Kimmunications

The Darned Book - Finally!

Some of you know, the bane of my existence over the last few years  has been getting my book written. It is, in fact, finally done. Hooray! It is being published by Greenleaf Books and will be in bookstores this October.

After much gnashing of teeth, we have finally settled on the title:

How to Be the Family CFO - Four Simple Steps to Putting Your Financial House in Order.

Now we need to decide on a book cover. I was wondering if you would be willing to help? We have three ideas. Each of them is below. Your feedback would be invaluable.

First, I need to set the stage though. There is a placeholder quote at the top of each cover. Some people have assumed (reasonably I might add), from the fake blurb, that the book is specifically targeted at women. It isn't. The book is gender neutral. Please don't let the placeholder text affect your view of the cover. Also, the gray copyright information at the bottom won't be on the book either.

That being said, here is what I would like to know. Without taking a lot of time to think about it, which cover would you be most likely to pick up in a bookstore? For identification purposes, we'll call them the nest egg, the pig and the quarter. With regard to the cover you picked, what do you think appealed to you? What feelings or emotions did it evoke? Is there anything you would change about it?

If you would like to help, please take a moment to give me your ideas in this quick survey:
Click Here to put in your two cents

 

 

 

If you would like to help, please take a moment to give me your ideas in this quick survey:
Click Here to put in your two cents

Thanks, as always for your help. Without you as inspiration, this book would have never been written!

UPDATE (4/9/2008): A couple of people have asked what the results were. The nest egg won hands down. Approximately 55% of you preferred the nest egg. 27% liked the pig and 15% liked the quarter. A lot of you participated in the survey, for which I am really grateful. Whenever I ask for your help, you never fail to come out in force. Thank you!

The book will be in bookstores October 1st. Our friends will definitely be given the opportunity to pre-order autographed copies at a discount. I hope you will give twenty copies each to all your friends and family!  ;-)  No, seriously!  -KIM-

P.S. I closed the survey. The cover, with a few minor tweaks, is a done deal at this point.

---

Kim Snider is the President and Founder of Snider Advisors, a SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focuseed on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com.

Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 888-SNIDER7 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

A Painful Example of Short-Term Thinking

Two weeks ago, I offered some alternative views on volatility. One of them was from Nassim Taleb, a guest on my radio show and author of the recent best-seller, The Black Swan. A wonderful example from his previous book, Fooled by Randomness, illustrates the cost of focusing on short term results.

 

Imagine you are retired and spend all your time tending to your nest egg. Let's assume two things about your portfolio performance:

 

1. You will earn 15% ; and
2. The variance will be ± 10% from this average.

 

Based on the information above, we know the long-term result of your portfolio will be around 15%; but in any given year, the 10% variance means the return could vary significantly from that number.

 

The question is: How much will the short-term results differ from the long-term certainty?

 

Suppose we use a Monte Carlo simulation to generate 100 possible futures. We would expect the results, when plotted, to resemble a standard bell curve. In other words, 68 of the 100 different possible results would lie within one standard deviation of 15%, or somewhere between 5% and 25%.

 

Moreover, all but 5 sample years would be within two standard deviations, falling somewhere between -5% and 35%. So even though the long-term return is 15%, the variance from year to year can be hefty.

 

Given the normal distribution within our bell curve, we know that the probability of your portfolio being positive, in any given year, is 93%. Those are pretty good odds, wouldn't you say?

 

Now here is where people lose the game. If you focus on the short-term results, randomness has some "unexpected scaling properties" (see the table below). At any given second, your portfolio has basically a 50/50 chance of being positive! If you check it every day, you will be distressed just slightly less than half the time. If you read only your monthly statements, however, you'll be pleasantly surprised two-thirds of the time. And if you calculate your net worth only once a year, you will be tickled pink 19 years out of every 20!

 

 

Now consider this. Psychologists tell us the pain of loss is felt far more than the pleasure of equivalent gains. Given that, imagine the effect your constant monitoring of short term performance will have. You can see how shorter term monitoring causes emotional responses.

 

Of course, if the volatility were higher than 10%, the swings would be even greater. Needless to say, your discomfort is likely to be magnified accordingly, right?

 

What we have here is confusion. When looking at your portfolio, you are confusing signal with noise, something I have written about previously. We can calculate the noise-to-signal ratio of your hypothetical portfolio I described above.

 

According to the chart in Nassim's book, if you check your investments every year, then for every true reading you will encounter 0.7 misleading ones. If you check performance once a month, the noise-to-ratio is 2.32 to 1. And if you are checking streaming real-time quotes by the second, the noise-to-signal is a completely ridiculous 1,796 to 1!

 

Investors must choose their investments based on how well they match up to their lifetime objectives, risk tolerance, time horizon and temperament. Once determined, the investments should not change unless one of these factors change and that shouldn't be very often. To look at a portfolio at any point in time and make a change based on your perception of performance in that moment is death by a thousand cuts.

 

SOURCE:

 

1. Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb; second edition (Texere, 2004)

http://www.amazon.com/exec/obidos/ASIN/158799190X/financialsu0f-20

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

A different perspective on market volatility

It is my experience that you have three primary concerns when it comes to your investments: 1) Catastrophic losses of principal; 2) Outliving your money; and 3) Knowing who to trust. Am I right? Talking to people just like you, day in and day out, I know those fears are heightened by extreme market movements like we have experienced in the last few weeks. True?

 

So I thought it might be helpful to give you some perspective on market volatility from various authors who I know and respect. From Dr. Benoit Mandelbrot¹, in The (Mis)behavior of Markets:

 

From 1916 to 2003, the daily index movements of the Dow Jones Industrial Average do not spread out on a graph paper like a simple bell curve. The far edges flare too high: too many big changes. Theory suggests that over time, there should be fifty-five days when the Dow moved more than 3.4 percent; in fact there were 1001. Theory predicts six days of index swings of more than 4.5 percent; in fact, there were 366. And index swings of more than 7 percent should come once every 300,000 years; in fact, the twentieth century saw forty-eight such days.

 

In other words, there is far more volatility in the markets than most people realize. That is Dr. Mandelbrot's central message. Rather than ignore this risk, I think we should be teaching people how to make it work to their advantage.

 

From Nassim Nicholas Taleb², in Fooled by Randomness:

 

Prices swing more than the fundamentals they are supposed to reflect, they visibly overreact by being too high at times (when their price overshoots good news and when they go up without any marked reason) and too low at others. The volatility differential between prices and information meant that something about 'rational expectation' did not work.

 

Prices swing more than the underlying fundamentals because markets are driven by the human emotions of fear and greed. Neither of these have anything whatsoever to do with the underlying fundamentals.

 

From Ed Easterling³, in Unexpected Returns:

 

The average annual change for the Dow Jones Industrials Average stock market index, as a simple average, is just over 7% over the past century, 1901-2003... Over that period, what percentage of the years would you expect the annual change would occur in the range of -10% to +10%? Most investors seem to guess a number between 60 to 70 percent—that a clear majority of the years would be inside the range. What range would be required to include half of the years inside that range? … It is very surprising to most investors that the yearly range in the stock market has been inside the range of -10% to +10% only 30 percent of the years. Remarkably, to include half the years inside the range, it has to be expanded to -16% to +16%.

 

Of course, that also means that 50% of the years had a return of greater than ±16%, too. For an investor who looks at his or her portfolio value as a gauge of success, those swings would be pretty scary. For a cash flow investor, who gauges success by the amount of income a portfolio can generate, and by extension, the sort of lifestyle the portfolio can sustain, those market swings should be irrelevant.

 

Finally, there is this from Peter Bernstein⁴ in, Against the Gods: The Remarkable Story of Risk, who I tried to get on the show but could not:

 

For true long-term investors—that small group like Warren Buffet who shut their eyes to short-term fluctuations and that have no doubt that what goes down will come back up—volatility represent opportunity rather than risk, at least to the extent that volatile securities tend to provide higher returns than more placid securities.

 

This is the approach I take to volatility. Volatility is my friend, not the enemy. I love, love, love volatility. To me, the last month or so has been the absolute ideal!

 

How do you feel about big market moves? Do they scare you? Make money for you? Or not affect you at all? Do any of these perspectives surprise you? Do you agree? Disagree? Feel free to leave your thoughts and comments below.

 

We have taught 3009 investors how to:

 

• Manage their emotions
• Preserve capital
• Get growth even as markets decline
• To generate enough portfolio income to do what they want, when they want, without worrying about market ups and downs.

 

If you have over $25K to invest, register today for our free introductory class on cash-flow investing and the Snider Investment Method™.

 

 

 

 

1. I first interviewed Dr. Mandelbrot in 2004 for my radio show. Dr. Mandelbrot is the father of fractal geometry, which in case you are interested, is what makes all of today's amazing computer animation so lifelike. He is also the Sterling Professor of Mathematics at Yale and a Fellow Emeritus at IBM's Thomas J. Watson Laboratory.

 

2. I first interviewed Nassim Taleb for my radio show in August, 2004. (You can listen to the podcast of that interview here.) In fact, it was Nassim Taleb who introduced me to both Dr. Mandelbrot and Terry Burnham. In addition to Fooled by Randomness, Nassim Taleb is also the author of the recent best-seller, The Black Swan. Dr. Taleb is a fellow at the Courant Institute of Mathematics of New York University.

 

3. I first interviewed Ed Easterling for my radio show in April, 2005. We have had him on several times since. (You can listen to the podcasts of our interviews here and here.) Ed is the founder of Crestmont Research and Adjunct Professor at SMU's COX School of Management where teaches a graduate course on hedge funds. Ed's website, crestmontresearch.com, is a wealth of wonderful primary research on market cycles.

 

4. Peter Bernstein is the one author on this list who I do not know. I talked to his assistant about getting an interview on my radio show some years ago and he declined. Peter Bernstein is the author of the semimonthly analysis Economics and Portfolio Strategy. He has authored six books on economics and finance. He was the first editor of The Journal of Portfolio Management.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Going Away From Blog For Awhile

If you are a regular reader of this blog, you may have noticed that my posts have been getting less and less frequent of late. I am finally getting down to business and am determined to get my book written. I have been saying I was going to do it for several years now. Now it is time to put up or shut up.

 

I have realized I can only write so much in a day and something has to give. So for now, it is going to have to be the blog. I will stop posting to the blog on a regular basis so I can get the book done. That doesn't mean I'll go totally silent but don't be surprised if there are long periods where I don't post.

 

If you don't already use FeedBlitz to get email copies of my posts sent directly to your inbox, now might be a good time to sign up. Just enter your email address in the left sidebar. That way, when I just get the urge to post something, you won't miss it.

 

Also, our podcast will continue to be posted here each week (as well as on iTunes). And our staff will continue to post items of interest specific to the Snider Investment Method™ on the Snider Insider blog.

 

Finally, I strongly encourage you to sign up for our weekly email newsletter, the Kimmuniqué, which will be published every Thursday as normal. That way, you can still get your weekly dose of practical advice for Family CFO's. The Kimmuniqué will also keep you up to date on all our events and everything we have happening at Kim Snider Financial Communications.

 

Finally, I just want to say thanks, in advance, to all my regular readers and commenters. I appreciate your support and patience while I try to get this monkey off my back.

UPDATE (7/28/07)- Ding! Dong! The witch is dead! I am happy to report I finished the first draft of the book last night at 8:47 PM. There is still much work to be done but it feels like the hardest part, for me at least, is done! Hooray! Thanks for your continued patience and support.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Not Your Average 12 Year Old

John-Paul Pigéon is not your average twelve year old. He is a Rich Dad, Poor Dad prodigy and the youngest graduate of the Snider Investment Method™ Workshop. John-Paul is an accomplished speaker on the subject of money, speaking to children and adults alike. In fact, he has shared the stage with the legendary Les Brown, which is more than I can say.

 

John-Paul has recently written his first book, called John-Paul's Secret Recipe. It is the story of his first business - a lemonade stand.

 

This tale of two brothers and a classic road-side lemonade stand illustrates in kid-friendly terms the basic underlying principle of finance, cash flow. Though John-Paul does have a secret lemonade ingredient the message of the book extends far beyond a tasty pitcher of ice-cold, refreshing lemonade.

 

An autobiographical account of John-Paul's first entrepreneurial venture designed for audiences ages 3 - 9. The book includes a classic recipe for homemade lemonade and space for children to write in their own recipe and 'secret' ingredient. This book's brightly colored illustrations, fun caricatures and brotherly camaraderie exude wholesome family values.

 

A third of the proceeds from John-Paul's book benefit the Les Brown Out of the Rain Autism Center. This book will teach your children about important financial concepts that will help them succeed in life.

 

It is a delightful book, filled with John-Paul's passion for financial literacy. Purchase copies for the little people in your life directly from John-Paul's website.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Investor or speculator?

Many of Wall Street's most colorful metaphors and fables come, unwittingly for most, from a book originally published in 1940 by Fred Schwed, Jr. (yes, that was his real name) called "Where Are the Customers' Yachts?" Schwed went to work on Wall Street in 1920 and wrote one of the enduring investment classics about his time there.

 

The book is simultaneously eye-opening and hilariously funny. More amazing is that many of its truisms seem prophetic given the passage of almost 70 years. It just goes to show, that for all the changes we have experienced in the investment business, not much has changed at all. Everything old becomes new again.

 

One of the passages in this book which caught my attention was the following description of investing in comparison to speculation:

 

Speculation is an effort, probably unsuccessful, to turn a little money into a lot.

 

Investment is an effort, which should be successful, to prevent a lot of money from becoming a little.

 

If you take a thousand dollars down to Wall Street and attempt to run it up to $25,000 in the course of a year, you are speculating. If you take $25,000 down there and attempt to earn a thousand dollars a year with it (by buying twenty-five four-percent bonds) you are investing. The odds against your being successful in the first venture are roughly 25 - 1. The odds against the success of the second venture are "odds on", or something like 1 -25.

 

Jason Zweig correctly points out in the foreword, "Today, as in Schwed's time, people who try to get rich quick still insist on calling themselves 'investors' - even though they are clearly speculators."

 

I believe in investing, not speculation. I believe this because my goal is to make money, not lose it. But the difference between investing and speculation is, as Schwed himself points out, only a matter of degree. So where do you draw the line? How do you define which is which? What criteria do you use?

 

I would love to know your thoughts on the topic. Do you see a difference? Which are you? Did you set out to consciously do one or the other? Let us know by posting your comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Are You Navigating or Just Drifting?

I've been reading a management book titled "Mastering the Rockefeller Habits" by Verne Harnish. The central premise is how to create alignment in an organization. Alignment can best be understood as everyone and everything working together toward a defined objective.

 

I am attracted to the Rockefeller Habits because Harnish has created a step-by-step system for managing a small but rapidly growing business, much like the Snider Investment Method™ is a complete system for managing your investments. Like the Snider Method, there are steps to be followed, one after the other and always in the same sequence. Also like the Snider Method, there are worksheets to keep up with all the data and metrics to track performance.

 

As I was reading, I quickly realized that my company is suffering from a lack of alignment. We have 20 people all doing stuff every day - stuff that "feels" important, or at the very least urgent. But a lot of it has nothing to do with meeting our most important goals. We are all rowing very hard but all to a different cadence. We are moving, but not in a straight line and not with the efficiency we could be.

 

I also realized that I am much more successful at achieving goals in my personal life than in my business life. Maybe it's because there are fewer people to get onboard. In my personal life, it's just Jim and me. The dogs don't put up much resistance - or provide much input for that matter!

 

Our dream is to build a polo farm in Aiken, SC. Everything we have done for the last few years has been about making that a reality.

 

First, we had a vision that we were absolutely 100% committed to. Next, we had to ensure we had enough money put away to support us for the rest of our lives - not lavishly, but at least comfortably. In other words, take care of retirement savings first, then the dream.

 

Then we had to figure out what it would take to make the dream a reality. The first thing we realized is we needed to build the company into one that was not so dependent on Jim and I on a daily basis. In others words, we had to build a business. We are working on that.

 

It also meant quantifying the dollars involved. How much would it take to build our dream? Yikes! Polo farms don't come cheaply, at least not the one I see in my dreams. So we did that too.

 

Then we started working towards those goals. Everything else has taken a back seat because that is what we decided was most important. When we wanted to take a vacation, we measured it against the dream. "For the cost of a trip to Sun Valley, we could buy an acre of land." or "Is that worth a polo pony?" Sometimes we would say yes. Most of the time we decide it isn't worth it.

 

Our actions are generally in alignment with our goals. As a result, we have bought the land and hope to start moving dirt some time next year.

 

I have always believed that our lives, especially our financial lives, are just micro businesses, to which business principles apply. That is why I always stress the concept of the Family CFO. I believe it is a useful metaphor.

 

I realize now that my personal life is better aligned with my personal goals than my business is with its business goals. We aren't as focused, in the business, as I would like us to be. That is my fault as the CEO and I have determined to fix that.

 

But what can you learn from my experience? Well, here is my question - are YOUR actions aligned with YOUR goals or are you allowing YOURSELF to drift day-to-day without getting any closer to your dreams? And if you are drifting, what do you need to do to take hold of the helm and start creating an intentional course? If you'd like to share, your thoughts and comments are welcome below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

401(k)s Coming Up Short

I have been preparing for an interview with the authors of the book, Coming Up Short: The Challenge of 401(k) Plans, for my radio show. The premise is 401(k)s (as well as similar 403(b) and SIMPLE plans) have the potential to create enough wealth to support a reasonable retirement. But for the majority of Americans, they don't. Coming Up Short, by Alicia Munnell (Director of the Center for Retirement Research at Boston College) and Anika Sundén, looks at why.

 

What it boils down to is this: 401(k)s have shifted the burden of investing for retirement from the employer to the employee. Unfortunately, most people are not prepared to manage their 401(k)s in order to get maximum benefit from them.

 

Each of us must make five very important decisions related to our 401(k), 403(b) or SIMPLE plan. The implications of each are far-reaching and determine, to a large degree, what sort of standard of living we will enjoy in our retirement years. They are:

 

1. Should I participate in my employer's retirement plan?

2. How much should I contribute?

3. How should I direct the investments?

4. When should I rebalance the portfolio?

5. How do I make the money last for the remainder of my lifetime once I retire?

 

Many of us will make three other decisions that are equally important:

 

1. Should I roll over the money when I leave my employer or take a lump sum distribution?

2. Should I take a loan from my retirement plan?

3. Should I invest in company stock and if so, how much is too much?

 

The data says most of us make mistakes at every single one of these critical junctures. The result is the primary vehicle for retirement savings doesn't even come close to meeting its full potential.

 

Simulations tell us a worker who begins his career making $17,000 and ends it at 62 making $62,650, if she does everything right, should be able to accumulate $353,408 in her 401(k) plan. This simulations is based on a number of assumptions, of course, but not unreasonable ones.

 

Survey results paint a very different picture. The mistakes investors make -- waiting too late to participate, not contributing enough, imprudent investments, not rebalancing, raiding retirement accounts and not taking steps to turn the lump sum into lifetime income -- all contribute to under-funded retirement plans.

 

So my question is this: how many of you think you could do a better job managing your 401(k) than you do now if you had more knowledge? Take our survey and leave your thoughts and comments below.

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Variable Life Insurance & Annuities: Investment Scandals in Waiting

The following is from Steve Selengut, portfolio manager and author of "The Brainwashing of America". He put it up as a comment to my post, "NASD continues probe into abusive sales practices of variable annuities." I thought it was worthy of its own post. See what you think.

 

 

We humans are as creative on the "Dark Side" of commercial activity as we are in developing beneficial new products and services. In the face of huge financial benefits, however, some corporate executives can't resist taking an extra dessert even before their shareholders have finished dinner. Some scandals have more of an impact on investors than others, and most produce unwarranted layers of government regulation and control that stifle honest creativity.

 

Plain vanilla fraud and theft are less worrisome to me than situations where the general acceptance of misinformation or "business as usual" practices allows inherently bad product ideas and blatant mismanagement to become accepted by regulatory authorities, financial professionals, and myopically gullible consumers. Here are some candidates for future "Blockbuster Scandal Awards" (B S Awards, if you will): Variable Life Insurance & Annuities, Wrap Fee Managed Investment Accounts, Portfolio Window Dressing, Asset Allocation Mutual Funds, and Obscene Executive Compensation.

 

1) Variable Insurance and Annuities: Variable products are a relatively new thing in the insurance industry, circa 1980 or so. Before that, the conventional wisdom labeled the Shock Market much too risky for Life Insurance Policy and Annuity Contract guaranteed benefits. In fact, these benefits had been "guaranteed" for so long that it became a generic expectation of anyone in the market for either. So why did the State Insurance departments cave in to the Variable Product lobby? And what is not emphasized as these products are marketed to potential insureds and annuitants?

 

As if the 8% sales commission on Straight Life Annuities wasn't enough, the addition of Mutual Fund bonuses made the Variable Annuity irresistible... to financial professionals. Similarly, this product is so lucrative for the companies that they manipulate their rates to become more competitive. Since the introduction of variable benefits, there have been more insurance company failures and scandals, and not just a few disappointed recipients of reduced annuity payments. What's in your retirement plan?

 

2)Wrap Fee Investment Accounts: From the very beginnings of wealth, the very wealthy employed Investment Managers to protect and to grow their portfolios. Most Investment Managers had just a few huge clients that they tended to while the rest of the fledging financial industry focused on property protection and estate creation through life insurance. Most of today's (salaried) Investment Managers are employed by Financial Institutions to supervise thousands of Mutual Funds for millions of investors of all financial shapes and sizes. There are more Equity Mutual Funds than there are individual Equities on the New York Stock Exchange. Most investors today will employ many Investment Managers and never actually speak to any of them.

 

Enter the personally managed investment portfolio product offered by most major Financial Institutions. For a single fee, you receive the personal services of a professional Investment Manager, and a portfolio specifically designed for you. Except, of course, that you get neither. You get precisely the same portfolio as everybody else, and all at once regardless of price... a Mutual Fund with individual statements. But of course, you can speak to the manager any time you like, change your asset allocation, set aside a reserve for an upcoming expenditure, etc. Yeah, sure you can!

Note that "Flat Fee" managed accounts are quite different and may actually be separately and personally managed.

 

3)Portfolio Window Dressing: Every quarter, every year, we hear about the adjustments that portfolio managers are making as they attempt to look smart to their largest clients. Now in a discipline (Investing) that they all officially recognize as a long-term commitment to some specific strategy or plan, why do the Masters of the Universe spend so much time manipulating their short-term performance numbers? And why is this considered business as usual instead of common fraud?

 

4)Asset Allocation Mutual Funds: I look at Asset Allocation a bit differently than most professionals seem to and I regulate and monitor a portfolio's structure using the cost basis of securities rather than their Market Value. But how, logically, can a one-size-fits-all Mutual Fund be the right mix for all investors? Here's a definition found on the Internet: "A mutual fund that rotates among stocks, bonds, and money market securities to maximize return on investment and minimize risk". And a definition of Asset Allocation from a similar source: "The practice of distributing a certain percentage of a portfolio between different types of investment assets, such as stocks, bonds, mutual funds, cash, real estate, options, etc. By diversifying an individual's asset base, one hopes to create a favorable risk/reward ratio for a portfolio".

 

In reality, Asset Allocation is a structure-planning tool that determines what percentage of an Investment Portfolio is to be invested for Growth in Equity securities and what percentage is to be invested for income production. The proper allocation is a function of the investor's age, marital status, financial position, employment status, retirement plans, expenditure needs, risk tolerance, family responsibilities, etc. Diversification occurs within the two (just two) asset classes. One size fits all... who's kidding whom?

 

5) Corporate Executive Compensation: I strongly believe that everyone has the right to become filthy rich, legally of course. I respect anyone who gets there honestly because their success creates jobs, opportunities, wealth, and a higher standard of living for everyone. But, once they sell shares of their successful enterprises to the public, they have a responsibility to share future profits and growth. Obscene executive suite compensation (right down to the chauffeured limousines) is simply stealing from shareholders.

 

With every new Scandal, a voracious Media and a hypocritical Congress exacerbate the fear of shocked investors and call for more regulation of the very entities whose success, freedom, viability, and competitiveness they should be nurturing. Ironically, politicians are always the most outspoken critics... probably because of their familiarity with cover-ups and improprieties. But no one ever questions the integrity of the Financial Institutions that invent, produce, price, and promote products and services that do far more long-term harm than the few (albeit serious and sensational) incidents of corporate wrong doing.

 

Four of the five candidates for this year's Blockbuster Scandal (B S) Award were created on Wall Street. The fifth is ignored by it. Which one bothers you most?

 

Your thoughts and comments are welcome, as always. Please leave them below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

David Swensen's Unconventional Success at Yale

David Swensen, is one of the most successful money managers on the planet. The Yale University endowment, which he manages, has returned 16 percent over the 21 years since he took the reins. It has grown from $1.3 billion to over $18 billion. His advice for investors? Do as I say, not as I do.

 

Swensen wrote a book, published in 2005, titled "Unconventional Success: A Fundamental Approach to Personal Investment." The premise of the book is that you can't achieve the sort of results Swensen achieves with the Yale Endowment but there are things you can do to make sure you get the best possible result given your limitations as an individual investor and the investment products available to you.

 

David Swensen is very critical of actively managed mutual funds, for all of the reasons I have discussed for years. The high fees and inherent conflict of interest in actively managed mutual funds make your chances of outperforming the market with them 1 in a 100. "Overwhelmingly," Swensen writes, "mutual funds extract enormous sums from investors in exchange for providing a shocking disservice."

 

Like anyone who doesn't make a commission off your investments, Swensen eschews stock picking and market timing. It can't be done except by liars and charlatans. "Sensible investors avoid the brokerage community," he writes. Instead, he suggests discipline is the key to investment success. Find an approach that works, given your life objectives, and stick with it.

 

A big reason for David Swensen's success as manager of the Yale endowment has been the inclusion of alternative investments. Swensen was a pioneer in the use of alternatives. Prior to 1985, when Swensen took over, Yale held the majority of its money in U.S stocks, bonds and cash. Swensen thought that was a mistake. Today, Yale and many if not most of the successful college endowments take an absolute return approach to investing. But at the time he suggested it, the idea was quite revolutionary.

 

I tried to get David Swensen to appear as a guest on my radio show when his book came out last year. We had a nice exchange of emails back and forth. (He is an amazingly approachable guy considering what he does.) But in the end, he told me he just couldn't spare the time. We will keep trying. Who knows. Maybe some day we'll get him. But in the meantime, you might want to consider his ideas.

 

If you believe, as I do, in finding people who are achieving the results you want and figuring out what they are doing that you aren't, David Swensen is a pretty good place to start.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Kim's Current Reading List

I know this is not my typical sort of post but I thought I would share what is on my reading list at the moment. I put this together for our internal blog and I thought it might be helpful for others as well.

As you can tell, I am a non-fiction reader. I have probably read less than twenty fiction books in the twenty plus years since I graduated from college. Here is what is on my list to be read at the moment:

Customer Service

• Zingerman's Guide to Giving Great Service - Ari Weinzweig
• Service America - Karl Albrecht
• Moments of Truth - Jan Carlzon
• Discovering the Soul of Service - Leonard Berry
• Hug Your Customer - Jack Mitchell

 

Marketing

• Guerilla Marketing - Jay Conrad Levenson
• Positioning - Jack Trout
• Blue Ocean Strategy* - W. Chan Kim
• Purple Cow* - Seth Godin
• Getting Everything You Can Out of All You've Got* - Jay Abraham
• Creating Customer Evangelists* - Ben McConnell & Jackie Huba
• The Anatomy of Buzz - Emanuel Rosen
• Scientific Advertising - Claude Hopkins

(* I just finished recently)

(* Already read it but plan to go back and re-read it)

 

General Business

• Practice of Management - Peter Drucker
• The Great Game of Business - Jack Stack
• The Age of Unreason - Charles Handy
• Dig Your Well Before You Are Thirsty - Harvey Mackay
• The Five Dysfunctions of a Team: A Leadership Fable by Patrick M. Lencioni

 

Entreprenerialism

• Art of the Start - Guy Kawasaki
• Innovation and Entreprensurship - Peter Drucker
• Small Giants - Bo Burlingham
• The 7 Irrefutable Rules of Small Business Growth - Steven Little

 

Finance & Investing

• Mis-behavior of Markets* - Benoit Mandelbrot
• The Automatic Millionaire* - David Bach
• Couples Finish Rich - David Bach
• Cartoon Guide to Statistics
• Unconventional Success - David Swensen
• More Than you Know - Michael Maboussin

                 (* Already read it but plan to go back and re-read it)

 

Personal Development

• Managers, Not MBAs - Henry Mintzberg
• Crucial Conversations - Kerry Patterson, et al
• Never Eat Alone* - Keith Ferrazzi
• How to Talk to Anyone - Leil Lowndes

                 (* Already read it but plan to go back and re-read it)

 

What is on your reading list? Please leave your recommendations for good books you have read, or are planning to read, in the comments.

UPDATE: I would also suggest, to go along with this list, an old essay, by Dr. Mortimer J. Adler, titled "How To Mark A Book". I was turned on to it by a member of the National Speaker's Association. (Sorry I can't give better attribution. It was in Professional Speaker magazine and I can't remember who it was!) Anyway, I love the idea but rarely, if ever, take the time to actually do it.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

 

Calm Before the Storm

The market volatility over the last few days and months makes my recent interview with Ed Easterling very timely. In this podcast, Ed and I talk at length (22 minutes) about a new paper he has written called, "Calm Before the Storm." (If you scroll down, it is near the bottom of the page.)

 

In this paper, Ed looks at whether changes in market volatility are correlated with market direction and his conclusion is that increasing volatility is likely and that it makes us vulnerable to some big market drops- so you might want to fasten your seat belts.

 

Ed is the author of Unexpected Returns, president and founder of Crestmont Research and adjunct professor at the Southern Methodist University Cox School of Business where he teaches a graduate level course on hedge funds and alternative investments. 

 

Download podcast (20mb)

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Rich Woman

I am in Phoenix this week to do two information sessions in Scottsdale and Chandler. (It's no excuse but my increasingly hectic travel schedule explains the less frequent blog posts.)

 

As long as I was in town, I took the opportunity to have lunch with Kim and Robert Kiyosaki. Kim has just released the newest in the Rich Dad series, Rich Woman. Kim just gave me my copy so I really haven't had time to do more than leaf through it but I already like this book. I think women must be made aware of statistics like these from the back cover:

 

• 47% of women over the age of 50 are single
• 50% of marriages end in divorce
• In the first year after a divorce a woman's standard of living drops an average of 73%
• Of the elderly living in poverty 3 out of 4 are women - and 80% of them were not poor when their husbands were alive
• Nearly 7 out of 10 women will at some time live in poverty

 

It is a sad fact that the most financially vulnerable segments of our population are women, children and the elderly. Children have an entire lifetime ahead of them but are dependent on adults. Sadly, the elderly have run out of time to do much about their financial situation.

 

Women, on the other hand, are the one group that could insulate themselves from a great deal of financial hardship simply by making their own financial education a priority. That is why I was honored to be Kim's first guest on Rich Woman TV, a subscription based Internet content channel designed by the Rich Dad folks to bring financial education to women over the Internet.

 

We recorded the show today here in Scottsdale at the Rich Dad TV studio. I have no idea when it will go live but I sure did have fun doing it. Kim tells me the book will be available in book stores in about three weeks. If you would like more information about Rich Woman, go to the website at www.richwoman.com.

 

One more note about the Rich Woman book. Just leafing through it quickly, it is clear to me this is a great starting point for women to start thinking about creating their own financial security instead of "depending on a man, family, company or government to take care of them." But I have to confess I would like this book no matter what - just because I like its subtitle - Rich Woman: Because I Hate Being Told What To Do!

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Suckers!

"It's morally wrong to allow a sucker to keep his money!" ~ W.C Fields

 

Christine Hurt is an Assistant Professor of Corporate Law at Marquette University. She makes an interesting post on Conglomerate in response to Larry Ribstein's post on David Swensen's book which I posted on here.

 

At any rate … Christine is writing a paper "comparing online trading to online gambling and why, given the theory that active traders and problem gamblers suffer from the same behavioral biases and on average both suffer losses, the SEC embraces active traders (online and not) and shun online gambling."

 

She says she started out with the assumption that "the federal government should restrict online/active/day trading in the same way that it claims that online gambling is illegal." In the end, she decided the opposite, that online gambling should be legal just as online trading is.

 

The central theme in all of these posts is one not unfamiliar to long time readers - stock picking and market timing are a fool's game. You will lose at both. And yet, the industry is based on these very ideas. It is allowed to continue because without the retail investor to play the sucker, the financial markets would be too efficient for anyone to make any money.

 

The basis of retail investing is one of two models: the greater man model or the greater fool model.

 

In the greater man model, somewhere out there is a great man who can pick stocks for you. If the guy you are paying now isn't it you leave him in search of the next greater man.

 

In the greater fool model you buy an asset that you really don't want to own over the long term in hopes of being able to sell it to a greater fool for a greater price.

 

Do either of these sound like a good way to build a retirement nestegg? Now that we are responsible for replacing our income in retirement with little or no assistance from pension or Social Security, how much sense does this make?

 

None.

 

The person who is saving for retirement cannot afford to continue playing a fools' game. The stakes are just too high. The fact that we continue to allow/encourage/teach people to gamble with their retirement savings is morally reprehensible!

 

Did they appoint W.C Fields SEC Chairman when I wasn't looking?

 

An interesting read - especially the comments. I'll post the paper if Christine would be nice enough to alert us when it becomes available. Post your thoughts below.

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Unconventional Success: by David Swensen

David Swensen is the extraordinarily successful manager of the Yale endowment fund who has recently resleased a book titled "Unconventional Success: A Fundamental Approach to Personal Investment.

 

According to a review in the New York Times by Joe Nocera, Swensen originally set out to write a book about how you can invest like Yale does but upon commencing the writing ultimately decided that the small guy can never invest like Yale does and that is the problem.

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