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The Cordant Blog

Diversification: More Important Now Than Ever

by Isaac Presley, CFA on October 27, 2016

Diversification has gotten a bad rap as of late. Over the last five years, due to the strong performance of US equities, a simple 60% US Stock / 40% US Bond portfolio would have been one of the best portfolio allocations—outperforming the majority of more diversified asset mixes, especially anything including an allocation to international stocks.

Increasing correlations between asset classes are often cited by those claiming that diversification is no longer helpful. That, coupled with the US market’s recent outperformance means many are questioning the need of going beyond this simple 60/40 portfolio.

The problem with this logic, though, is that what’s worked best recently won’t necessarily work best going forward—investing isn’t that easy. For several reasons, which we are about to see, building a diversified portfolio allocation may be more important now than ever.

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The Very Real Cost of Impatience

by Isaac Presley, CFA on June 16, 2016

I have a bit of a commute and end up spending a lot of time in the car. Despite all this “practice” I’m still terrible at predicting which lane of traffic is moving best when the all too frequent Portland traffic jam occurs. The left lane is moving, so I cut over only to see the lane I was just in surge ahead. Back to the middle and now the left lane zips past. While frustrating, the only thing this “lane-hopping” ends of costing me is a bit time. However, investors “lane-hopping” with their investments, end of costing themselves real money.

This week Morningstar published its annual “Mind the Gap” study. The analysis looks at the returns investors receive (dollar-weighted) compared to the funds they own (time-weighted). The difference, or “gap”, is a result of the timing of cash flow into, and out of the funds. The findings for 2016 don't depart from prior years with the "Behavior Gap" (investor returns trailing the funds they own) totaling 0.53% across all funds. Russ Kinnel, the Director of Manager Research from Morningstar, sums it up as follows:

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Investing Lessons From Intel's Copy Exactly Philosophy

by Isaac Presley, CFA on March 29, 2016

Last week, in the New York Times Gary Belsky wrote an article titled Why We Think We’re Better Investors Than We Are." In it, he lists several common cognitive biases which lead people to make poor investment decisions. 

However, I suspect (due to the first bias Belsky lists—overconfidence) a lot of individuals who read this article are going to think, “Sure, this stuff is true for most people—but, not me. I’m different.” Belsky puts it like this:

“Ask a random player in a law firm’s basketball league whether he or she could compete with LeBron James, and the most common response will be laughter. Yet many of those lawyers would willingly compete with the billionaire investor Warren E. Buffett.”

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The easy way to avoid financial ruin

by Isaac Presley, CFA on February 12, 2016

 “Half of the troubles of this life can be traced to saying yes too quickly and not saying no soon enough.”  Josh Billings

 

Occasionally clients or prospects will ask: “What changes have you recently made? What action have you taken on my behalf?” The implication is: what are you doing to add value?

Sometimes it’s not doing that adds value.

Often, a good financial advisor will feel like they are constantly saying no—especially when reviewing new investment opportunities brought by clients or a fund itself. As much as it may seem like we are constantly a killjoy, spoilsport, or wet blanket, saying “no” and avoiding financial trouble for clients, it’s actually one of the most valuable things a good financial advisor can do.

An Example

Here’s a quick example pulled from the local business headlines. 

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8 Investing Lessons from an Engineer

by Isaac Presley, CFA on December 22, 2015

Engineer. Pilot. Astronaut. Col. Chris Hadfield is all three. And during his time commanding the International Space Station, he likely also had the status of the “most popular man (not) on Earth.” While in orbit he became somewhat of a social media sensation—posting breathtaking pictures of Earth from orbit, educational videos about life in zero gravity and the first-ever music video recorded in space.

If that’s not enough, he’s also an author. Earlier this year, I read his book titled “An Astronaut’s Guide to Life on Earth.” I’d recommend it for anyone interested in space and science, or simply hard work, determination and being prepared for anything.

But, it turns out there are a surprising number of lessons that apply to investing as well. So, here are eight investing lessons you can learn from an engineer, or, if you prefer, pilot and astronaut (All quotes in green were pulled from the book):

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The magic trick behind successful wealth management

by Isaac Presley, CFA on August 11, 2015

"An overnight success is ten years in the making." - Tom Clancy

The illusion

In a recent podcast, screenwriter Eric Bogosian shared some of his thoughts about planning ahead. He describes a particular screenplay in which a character (played by a comedian) is cast with a job of answering the phone. The bit is, every time someone calls in, this character has a witty line or perfect joke at the ready.

Because a viewer is living "in" the movie, it seems the lines are delivered off the cuff. To be able to come up with these jokes on the spot is certainly impressive, and everyone thinks the character is a genius.

However, in reality it took weeks or months to write these "genius" jokes. What looked like an instantaneous stroke of genius was actually the result of planning and hours of hard work. As Bogosian explains, "that's the magic trick."

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The Panic Tax

by Isaac Presley, CFA on June 30, 2015

In a recent blog post, marketing guru and bestselling author Seth Godin discusses the importance of designing a system to anticipate and allow for severe stress—since immediate reactionary measures to negative situations can have significant adverse effects. He calls this “The Panic Tax.”

Godin’s blog is as much about human behavior as it is marketing—so it’s no surprise that his writings often have insights that relate to investing as well.

One doesn’t have to reach very far back into our history (think 2008) to know that periods of severe stress occur from time to time in the financial system. Let’s take a look at several of Seth’s recommendations, and how they relate to investing.

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4 field-tested steps to making better wealth decisions

by Isaac Presley, CFA on April 21, 2015

*Note: This is Part 2 of a two-part series. Click here to read Part 1, where we discussed the magnitude of available options today and their impact on financial decisions. To receive helpful posts like this directly to your inbox, sign up for our free newsletter!

 

Last time on the Cordant blog, we explored how being overwhelmed by too much information can lead to not taking any action or simply making a default decision—one that is likely not intentional or ideal.

Making financial decisions can be difficult; there is no question. But they are also highly important. How can one overcome the overload of information available to make better financial decisions and aren’t simply “what we did last time”?

Read on for four ways to overcome this default behavior and make better financial decisions.

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How options can impact your wealth management decisions

by Isaac Presley, CFA on April 07, 2015

*Note: This is Part 1 of a two-part series (part two here). Come back next time on the Cordant blog, where we’ll reveal four steps to overcoming the psychological barriers associated with too many choices. To receive helpful posts like this directly to your inbox, sign up for our free newsletter!

 

Too much to think about
Too much to figure out
Stuck between hope and doubt
It's too much to think about

-Todd Snider - Statistician's Blues

There’s no question; today is one of the greatest times in history to be alive. We’re more prosperous, safer, and living longer than during any other period in human history.

However, living today can also be exhausting. We are faced with so many choices each day it’s often overwhelming knowing where to start.

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Why one of the best investors of all time needs a financial advisor

by Isaac Presley, CFA on March 10, 2015

Bill Gross (a.k.a. the “Bond King”) is one of the most successful investors of his generation. He co-founded PIMCO (a bond investment company) in 1971 with $12 million in assets to manage… and prior to his departure in late-2014, the company had grown to more than 2,000 employees and over $1 trillion (yes, trillion with a “T”) in assets managed.

Why would an investor this accomplished and successful need a financial advisor?

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