Frederick Douglass: ‘Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them.’”

Wall Street is expert in understanding how much it can squeeze out of its clients. There is a body of knowledge and fundamental beliefs about investing and economic issues that constitute our view of financial reality. There are others with different beliefs, at least publicly - notably the majority of Wall Street “strategists”, whose motives are generally self-serving in our opinion.

Below is a list of questions and concepts that are included in our general understanding of money management and finance.

1. The price of stock and houses will not go up forever.
   Just as trees don’t grow to the sky, prices don’t rise forever. Sooner or later, something is going to “give”. Prices will decline. And then, near the bottom, people will be believing that prices will never rise again. Our job is to be prepared for these major turns. We do not try to catch every little twitch in the market. We leave that to the hedge funds with their “black boxes”. Which brings us to the next point:
2. Market timing is possible and desirable.
   Market timing systems with good long term track records are readily available. Michael O’Higgins “Beating The Dow With Bonds”, Ben Stein’s “Yes, You Can Time The Market” are excellent books which provide simple market timing procedures. If you don’t do anything else, buy and read the books! We time our trades using a variety of methods.
3. Markets are not “well behaved” as many economists and money managers advocate.
   Markets are crowd phenomena. Mob psychology plays an enormous role in perceived value. Why else would the price of houses in Arizona go up when thousands more houses are built in the area? More specifically, this means that traditional statistical distributions don’t work well in market analysis because extreme events happen more often than they “should”. Read Nassim Taleb’s “Fooled by Randomness”.
4. Only you can prevent your financial ruin.
   Managing your money is your responsibility. You can not delegate this responsibility to others - they may be willing to take your money, but their interests are theirs, not your’s. This applies to us as much as anybody.
5. Paying for advice from several trusted sources is a good investment.
   There are many fee-based news and commentary subscription services that provide analysis and background information as their primary business. Choose several. Choose some that you like, philosophically. Then choose others which come from diametrically opposite points of view. Truth emerges from conflict. Advice that is free is often biased by the interests of the provider - brokerage firms, mutual fund companies. This advice is their marketing channel for their products and services.
6. Retirement investment management is an ongoing regular activity.
   Although “buy and hold” sounds like an easy answer, it doesn’t work like that. Currently, the “duration” of the S&P 500 - the period over which you can be essentially sure of getting your money back - is over 50 years. We have not had much in the way of drawdown - price decline from a peak to a subsequent low - recently. However, since WWII there have been drawdowns over 40% and this could easily happen again. It is really hard not to end up selling in a panic at a low price in those circumstances. We examine strategies for worst-case scenarios as well as current upward trends. Having a plan in place is critically important for dealing with any situations as they unfold.
7. Absolute returns are what count.
   Meeting or exceeding the relative performance of a reference standard such as the S&P 500, is not good enough. For retirement, having income to live on that keeps up with inflation, is essential. This will be true even if the S&P goes down.

Learn more…

• Michael O’Higgins “Beating The Dow With Bonds“
• Ben Stein’s “Yes, You Can Time The Market“
• Nassim Taleb’s “Fooled by Randomness“