A Conversation For Change or A Conversation For Healing, Which Would You Prefer?

A Conversation For Change vs. A Conversation For Healing,

Which Would You Prefer?

          by: Brendan Magee

I am in the doctors office with my dad. He has numerous medical conditions that require doctors to be on top of his situation. They need to see him weekly, check his weight, chemical balances, blood pressure, and to see if the medications he is taking are having the proper effect on his body. To make sure nothing gets lost in all the translations I attend all the appointments with my dad.

During the last discussion it dawns on me that we are not engaged in a process or conversation with the doctor for healing my dad's medical problems. We are in a process for maintaining his health at its present condition. His ailments are not going away and for my dad that is the most frustrating part of all the medications and doctor's appointments. Healing isn't taking place.

What we experience is a never ending process of changes. Weight, blood pressure, or fluid levels are up, the doctor makes a change to his medications. We are in a weekly process of tweaks to his medications. It's one of those things where the more things change the more they stay the same. 

I likened it to the process that a lot of investors go through. Not happy with your investment returns, suffered a big loss, losing out to the hot performing investment? The solution is to make a change. Change to a fund with a higher track record for the last five to ten years. If that doesn't do it load up on the commodities that are getting all the media's attention. If that doesn't do it, turn on the computer and open up an account with E*Trade or Fidelity and start buying companies that the analysts say can't miss.

The constant in the lives of investors as it is with my dad and his doctors is change. If not to their own funds, then the fund mangers in the investors portfolio are engaged in trading of the stocks in its portfolio. The other constant is that the relief from disappointing returns or confusing messages that are floating around out there is that eventually the investor starts to experience the same frustration, confusion, upset, and fear they were hoping to get rid of when they made the last set of changes to their portfolio.

Again, the more things change the more they stay the same.

I do not believe investors are so much looking for changes, rather I believe they would prefer healing. Rather than make the pain of arthritis manageable, wouldn't you prefer to get rid of it once and for all? Rather than soothe your anxieties, fears, and worries about investing, wouldn't you rather find a way to eliminate them?

When it comes to investing, that requires a different conversation. A conversation that is focused on you the investor rather than your portfolio. It requires a conversation that exposes breakdowns and blind spots. It requires an investor to look and see what are the impacts of those breakdowns and blind spots. In other words it takes getting up close and personal with your humanity and how vulnerable it makes us when it comes to investing. An investor needs to see, and take ownership of where their behavior has them taking actions and making decisions that are in conflict with themselves. Most of all, it is going to take acknowledging that when it comes to putting a stop to dysfunctional investor behavior, you alone cannot stop it.

The minute that happens, that's when the healing will begin.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322.

Are You A Predictably Irrational Investor?

Are You A Predictably Irrational Investor?

            by: Brendan Magee

I don't know too many people who would not object or defend themselves if when it came to handling their money, savings, and investments were defined as being "predictably irrational," but Richard H. Thaler, Professor of Economics from the University of Chicago was just awarded the Nobel Prize in Economics for his research in determining how peoples' behavior affects how successful or unsuccessful they are in saving money.

The Nobel Prize committe's position in awarding Thaler the Nobel Prize is detailed below:

The Nobel committee, announcing the award in Stockholm, said that it was honoring Professor Thaler for his pioneering work in establishing that people are predictably irrational — that they consistently behave in ways that defy economic theory. People will refuse to pay more for an umbrella during a rainstorm; they will use the savings from lower gas prices to buy premium gasoline; they will offer to buy a coffee mug for $3 and refuse to sell it for $6.

I think a good way to determine if you fall under Thaler's theory is to ask yourself two questions:

1. When it comes to saving and investing, have you ever done something you said you weren't going to do?

2. When it comes to saving and investing, have you not done something you said that you were going to do?

Take an honest look at your decisions. During the crash of 2008, did you take money out of the stock market? In the early 2000's did you pull the trigger on a tech stock after seeing how well that sector of the market was performing? Now most of us know and agree that you don't sell low nor buy high, but if you answered yes to any of these questions you were behaving in a destructive manner. It may bruise the ego a little in owning up to mistakes that you have made in the past, but the only way to take ownership of your American Dream is to take ownership of bad behavior that you are responsible for.

So if the answer is yes that your behavior has been in conflict with what you are ultimately trying to accomplish, why is that? You are a smart individual. You have achieved a high school diploma, a college degree, a masters, etc. You are raising children, own a home, and have been successful enough to start saving and investing money. You are intelligent.

The problem is and this is what Thaler bases his research on is that you are human, and there is no escaping that fact. As human beings we do not have one bit of control over the thoughts and impulses that come into our heads and that we act upon. Sure there are areas where we do a good job of self control. We usually don't say every little thought we have about our boss to his or her face, but what about the times when there is no one else involved but ourselves? The popcorn at the movie theater, the pepperoni pizza, the gym, etc. How successful are you in controlling what goes into your mouth and what your body is engaging in?

Perhaps the thing that we need to come grips with is that there are certain areas of life where we are way better off engaging in or avoiding, but  living up to those agreements we are incapable of doing them  to the level or as consistently as we need to in order to be successful. How many of us would be 25 pounds lighter if we joined Weight Watchers? How much more money would you have if in 2008 your coach talked you out of getting out of the market or stopped you from loading up on tech stocks? 

So you turn to a coach whose job isn't to sell you products, but rather make sure that you do not "ever" engage in behavior that sets you up for failure.

Eating less and moving more are easy concepts to understand in losing weight. Own equities/stocks, diversify, buy low/sell high are easy concepts to understand when it comes to building wealth. Both concepts are easy to understand but awfully difficult to stick to over long periods of time. If they were everyone you meet, including yourself, would have a size 32 waist with a million dollars in their retirement accounts. Unfortunately, those people are the exception. Why? It's because we are human.

Sorry to run but my fitness instructor is waiting on me.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With comments or questions e-mail brendan@coachgee.com or call 610-446-4322

Pete Rose & Investors: More Often Then Not Are Their Own Worst Enemies

Pete Rose & Investors: 

 Their Own Worst Enemies

At this point in his life, Pete Rose should have his bust in Major League Baseball's Hall of Fame. He should be employed by the Cincinnati Reds or The Philadelphia Phillies serving in a front office position passing along to the next generation of players what it takes to become a successful player. He should be serving as a global ambassador for America's pastime.

I base this opinion based solely what he did on the field as a player. No one was more dedicated to his profession or team then Pete Rose. Through hard work and dedication he put himself at the top of the sporting world, and all that that brings with it was within his grasp.

Off the field has not been where he has shined. He gambled on, denied he gambled on, and then admitted that yes he did bet on Major League Baseball games. Now it is coming to light that he was having relations with 16 and 17 year old girls during his playing days. Not only has he hurt his chances of one day being voted into the Hall of Fame, he has putting himself in the position of being a social outcast.

Worst of all these are things that Pete Rose has done to himself. No one forced him to bet on baseball. No one forced him to have sex with teenage girls. Those decisions and behaviors were made by one man, Pete Rose, and Pete Rose will be the one to suffer the consequences.

Unfortunately, the overwhelming majority of investors find themselves in a similar situation. They are in position to enjoy all that free market capitalism has to offer, a comfortable retirement, security, the ability to help their children, give to good charities, etc, but through flawed behavior and thinking they find themselves disappointed by what could have been.

Look at the annualized long-term rates of return of just a few investments below from 

1927 through 2016:

U.S. Large Company Stocks    10.02% 

U.S. Micro Cap Stocks             12.38%

U.S. Small Cap Value               14.91%

(Past performance is no guarantee of future performance)

According to the Dalbar Corparation's "Quantitative Analysis of Investor Behavior Report," from 1987 through 2016 the average stock mutual fund investor's annualized return was just 3.98%. The average investor is getting a fraction of what the market is producing. Just like Pete Rose, the investor's returns are behavior driven, not market driven.

Just like Pete Rose seems to have been hooked on the need for action and living on the edge, investors are driven to try and pick the winning stocks, time the market and find the top performing investment managers. Their American Dreams aren't taken from them, rather they are surrendered as the result of years and years of behaviors that set them up for ultimate failure. 

Unfortunately, not until Pete Rose or investors start looking at their own behavior will lasting changes begin to occur. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322.     

Teach Me To Trade Like The Wall Street Pros? 

No Thanks

         by: Brendan Magee

The commercial I am listening to on the radio asks me how I would like to earn an extra $500, $1,000, to $1,5000 per month. I am asked to think about the difference that would make in my life. Having young kids and bills to pay, I could use it.

To earn the money though, I need to enroll in this company's on-line trading educational program, and this is where they lost me.

There are countless examples of brokerage houses and the media leading investors down the wrong path. Here is one from Fortune Magazine. 

By all accounts this is a reputable and trusted resource for investors to use in making their investment choices. Their year 2000 guide is going to help me "Retire Rich." They are kindly giving me the "Ten Stocks To Last The Decade." How nice would it be in year 2000 to know that at least for the decade my investments are in the right stocks?

So let's see how our portfolio would fare had we invested in Fortune's stocks. Over the first 27 months, our portfolio is down 62%, but let's not panic. We still have almost eight years to go in the decade and we are not short-term investors. So if we had held on for the remainder of the decade how did our portfolio do? We are down 47%!

The reality is that teaching me to trade like the pros is teaching me to gamble and speculate and the long-term expected rate of return of gambling is zero.  Rather than teach people how to gamble and speculate, investors would find it invaluable to learn how to avoid gambling and speculation.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or suggestions e-mail brendan@coachgee.com or call 610-446-4322.