It seems that in the upcoming presidential election, American voters will be faced with choosing between two candidates with the highest unfavorable ratings in history. It’s either that (at least if the parties’ national conventions go as expected), or a choice not to vote.
The unfavorable ratings of both candidates are creating a great amount of anxiety among voters, even those who actually favor one of the two front-runners. That’s because recent polls show a close race. The Real Clear Politics average poll results as of June 1 had Hillary Clinton ahead by a slim, point-and-a-half margin over Donald Trump: 44% versus 42.5%. That’s well within the margin of error.
As the director of research for The BAM Alliance, I’ve regularly been receiving emails and phone calls from clients and advisors (who are getting the same calls from their clients) worried about the impending “disaster” to the economy if one or the other (presumptive) candidate is elected. They want my view on what they should be doing with their portfolios to protect themselves.
What’s particularly interesting—and consistent with my prior experience, as well as the academic literature—is that those who favor Clinton are worried about the “disaster” that will occur in the economy and the stock market if Trump is elected, while those who favor Trump are concerned about the economic “disaster” that another eight years with a left-leaning Democrat in the White House would bring.
Political Bias Influences Investment Attitude
Many investors are unaware how their political biases can impact their investment decisions (usually with negative results). My experience has been that Republicans were much better investors during the Bush administration, and Democrats were much better investors during the Obama administration.
The reason is that when the party they favored was in power, they tended to be more optimistic. That led to a more disciplined investment approach, which helped them avoid panicked selling.
After all, we know that doing nothing (except rebalancing and tax managing, harvesting losses where appropriate) is more likely to prove productive than doing “something.” As the Oracle of Omaha, legendary investor Warren Buffett, stated in Berkshire Hathaway’s 1996 annual report: “Inactivity strikes us as intelligent behavior.”
Unfortunately, investors often make mistakes with their money because they aren’t aware of how decisions can be influenced by their beliefs and biases. The first step to eliminating—or at least minimizing—mistakes is to become cognizant of how our financial decisions are affected by our views, and then how those views may influence outcomes.
A 2012 study, “Political Climate, Optimism, and Investment Decisions,” showed that people’s optimism toward both the financial markets and the economy is dynamically influenced by their political affiliation and the existing political climate.
Using a large sample of UBS/Gallup survey data, and portfolio holdings and trading data from a large U.S. discount brokerage house, the study’s authors examined whether the changing expectations of U.S. households about the behavior of financial markets and the macroeconomy affect their investment decisions.
Study Results
Following is a summary of their findings:
The following example demonstrates just how large an impact a shift in the political climate can have on the investment behavior of individual investors. Before the 2000 election results were announced, Democrats were slightly more optimistic than Republicans. However, soon after the announcement of George W. Bush’s win, the gap widened dramatically. Roughly 62% of Democrats were optimistic about the stock market in 2000, but that figure fell to just 36% in 2001. The optimism about the overall economy was similarly affected.
Summary
There is strong evidence that the political climate affects investors’ view of the economy and the stock market, and also impacts their investment behavior. Specifically, the returns of individual investors improve when the political regime favors their political party, and vice versa.
This result is due to two factors. When their party is in favor, they tend to increase exposure to systematic risk and thus earn higher returns. They also tend to use more passive strategies, reducing costs.
Being aware of your biases and acting accordingly can help you make better investment decisions. The bottom line is the evidence from this study suggests that, just as investors should not let the latest economic news cause them to abandon well-developed financial plans (shift their asset allocation), they shouldn’t let the political climate do so either.
This commentary originally appeared June 8 on ETF.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE
You likely feel as though you don’t have enough time to watch a video that is 17 minutes and 47 seconds, right? But what if watching it allows you to penetrate beneath the scar tissue of busyness and distraction and transform your view of work and the satisfaction you derive from it? Would it be worth it, then?
If you’re willing to watch the video, please feel free to stop reading here, because I’m convinced that, though seemingly out of context, you’ll get the point by the end of the video—the point that there’s a vastly different, far more rewarding way to do what we call “work” than what most of us have been taught and have experienced. It’s the work of an artisan.
But first, a bit on the evolution and etymology of work: What’s the difference between a job and a profession? I ask this question more than you’d think, and the summary response I receive is, “A job is something you have to do while a profession is something you want to do. A job is a necessity—it puts food on the table—while a profession is something that you train for and build over time.”
Fair enough. What, then, is a vocation? The answer I hear most often is, “It’s a calling.”
Long thought to be the exclusive domain of pastors, priests and rabbis, it was actually a “man of the cloth” who invited me to consider that anyone—everyone—is worthy of a calling and in possession of a unique blend of skills and proclivities to be utilized in the service of their community, even if such a pursuit would more likely receive the label of secular rather than sacred.
That was a liberating thought to me. I didn’t feel called to the ministry, but I loved the notion that my purpose could be just as important as those who were in the soul-shaping business.
Although I don’t believe that one’s calling is always/only found in paid work, I dedicated myself many years ago to perpetually working toward work—a profession—that I felt I was made to do. (I’m getting there.)
Os Guinness, the great-great-great-grandson of legendary brewer Arthur Guinness, says our calling “… is ‘the ultimate why’ for living, the highest source of purpose in human existence.”
As much as I love a pint of his forefather’s handiwork, and Guinness’ poetic description, I fear that its grandiose implications may intimidate the skeptics among us. So in my book, Simple Money, I offer a list of features I’ve found consistent in those who clearly seem to be living out a higher-than-average purpose.
An activity, role or pursuit might be your calling if the following are true:
(For more on this, see Chris Guillebeau’s practical new book, Born for This.)
But I think there’s a step even beyond a calling that not only is evidenced in the aforementioned videobut everywhere you look for it: the people who are living out their calling as an artisan.
If you Google the word artisan, here’s what you find.
Much like the definition of “calling,” I find the short definition of “artisan” to be unhelpfully narrow. What if we expanded the term beyond simply those who used their hands to make their work to those who adopt a similar philosophy and methodology. Then, I believe, we’d discover elements that would improve all of our work.
Artisanal work is:
Are you an artisan? Yes, I realize that it is more conducive to some work than others, but what would it look like if you did the work in your job, profession or calling as an artisan?
Would the work be better? Would you enjoy it more? Would your customers or clients be more satisfied and more likely to do more business and to refer?
Instead of telling me how it can’t be done, consider how it might be.
(And if you haven’t yet, invest 17 minutes and 47 seconds in this video where an artisan singer-songwriter tells the story of how he connected with several other artisans to craft one of the most gorgeous—looking and sounding—acoustic guitars you’ll ever see or hear.)
This commentary originally appeared May 28 on Forbes.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE
There are many anomalies in investing. It wasn’t easy to isolate the three biggest ones, but here are my choices:
Warren Buffett has rightfully been called “the greatest investor of his generation, or ever.” Given his cult-like status, you’d think investors would hang on his every word.
For many years, Buffett has been a proponent of index-based investing. Here’s what he said in Berkshire Hathaway’s 1996 letter to shareholders:
“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”
This advice was largely ignored.
At this year’s annual meeting of Berkshire Hathaway shareholders, Buffett upped the ante. According to The Wall Street Journal, he stated that market-beating investment consultants were usually a “huge minus” for those following their advice. He noted that passive investors will likely outperform “hyperactive” investments recommended by consultants and fund managers.
His advice wasn’t limited to individual investors. It applied with equal force to pension funds and endowments that pay high fees to consultants in the mistaken belief they can achieve market-beating returns. He accurately noted that “no consultant in the world is going to tell you ‘just buy an S&P index fund and sit for the next 50 years.’”
In 2006, I used the term “hyperactive” to describe the conduct of stock-picking brokers when I wroteThe Smartest Investment Book You’ll Ever Read. I urged investors to dump their brokers and invest in low-management-fee index funds instead.
Maybe this latest, forceful effort from Buffett will be the tipping point. It would be gratifying to stop the transfer of wealth from those who earn it to those who “manage” it. The securities industry needs to be exposed for its greed and self-interest.
MetLife is no better or worse than many others in the securities industry. That’s precisely the problem.
On May 3, the Financial Industry Regulatory Authority announced a sanction of $25 million against MetLife for negligent misrepresentations and omissions in connection with variable annuity replacements.
FINRA found that from 2009 through 2014, MetLife Securities misrepresented or omitted at least one material fact relating to the cost and guarantees of its customers’ existing variable annuity contracts in 72 percent of the 35,500 replacement applications the firm approved.
These misrepresentations weren’t minor. They included telling customers the replacement annuity was less expensive than the current one when it was actually more expensive, understating the value of existing death benefits and failing to inform their customers the replacement annuity would “reduce or eliminate” important features in their existing annuity.
As is the custom when industry players get caught with their hand in the cookie jar, MetLife “neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.”
The list of settlements involving household names (and others) in the securities industry, for a variety of unethical and illegal behavior toward their customers, is a long one. Misconduct relating to the financial crisis alone was so extensive the SEC maintains a separate compilation of its enforcement actions. Almost every major brokerage firm is on this list.
It’s a stunning anomaly that you continue to entrust your retirement savings to those with this extensive track record of abusing your trust.
The holy grail of investing is to identify a predictive pattern and take advantage of it to trade profitably. Many in the financial media exploit this fantasy because it encourages you to trade. Trading increases the revenue earned by the brokerage industry, which in turn supports the media through massive advertising expenditures.
Jim Cramer shamelessly leads this effort with columns like this one: “Cramer: Yikes! Scariest pattern in the charts.” As usual, Cramer references no peer-reviewed data supporting his reliance on patterns, which is not surprising. It has long been my view that Cramer and others in the financial media who purport to be able to spot predictive patterns, pick outperforming stocks, select outperforming mutual funds and predict the direction of the markets are emperors with no clothes. They do incalculable harm to gullible investors.
There is ample evidence these “gurus” have no expertise that can’t be explained by random chance. Cramer’s track record is actually worse than a coin flipper would have compiled.
The securities industry adds to the myth that predictive patterns exist. One major firm advertisessoftware that will help you “read charts, recognize price patterns, add indicators, and detect market reversals.”
It doesn’t caution that this is a fool’s errand.
The reality is that stock prices are independent of each other. As Burton Malkiel established in his seminal book, A Random Walk Down Wall Street, the history of stock prices tells you nothing about future prices, just like a coin toss tells you nothing about the probability of the outcome of a future coin toss.
The first step to becoming an intelligent and responsible investor is recognizing these anomalies and refusing to buy into them.
This commentary originally appeared May 17 on HuffingtonPost.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2016, The BAM ALLIANCE