THE FISCAL BLUE PRINT
WITH COACH JEFF MONTGOMERY
Episode 8: Shields up! Implementing Your Investment Philosophy
Welcome to our final episode of this series ‘Mind Over Money’ and why some folks worry so much about their money that never truly have Peace of Mind. With what’s going in the market these days, this is a very timely discussion to have!
Last week we did some heavy lifting and we guided you toward a choice that must be made in order to have a chance of achieving true peace of mind when it comes to your money.
If you recall, I challenged you to pick a side and make a choice. This choice is black or white… no grey area in between. If you didn’t catch last week’s show, please go back and listen!
If you did and you made the choice, what’s next? Before we jump right in we need to take care if some business:
Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. So, unless you’re a client I can’t give you advice because I don’t know you. Think of this as helpful hints and education only. And please before implementing any information or ideas you hear on this show always consult your legal adviser, your tax adviser, and your financial adviser. We are accepting clients so if you want to reach out, don’t hesitate!
(3:15) Practical planning segment: For those of you that tuned in last week, we took a step by step journey through developing your very own Personal Investment Philosophy.
And in creating that Investment Philosophy you had to follow 3 simple steps and then choose what you believe in when it comes to managing your money.
- Step 1: Developing a True Purpose for Money statement! This is a statement of the most important value that you want to express through the way that you use money; it is the thing that is more important to you than money itself. Here is a link to the True Purpose video in case you missed it: https://vimeo.com/292957538
- Step 2: Develop a Market Belief by identifying what you believe about how markets work.
- Step 3: Develop an Investment Strategy that is in alignment with your market belief
We challenged you to really think about how you believe the market works! Let’s face it, most of us have our money in the market. It may be in 401ks, IRA, 457B , plans, etc.
(6:30) Really think at a very deep level what’s makes sense to you!
Choice 1 was The Markets Work philosophy, which espouses the belief that the market is efficient and all known information is already priced in. Only new and unknowable information will change the direction of the market or an individual stock
Choice 2 was that the Market Fails, it doesn’t work, which espouses the belief that the market sometimes gets it wrong and with the proper information or research that no one’s else has, you can take advantage of those mispricing’s unrelated to risk.
(7:30) If you chose #2 that’s entirely up to you, but I want you think about a few more things. Let’s say you’re using a person (i.e. a broker, newsletter writer, journalist, hedge fund manager, Jim Cramer on CNBC) in making these important investment decisions such as what stocks to buy, what stocks to sell, when to get in or get out, etc.
They’ve typically based these stock recommendations or timing recommendations based on some type of research they say they have developed or discovered! Isn’t that information already known? Could it be possible that the information is already public knowledge and has already been priced in?
Now let’s say it really is new information that no one else knows in the entire world and they are going to take advantage of it before it’s discovered by the masses. Are they really going to share it with you or put it in a newsletter for all their subscribers? Why would they?
(10:30) So today were going to explore choice number one: The Markets Work philosophy and how adopting a “markets work mindset” protects you from all the threats we’ve been discussing such as:
- The wall street bullies taking advantage of you (con men, prognosticators, gurus)
- Your own emotions and instincts causing you to make bad investment decisions
- The media; your perceptions of what’s really going on vs the illusion the media presents
It’s like that invisible shield in Star Trek that protects the ship. When the Enterprise is under attack the 1st thing Capt. Kirk says is: SHIELDS UP!
(12:15) Let’s look at the investment strategy that goes hand in hand with the ‘Markets Work’ philosophy. The idea that markets cannot be predicted or forecasted goes hand in hand with the strategy of Asset Class Investing!
Let’s do a quick refresher… Asset Class Investing refers to a buy and hold approach to asset management. If you think markets work efficiently, then buying and selling securities to outperform the market is effectively viewed as a game of chance rather than skill. The Asset Class Investing is built on 3 important tenet:
Market Returns– Use structured or index-type funds to deliver market returns for the asset classes in the portfolio.
Asset Allocation– Expose the portfolio to multiple types of investments including: equities and fixed income instruments, domestic and international markets, and growth and “value” investments, to provide maximum diversification and correlation effects. The goal is to maximize returns for a given level of risk.
Lifelong Investing: A step beyond “long-term,” investing is seen as a lifelong process. Instead of attempting to get in and out of the market at the “right time,” staying in the market all the time is a fundamental part of success in Asset Class Investing.
(18:45) So how does this protect you from the 3 threats we just identified?
Threat #1: The Wall Street Bullies, Conmen like Madoff, stock pickers like Jim Cramer,
and prognosticators like Harry Dent.
The Smartest Portfolio You’ll Ever Own by Daniel Solin https://danielsolin.com/books/
Here’s a story about Daniel Solin and Eddie O’Neal and their 2006 visit to Fairfield Sentry Fund that had 6 billion of client funds with Madoff.
The story goes that this senior executive from Fairfield was trying to convince Daniel and Eddie to invest their client’s funds with Madoff through Fairfield. The executive shared Madoff’s returns with Eddie and Daniel and it showed a remarkable thing: Every single month no matter what was going on in the market, Madoff had a positive return.
Eddie asked one question before he left. He asked the executive, “How do you monitor Madoff’s performance?” The executive said he had the most sophisticated software at the time monitoring Madoff’s trades. When they left the office and got in the cab. Daniel turned to Eddie and said well…. what do you think? Eddie responded, “I don’t believe the returns.”
The markets work philosophy and asset class investing protects you from the Madoffs of the world because you aren’t relying on an individual to stock pick or forecast the direction of the markets. You are simply capturing the returns of the entire asset class itself; and if you build it properly you are capturing the global market rates of return. Sometimes they are negative, but most of the time they are positive over the long term.
You’re letting the power of the capital markets to work for you, and that’s how this specific philosophy protects you from the wall street bullies! So, shields up!
(23:45) Threat #2: What about protection from yourself?? What about protection from your own instincts and emotions causing you to make bad investment decisions??
This is where your new-found investment philosophy really shines! Because whenever those thought’s creep into your mind you can fall back on your philosophy, but the key here is that your belief (call it faith) has to be really strong… right down to the CORE!
“Yea I kind of believe markets work, it kind of makes sense to me but…” Does that sound like a strong belief? No.
Think about folks that have an extremely strong religious philosophy and maybe they go through a very bad period in their lives. Maybe the loss of a loved one spouse or child, maybe a very serious health scare, maybe the loss of a job or career, a divorce or some other financial devastation.
Folks that have a strong faith will rely on it to get them though the bad times. We hear it all the time: “If it wasn’t for my faith I would have never been able to get through that!” or “My faith pulled me through.”
That’s how strongly to the core we must develop our investment philosophy. Trust me, I’ve seen it hundreds of times! When the markets are volatile and your portfolio drops in value, it really tests your faith! And if that philosophy is not strong you will capitulate and make a bad investment decision in the blink of eye that will destroy your long-term dreams that your investment portfolio was designed to make reality! Shields up!
(27:56) Threat #3: The media; your perceptions and the illusion the media presents vs. the reality!
Our investment philosophy protects us from the hype we see from the media by truly having awareness about how capital markets work. We no longer have to buy into the hype we see on the financial TV shows or the internet or the financial publications. We no longer have to buy into the fraudulent emails or phone calls we get about how we can make lots of money with no risk what so ever.
Understanding how the markets work and how asset class investing is simply capturing the power of the capital markets growing your wealth over time, will protect you from all this misinformation we are bombarded with on a daily basis! This is truly Shields up! Think of the media (financial cable shows, emails, social media, print publications) as constantly launching misinformation missiles at you all day, every day.
And NOW ……with your newly developed strongly held, to the core, investment philosophy, they are just bouncing off that shield into nothingness! Never even getting close to affecting your peace of mind! What a great way to live your life! One with the mindset of abundance. Always having enough and always being ok vs a mindset of scarcity and always thinking you’re not going to make it and you don’t have enough.
I know which way I would like to live! How about you?
Coachable Segment: I want you to continue to develop your knowledge and understanding of this markets work concept
Read the following books:
- The Smartest Portfolio You’ll Ever Own by Daniel Solin
https://danielsolin.com/books/
- The Investment Answer by Dan Goldie and Gordan Murray http://www.theinvestmentanswerbook.com/
Sign up for the Saturday Blueprint email series and subscribe to the podcast. Share it with others!
www.fiscalblueprint.com and we will provide the links to the videos in the show notes but even better that that, sign up for our Saturday Blueprint email series.
Final Disclaimer: We appreciate you joining us today for this episode of The Fiscal Blueprint.
Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.
Remember it’s not about the money but about your life!
Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!
“Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment.”
