The January in April Mystery

This full-page ad keeps popping up in our local paper, and that’s downright odd for several reasons: 

1. Hardly anybody runs full-page newspaper ads these days. January’s stands out like a a sumo wrestler at a toddler's birthday party.

2. January Capital Advisors is based in San  Francisco and run by three broker/advisor/insurance agents. The company offers wrap programs and individually managed accounts. As of three years ago they managed about $161 million. Why are they seeking clients on the Atlantic seaboard?

3. In these volatile times, investment advisers brave enough to tell nervous wealth holders, “Don’t just do something, stand there!” have gained admiration. Number crunchers point out that active trading and market timing are good therapy but too often bad for wealthbuilding. According to its Form ADV, January seems to prefer high portfolio turnover, guided in part by technical analysis, with holding periods of a year or less. In other words, don’t stay the course.

4. January is awfully late to the party. This area, known for its relative affluence, is drastically overstocked with investment advisers and wealth planners. Hundreds and hundreds! Maybe thousands.

“Your 401k Isn’t Drowning"

Twitter exchange worth noting:

Debbie B 
So much for hubby retiring soon...our 401 is drowning

DelzioEdward
Don’t look at the balance, look at how many more shares it buys at double-digit discounts when it automatically reinvests your Q3 dividends next week.

Your 401k isn’t drowning, it's diving for treasure.

Some People Have Big Bezzles

 Today’s Axios Markets pointed me to a Felix Salmon column where I learned a new word. Here’s the gist:

When markets turn, more investors tend to want to take their money out. That's when victims of fraud find out the money has disappeared. The Bernie Madoff fraud is a prime example — it couldn't survive the downturn of 2008, since the higher Madoff marked his clients' positions, the more likely they were to want to cash out.

Until the point of discovery, the money is gone, but the victim feels no loss. Economist John Kenneth Galbraith, writing in 1955, named this "net increase in psychic wealth" the bezzle, and explained that it invariably increases in bull markets, only to shrink when "money is watched with a narrow, suspicious eye.”

As John Mills wrote in 1867: "Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works."

No, Salmon’s column does not mention NFTs.

Disaster Insurance for Billionaires

What will happen if the crazies take over and inflation goes hyper, turning dollars into pennies?  A few billionaires are worried enough to go long on bitcoin. Some choose other cryptocurrencies. Even if worst comes to worst, they figure, bitcoin and the like might be tradable for goods and services. 

Billionaires are ideal cryptocurrency investors – they can afford the risk. As for the rest of us, we do well to heed a warning issued on CNBC by Robert McCauley: Investing in crypto is worse than investing with Madoff.

McCauley's reasoning: Eventually Madoff’s victims have had most of their losses returned to them. If bitcoin bites the cosmic dust, there’ll be nothing left but unpaid electric bills. 

Old School Investing Ain’t Dead Yet

Passive investing rules. Mutual funds have become musty relics. Right? 

Not yet. Not by a long shot.

Index funds tracking the S&P 500 have grown at warp speed. By the end of 2020 they held assets totaling $5.4 trillion. Yet significantly more, over $8 trillion, is invested in actively-managed funds benchmarked to the S&P 500. Investor hopes spring eternal.

As for old-fashioned mutual funds, the WSJ reports  fund assets total some $21 trillion, far exceeding the $6.2 trillion in ETFs.  

In time the old order will indeed give way to the new. Already, early adopters are bypassing ETFs and turning to non-fungible tokens and cryptocurrencies. Reminder: if clients want to wager on crypto, make sure they consult their astrologer.

Investing's Enormous Generation Gap

From "Your father’s stock market is never coming back,” Fortune’s  readable guide to how the Fidelity-generation’s investing differs from that of Robinhood’s youngsters. (Though not a Fortune subscriber, I was able to access the article here.) 

Jerry [father] spent three decades saving and investing, prudently, and dutifully. He and Nancy have accumulated $1.2 million—for them it’s all the money in the world. Took them their entire lives.

Aiden [son] made $800,000 in the past 12 months, starting with the $25,000 his grandfather left him. He did it from a phone, knowing virtually nothing about the instruments he traded.

 Will this century’s Roaring ‘20s investors see their wealth disappear as dramatically as it did in the last century? Will NFTs really take over from ETFs? 

David Swensen: Successful Old Investors Should Think Young

The late David Swensen realized individual investors would gain nothing but trouble if they tried to imitate the strategies he applied to Yale’s endowment. Instead, he said, they should simply go passive and cut costs. “[T]he most sensible approach is to come up with specific asset allocation targets that you can implement with low-cost, passively managed index funds and rebalance regularly. You'll end up beating the overwhelming majority of participants in the financial markets.”

Swensen didn’t think much of paying investment advisers, and he questioned the conventional wisdom that investors must become more  conservative as they age. If elderly investors have ample funds, Swensen argued, they shouldn’t be investing for themselves. They should be investing, fairly boldly, for their young and middle-aged heirs. 

Kiplingers recently offered a  cautious version of the same advice.

Tech Influences Investing

Here in the early 2020’s, social media and apps offering free trades are reshaping the investment scene. Economist Robert Shiller in the Times sees it as deja vu all over again: "Early in the 1920s, people played the market as a grand game, abetted by technological innovation and new mass media.”

The high tech? The stock ticker. "In 1923 the Trans-Lux company came out with the 'movie ticker' — a large illuminated screen showing rapidly changing stock prices.” No longer were stocks dull certificates that rich uncles kept in their safe deposit boxes. Anyone could go to a brokerage and watch stock prices soar and dive in almost real time. The Money Game was on!

The new  media was radio. "The world entered homes electronically, giving people an immediate sense of the possibility of new technologies and access to a global narrative about financial success.”

From September, 1919 to September, 1929, Shiller estimates, stocks returned an inflation-adjusted average of 20 percent a year. After that.... 

With stocks having already returned an average of 12 percent, after inflation, over the ten years ending March 2021, it’s hard to believe investors have six or eight years of 20 percent returns to look forward to.  “We shouldn’t be surprised,” writes Shiller, "if uncomfortable feelings about the market grow to unmanageable proportions."

Is the Stock Market Rigged? Is Rain Wet?

More than 50 percent of U.S. investors believe the stock market is rigged, according to a Bankrate survey. When you look at the wild price swings of a stock like ViacomCBS, exacerbated by massive trades that backfired on a family hedge fund and shook the investment banking world, the obvious question arises:

Why isn’t it 100 percent? 

Maybe the 2020’s Won’t Roar ’til 2024

Energized by hope that COVID 19 vaccines will be plentiful by summer, the exuberant stock market is already looking beyond the pandemic. Too hasty? 

A Yale professor who has studied pandemics believes the end of this one is not yet nigh. "Given what we can learn from history," Dr. Nicholas A. Christakis warns, "I don’t think people should just imagine that we’re going to rapidly and easily return to normal.” 

Even if we achieve herd immunity this year, the good times won’t roll.

If you look all the preceding centuries of epidemics, then it’s clear that we’re going to have an intermediate period in which we come to terms with the pandemic’s psychological, social, and economic toll. I think that will last through 2023, approximately. We need to recover from the terrible shock of this experience. Millions of businesses have closed. Millions of Americans are out of work. Millions of children have missed significant amounts of school. Millions of people have lost family members to the virus. Many will have chronic disabilities from contracting it. We need to come to terms with all of these things, which will take time.

Christakis expects that "sometime in 2024 — the timing isn’t precise — we’ll enter the post-pandemic period. And I think that’s going to feel a little like the Roaring Twenties in the last century.”

If so, all investment managers and financial advisers have to do is help wealthholders survive another two years or so. Then, party on!

We Couldn’t Have Said it Better

The great thing about sustainable investing is it can be whatever you want it to be.

                                     – James Mackintosh in The Wall Street Journal 

Investors had no trouble gliding past the death and economic devastation wrought by the pandemic last year to drive the market to record highs. An increasingly healthy economy is what’s making them panic.

                       – Matt Phillips in The New York Times

Millennials Like ETFs

Vanguard's "How America Invests" offers a look at the behavior of five million households that invest with the firm. As you would expect, investors are moving into index funds and away from actively managed products. Some wealthier Vanguard customers are using exchange traded funds to add diversification, but the real fans of ETFs are the young. 

Most households who currently invest in ETFs are “diversifiers,” meaning ETFs make up less than a quarter of their assets. Their ETF investments are in addition to already-diversified mutual fund portfolios. These households tend to be wealthy and long- tenured. However, there's a small but growing group of ETF “enthusiasts,” typically millennials who have been with Vanguard for only three years, who build complete portfolios from ETFs.

Are You a Blue or Red Wealth Manager?

Yes, even financial advisers have to adjust to our divided nation. A survey commissioned by Hartford Funds reveals that nine out of ten investors under age 45 want their advisers to share their political views. 

Fortunately, older investors are somewhat more tolerant.  

The Great GOP Stock Market Myth

The market commentators on TV are at it again. The high-wire stock market will not only avoid virus-induced catastrophe, they tell us, but stocks will then soar to new highs. Unless Democrats capture the White House. In that case, “Look out below!”

Wall Street has long believed stocks do better with a Republican POTUS. As a wealth manager quoted in the Financial Times explains: “Historically, equity markets have favored Republican presidents as they generally have more market-friendly policies.”

Except . . . historically the stock market has done no such thing. Since 1976, FT reports, the average annualized return under

Democratic presidents has been 14.3 percent, against 10.8 percent under Republicans.

In a really long-term comparison, 1920 to 2016. the Democrats win by a landslide. Annualized return for the Dems: 10.83 percent. Republicans (penalized by both the Great Depression and the Great Recession) 1.71 percent.

Why do Wall Streeters cling to the myth that Republican presidents lead to bigger investment gains? Perhaps they're too credulous. Republicans may talk “market friendly” and Democrats may threaten tougher taxes and regulations, but politicians' ability to influence the economy and stock prices is probably less than they would like us to believe.

The Same Old Bull

Came across this twenty-year-old Wall Street Journal illustration while cleaning out my graphic archives. Still timely.

CNBC is the New ESPN

On TV I watch sports, mostly. When Covid-19 closed down sports broadcasts, the least bad substitute was the daily stock picking game on CNBC.

Millions tired of sheltering in place seem to agree with me. With no sports to bet on, they're taking advantage of the free stock trading offered by Schwab, Fidelity and others to play the stock market.

Serious investors they are not. For these thrill seekers, it's not whether you win or lose but how you play the game. Some juice up the excitement with options. Others just get weird, the NY Times observes: "Transactions that make little economic sense, like buying up the nearly valueless shares of bankrupt companies, are off the charts."

Serious or not, Barron's notes,  the stocks-for-sport crowd is big enough, and frantic enough, to influence stock prices.

Do you suppose there'll be playoffs at the end of the regular season?

Did This Masked Family Signal the Start of ESG Investing?

Found this disconcerting image in a 1970 Merrill Lynch ad.

“People in parts of Japan wear respiratory masks just to walk the streets,” Merrill explains. "Many

keep them handy in London. In the United States, air pollutants spew out at the rate of two-thirds of a ton per person per year. And our waters have become vast cesspools.”

Merrill’s ad goes on to tout the opportunities offered by pollution-control stocks. ESG investing? Not exactly. The term was yet to be invented. Merrill was thinking profits, not social responsibility.

Fifty years later, happily, the air in U.S. cities is mostly breathable. Less happily, wearing masks in public is becoming the new normal.

Help Your Kids be Millionaires

Randy Cassingham’s examples of the advantages gained by investing early and often may not be quite realistic, but they are inspirational.

Wouldn’t it be cool if stocks went up almost 30% every year?

Brown Beats Harvard, Trounces Yale

We refer, of course, to investment results, not football.

For fiscal 2019, Brown's endowment recorded an investment return of 12.4%

Harvard reported 6.5%.

Yale, a meager 5.7%

Over the same period, a plain vanilla portfolio of 60% stocks, 40% bonds returned 9.4% and the S&P 500 delivered 10.4%.

So take heart! Even the Ivy League elite aren't invincible.

Investors, Beware of Financial Weaklings

Back in the Mad Men era, ads offering the trust and investment services of banks stressed "financial strength" and "financial responsibility." The banks wanted to remind readers that while their competitors went bust in the 1930s, they didn't. And they wanted to reassure potential clients: "We'll do our best not to goof up, but if we do, or if our trust officer loots your trust and runs off to Tahiti, we have the financial resources to make good."

Financial strength remains a desirable attribute in an investment adviser. Unfortunately, The Wall Street Journal warns, it's one that many of today's small advisory firms lack.

Many individual investors are using advisers instead of brokers these days, drawn by regulatory and structural changes that favor the advisory-business model of charging steady fees instead of trading commissions. The number of people working as investment advisers has grown 33% since 2008, according to the Financial Industry Regulatory Authority.

*** 

 Smaller investment advisers often are thinly capitalized and, in many cases, don’t carry enough insurance to cover a significant legal judgment against them.

Banks and trust companies aren't the sexiest source of investment services, but their capital should enhance their clients' peace of mind.