story in it and you know we're we're we're making light of that right now but when it comes to you your money. That's important to you and your family and its money can't afford to lose it's really important to think about these things -- a lot of people picked. They want that guy you can predict the future. In -- mega deal and sometimes you think you're that guy or or that women who can go out and find a good deal and you may find a good deal but really the cost. Of getting that it's oftentimes. On 1 July to really give any benefit from. Well we know that when you look at all investors. Both professional and non professional and you compare their performance to the market itself than most of them don't beat the market. So the test for this theory really is okay let's look around. For evidence that somebody can do better job of picking stocks. Then the market itself and if there are people well I guess you could identify him and you'd see is consistent performance unfortunately when you do that. Most of them don't do it one part thing is you mention the guys the Hamptons. In these guys in the Hamptons of those guys -- -- they're they're great guys in the thing is they're very Smart. And they're very competent. But there's so many of them that they're all competing to at the same time trying to find that same information find -- that same managed to get so many people. There are working hard getting paid well work and death a single and looking for the same goal. It's hard to find someone who's gonna consistently. Outperform another guy here actually right it's it -- the guy who says that he has a great idea about something. And forgets that everybody else has the same idea at the same time. As most of the time it's already all the time it's out there in the media already. I mean twenty years ago you know there was there wasn't the Internet. And in the other guys in New York would be nearly got to entering had drinks after work. And you don't they swapped stories I heard this from somewhere that from somebody in the hilly sort of had some. Quote unquote. Inside information they could act upon it but nowadays of the Internet things that goes around you know something happens in New Delhi in the earthquake in New Delhi -- -- -- -- in the world knows it happened. Well and that's a really good point and it's a follow on this whole idea of Craig's list so what do but found now. For example Amazon.com. It's a great place to them to find stuff. Well all of a sudden you start seeing and there will be anybody else as price new starter and researcher and other web sites. Everyone's got about the same price so it's all this information built into the marketplace. The breast pricing out there that you confined. With regard to merchandise. Is out there in the marketplace I think that's the same idea I used to use this analogy it's. You know there are Smart people that work in finance -- in the Warren Buffett to Smart guy and a lot of those people on Wall Street are Smart guys but. I was think about fishing if you take the greatest fisherman in the world and you send them to a lake with the efficient at somebody's gonna catch. -- except well yeah right. And and it's because there aren't any. Any deals in the marketplace the markets is -- is too shrewd and efficient I was actually as a way to beat the market is intent on we could cheat. Well yeah if you have inside information. That other people don't have but that's by definition illegal and you go to jail and their bunch of firms on Wall Street hedge funds setter that. Are sending their their CEOs to JO SEC capital. Now and just gotten out that a ton of trouble in the panacea stream of these things going down so basically you're right you have to you have to cheat and steal to beat the market and then there's still no guarantee it's not like. There's evidence of of anybody really having persistent outperform. It's a yet -- -- it's a big plays that led it what about war emblem would likely get this all the time and what about Warren Buffett he's he's outperformed. The market -- -- Peter Lynch in the 1980s when he was flying high Magellan how do you explain that. How you explain that we've got a minute so we'll talk statistics now won't get too into it but. There's the broker. And it just so happens that details are very fast as what they -- in statistics. And it certainly. According to statistics. There should be a lot more Warren Buffett's just out of random chance -- You know and there's gonna be Warren Buffett's out there and guess what. There actually should be more and we're gonna talk about after the break we take a little break here but after this break. We're gonna talk about some of the ways trying people trying to beat the market some of the zany things we've seen over the years -- the. Plan. For all the latest on food wine and butter right here in Austin join me John Mercer delicious -- -- Saturday mornings at ten on the all new talk thirteen seventy its radio with lots of good taste food and wine weekends -- -- We're talking thirteen seven. A and wrong. And back taxes. Events like -- point I'm here of my associates Morgan Kermit since gotten. Yeah we're all advisors with the firm and then today we're talking about they're efficient markets -- EMA action. -- paid to try and beat the market yourself for pay other people to do it for you. This -- gonna be about zany ways that we've seen people trying to beat the market -- I don't know if I'd call. Warren Buffett zany. But I would I have seen some analysis of his performance. And compared it to -- a lot of what explains -- performances these what's called value investor. So he does sort of -- they have these I was quoted as beating the market you know but that's the S&P 500 that's sort of -- US broad market but he. He specializes in a type of investing called value investing work. Returns are higher in general. You know there there's another -- wants to that and that's that he actually provides intellectual capital. To his his ventures but I. -- -- a manager yeah. So I think. We should kind of go back to decided to your touch and on his office 83 he's now and are you going to be able to take advantage of that -- it even if he is good I'm not sure I'd done on the course there's there's an opening there isn't. But what -- differ what point across. So I think this whole thing with -- we're talking about a fish. Markets. And the hypocrisy is that was laid up a huge and found in the sixties. And it's not something like the earlier does that word hypocrisy of Syria image and socket yeah you -- are. So it's not like the earth is round. There're there are some. You know people who say god we don't believe in this here are some problems -- so let's talk about. Three problems or actually three anomalies that call for human H one insider trading we know -- country treating him. Plans in jail plans -- how to get the other one is momentum effect. End. Along with momentum. Momentum is the idea that this for example if stock prices. Going up it will continue to go. There's a trend that. That does some very efficient doesn't. End also there's another anomaly. Which is a stock returns around Ernie announced announcements. So what how what Eugene farmer who started to national funds explain this is that. It's still very difficult to make money out of these apparent anomalies because the amount of trading you would need to do to exploit these effects would wipe out any -- -- Drank alcohol problem it's the same problem. -- -- when no one else got whatever crazy attempts have you seen two. What hedge fund paying five and fifty has added a deal that's a great deal everyone to sign up for that so that this is -- hedge funds work give me your money. And I'm gonna make a big debt when it. And if it works out you give me half. If it doesn't work out that's on you. It was in my mentality virtually any get a percent of that you get 2% -- the return that they get to turn over to them as well. Into the return last year for average headphones with seven point 4% last year and the S&P 500 went up. 3130 -- so in -- the -- could have been. What would you invest in something that had a track record like that. In his five years in a row that's happened is that this isn't just last year's five years that they haven't beat. The S&P 500 if you wanna use as a as a benchmark. So how they keep getting people give them money I don't know I think they closed down and then they could help -- another story again and they go back and then resell. Right reopen under new management -- and what we can take a cue from birdie Madoff. We don't want to accuse Bernard Madoff and his is executed this selling point was. Well maybe you'll -- -- into the clubhouse here. Just don't ask any questions so Suzanne a lot of you by hedge funds for the cash and it's yeah. Because really it's that somebody's got that secret golden key like Lamborghini -- I have I have heard that I've heard that wealthy people stand around cocktail parties -- talking about and how. Cooled hedge fund they got into that's very true there's a bandwagon effect I think credit in getting is specially when -- people tried to invest with. With Bernie Madoff it was part of you were part of a family you belong to that country club and and as you remember there -- a number of celebrities who are. Part of Bernie Madoff disaster. They knew one another so -- I believe that there is a bandwagon effect it was. And Eliot Spitzer was the attorney Joseph adult not Eliot Spitzer did it really -- get guys to in the upcoming prostitute he was going at. After all the Wall Street firms troll thing they're doing wrong and he was one of made -- victims. So here's this. Personally -- get money in the sense that I rented I read that cities and then of course it was you know all. Analysts are under question -- tension here between the prostitutes and his investment acumen that -- got really a good then he does run for another officer New York attorney general is -- he ran for mayor in New York now he knows he was attorney general Eric grant -- he ran for -- -- -- -- one of the -- He ran for mayor always Anthony Weiner there ran for them. The job in the -- and nobody wanted him conduct that. Yeah nobody -- and you either of those two guys and thank goodness I they've restored a lot of my conference in New York -- -- I used to live in New York current I was born and raised in New York City okay. So I now to Bosnia is their new mayors in trouble for eating pizza with a fork so you really can't win -- are obviously because Cincinnati politics ahead. -- market the market timing is the other thing that doesn't that people do all the time doesn't it sounds great. And in but it doesn't work. Everyone says thinks -- -- -- -- Morgan said that there's a secret sauce there someone's -- know something somebody else doesn't doesn't know. And that they exploit it somehow and if it's just crazy unique is it. If they was somebody who could do it consistently good to be the richest person on earth and they wouldn't need your money they wouldn't you would need to buy their newsletter. And you wouldn't have to invest with them because they would just keep doubling their money -- -- kind of wonder why is Goldman Sachs take your money in charge you a fee if they can really grow that fast you think it does take their own money and grow it -- There's -- in there is as they say there's no market timers alone on the Forbes 400 list as. You think one of them and be there hoping to get the top and a computer business and -- it felt like at all right. So gonna go to break now ladies and gentlemen but after the break we're -- about what actually does work in investing since we've talked a -- about what doesn't. -- Then. -- Austin -- -- top -- since 2001 John -- get -- quickly determine the best -- option to compliment your long term financial -- joined John and house talk radio every Sunday from five to 6 PM here on -- thirteen seventy Johnson number one goal is to provide -- with a smooth and predictable mortgage experiences -- in right here on -- thirteen seventy every Sunday from five to 6 PM to -- you see -- talk radio providing you with -- -- and predictable mortgage experience house talk radio every Sunday from five to 6 PM only on top thirteen seventy. MLS number 20 wait I freaked me. Good afternoon in Austin, Texas that. This is the worth point while clutch. And I'm Christopher events like them sitting around -- my associates. And we're talking about inmates courteous efficient market theory are the whole notion. That anybody can even beat the market. And we've been -- -- within poking holes -- it. But I think that we should actually taught you know you kind of makes you wanna throw up their hands in my index funds. Which isn't a bad idea for a lot of people. Well but there are some other things you can do so let's talk in this segment we got about nine minutes here. -- talk about. What does work and investing what should you be focusing on as investors yes so. One of the things to think about in your mind you're thinking about this is there is a difference between. What's commonly referred to as passive investing. Vs an active manager. So American manager somebody who's really trying to. The stock predict the future look at macroeconomic. In the -- things like that to say this is where you need to invest. And not good voice out there and finance. Annan has said really the relevant question for investor isn't really our markets are efficient but it's. Our active managers able to persistently exploit. Anomalies after cost so I think a good way to couch the discussion. So. I think we have we agreed based on our earlier discussion if you look at all the scientific literature you know and you just compare people are trying to beat the market to the market they don't. So what does matter what should be focusing on what about what about diversification. It is how many things I own important. Yeah I think diversification is is one of the key points because. You just never know from year to year which segment of the market's gonna outperform. And we recently sent out email to our clients about all the sort of bad news or the news that was in the market last year who would've thought -- all that bad news. Debt ceiling problems Detroit going bankrupt. It's still wars going on Syria that the market would go up 30%. And an ED US market. We just didn't know that was gonna happen last year and so sure you would've done better about Greece who have had all my money grease well it's right here in the in an increase actually went when. Terrible -- reform actually went up year after. Because -- whatever at all in tech stocks dollar tech stocks in an -- in 19992001. Of them got an. So by diversifying and and it stuck together as a way that there's a guy that says this is by diversifying you you. You you guarantee that you'll make a killing. Which also guarantee you'll get killed. And so by diversifying. It you know some years you say I'm glad I did it seniors say what do we mean by diversifying is that 1010 companies what what's diversification. Yeah others there's a school of thought on that we prefer to have thousands of companies. And so that that there's never one that's gonna explode in our portfolios and really cause some damage prevent a country or currency -- that's right now. What what about cost the cost matter. -- most you know -- So the good economists and finance folks up there was him you know that there's two real big factors that are gonna affect negatively affect your. Your. Your performance and that is. Human behavior. And costs and decency huge drag on -- especially. When he compel compel these factors over. Years and decades put -- taxes. But that's the number one drag on on this is. No we in -- cut declines said you know it's it's really return after taxes. That's what you get to keep so Uncle Sam as your partner. This in issue in a lot of active manager user -- their turnover is a 100% a year which means whatever in January. Or what my pet peeves is annuities. This people will bias -- deferred annuity where you put your money in and you don't pay tax until you could take the money out but it's ordinary income. Which is tax -- double the rate of capital gains income. So I don't understand why they don't put their money into route to -- bread and butter mutual funds which would be taxed at a long term capital gains rate which is half the income tax yet and that's a kid. A good point it. To give us a call and talk to say about if you got a very large -- -- that's a tax monster waiting to happen. And very intelligent planning is doing -- -- Roth conversions are part of the partial Ross Roth conversions. So you don't have that big tax burden so that's them to get this call talked about some advanced strategies and in in planning. -- you mentioned annuities are one of the worst on aspects of annuities is just the simple cost of them he talked about the cost in the transaction trees sometimes you're paying as much as three or 4%. That you never ever see inside an annuity just to pay for for factors and bells and whistles inside that annuity that should never ever going to use. Yeah I don't even to me you you win on the tax argument alone on -- but if people wanna get into the expenses there are a lot of expenses involved. No -- what teaming up sorry. -- I was gonna say is sort of like obamacare. Hey thank you you're gonna be buying a lot of things you won't use. So yeah you might be a seventeen year old male but you're gonna buy. You're gonna buy maternity coverage and sort of same way over the news. And I'm picking on Obama -- loved it I'm just saying and I apologize to opener punchline. You can save on an opponent that so what. Well wells or allocation is the other side and divert not on the other side -- allocation in and talked by analyst studies show that that's 90% of the -- of the choice I put the portfolio yes it is you said Honeycutt that high up. -- is is is the major. -- no matter how you sort of invest in diversified after that is how much you know putting US stocks -- much you know put in real estate how much input and in emerging markets how much input in developed markets and that's small small value -- And end -- profitability. It sounds -- might be simple to do becoming our our investment committee we look at all kinds of statistics and standard deviations all kinds of stuff that. Most people don't wanna hear about earlier to get an asset allocation really is more of an art than science that's right yes that's the thing. It's the most important thing you do how you carve up your your -- At the end of the day twenty years down the road what's really gonna matter as -- was what your portfolio look like what your expenses were how you managed taxes. It isn't going to be with the about IBM rebel. It isn't gonna be with you jumped out before the crash no way to jump back in 09 and exactly the moment because you have to get that right twice. So what wait here's one of the most important things on on how to do things rate that and most investors I talked you have no idea of if you look at the compound average in north turns of the US stock market between 1926 and 2000. You just have all the stocks and -- in a bucket and you've got new companies coming in to get. If this is all the winners and all the losers. Guess what your compound in general terms going to be. Point 4% 10% is -- so. We all be happy that you'd be happy -- that you took out the top 25%. Performers every year. You've got a negative 1% return so that's a key part. Of diversification you have to have those winners. In your portfolio. In most people think will -- I've got to just have the winners won't know. You don't know what the next winner's going to be that's a problem exactly so if you basically capture. Essentially the entire market you've got all the important winners that are gonna give you that nine point 4% return. That is it's one of the significant keys that persecution. What else what do. Scott what else is important. Parliament think. Well you mentioned what I think it's really we think investors should focus on what. They can control are what we can control for them and asked the costs the tax modernization diversification diversification allegation and all the other stuff is it's. You know CNBC. In essence a cleaner it's it's interesting but we're gonna Kramer it's a lot of fun he has fun but he is what what we call investment porn right all you want me to say that. I really didn't work and a whole show on investment or if that investment -- -- -- the is that true orient interests that we all take enough money magazine and Kramer and all that stuff that really didn't bear any fruit. But which we all have trouble resisting anywhere gonna wind down the showed today folks. I wanna remind you that you can find is it worth points with a -- radio dot com you can planet is on FaceBook. Twitter and Linkedin we'd love to hear from you there please give us your questions via those. Social media vehicles or email from the website and we will read your questions on the show next week we're gonna have a heck of a topic. It is going to be how to find a financial advisor what you do look for and give us something Morgan c'mon. Just four point. And I -- that. It's obviously good looks and charm right right right track right now there's some other things right talk about next week. -- -- -- --

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