Reading the Plum Leaves

Last weekend as I was mowing, I noticed the leaves of our young plum tree yellowing.  The tree, planted about two summers ago, produced a couple of plums this year, but it is still trying to get its footing. 

The most likely culprit is water deprivation, and while we have had some decent rainfall this summer, it was clear from the dryness of the ground, a good soaking would offer some welcome respite. I watered it a little and a downpour eventually came one afternoon a few days later. The tree looks better, though a little thinner, having shed the leaves the tree sacrificed out of its sense of self preservation.  It's future is hopeful, but uncertainty remains.

 Scott's fledgling plum tree

Scott's fledgling plum tree

I thought about my plum tree as I have seen and heard, more than once this week, "experts" express opinion about the ending of this market cycle.  From economists, to wall street watchers to the always vocal market pundits and investment professionals with their own vested interests, they all seem to warn that a bear market is nigh.

Here is the thing about "expert" opinion.  It sounds expertly and it always includes some bit of logic that resonates with the "non-expert".  "Bear markets' sounds scary.  It motivates people to feel the need to do something. Anything. Wall Street loves it when people have this feeling. So some will change their investment strategy, others leave the market entirely.  In doing this they feel they have regained control.  But this is an illusion.  

The truth is no one knows when a market cycle ends, at least not until we have the benefit of hindsight, and as you can gather from the term itself, once you have hindsight, it is too late.  We want foresight, but foresight, at least as it comes to markets, is just expertly sounding guesses. No one knows.  No one. 

After seeing my tree, I pulled up my weather app on my phone.  The week called for greater than 60% chance of rain everyday this week, with some days approaching 80%.  Despite the concensus forecast, saying there was a greater than even chance of rain everyday, I watered.  It only rained once.  

I guess what I am trying to say, is read the plum leaves and do what you can do but don't get caught up in predictions.  If the leaves are yellow, water.  If it rains, great, but if it doesn't you have done what you can do. 

Somethings are beyond our control.  Bear markets are one of them. We could be in the throes of a bear market by autumn.  Which year however, no one knows.  Just because there are clouds in the sky and the experts say there is a 60% chance of rain doesn't mean your tree gets watered. The future is hopeful though never without uncertainties.  


What the Yanny/Laurel Brush Up Teaches Us about Investing

The latest evidence the internet has divided the world, amplified our differences and seduced us into an unproductive echo chamber of our own proclivities happened recently.  Like the blue dress/ white dress debate of a few years ago, the country became obsessed with a flaky audio recording from which no one could agree on what was being said.  Was it Yanny or Laurel?  

    It will come as no surprise to you, our faithful reader, that it got me to thinking about how our biases affect our beliefs. We all have biases, everyone of us.  We can aspire to make unbiased decisions and while this may be a worthy endeavor, it does not come without extreme effort and uncomfortableness. It is really, really hard to see a possibility beyond one's initial frame of reference.

    When ColeFP was first started, we used the phrase "unbiased advice" in our messaging. It was an attempt to communicate our advice was not motivated by a financial incentive from a third party, like most of the financial advice offered.  We were trying to say our advice was given with the client's interest as our sole motivation and that is still true today, however, I came to realize the use of "unbiased" as not being truly possible.  

    Why? Because we are indeed biased.  We have biases toward our clients, biases with regard to investment philosophy, biases regarding insurance, biases about appropriate levels of debt and cash.  We do not come to this industry without prejudices about standards of care.  So we abandoned "unbiased" as a integral part of our marketing.

    Some heard Yanny and sought out those who heard Yanny.  Others heard Laurel and did the same.  Some were blue dress people and others refused to accept anything other than a white dress.  You see,  we have a strong desire to confirm that which we already believe.  Hince the arguments ensue, the battle lines are drawn, the positions become more and more entrenched. When one combines emotion with bias the argument can make the front page of the internet. 

    These, of course, are decisions of no real significance, but when one comes to financial decision which can rarely be separated from emotion, the stakes are much higher.  Finding a unbiased financial planner won't be possible, but having someone emotionally removed from the situation can be of supreme value.

    I have strong "do it yourself" tendencies and empathize with that mentality, but there are some things in life requiring an unemotional perspective. Good financial advice is not void of bias, but it is should not be clouded by emotion.  Proverbially speaking, a good financial advisor helps his or her client see the forest when the client can only see the trees. And while we may have difference of opinion about what types of tree are in the forest, the good planner finds the trail one needs to follow to be best navigate through it.  

    When you need a fresh perspective we would love to be your guide.  We will have opinion and prejudices, we can't help it, but we will champion your interest, your history and your hopes and use our experience to help you find your best path, should we ever be so honored to be your financial planner. 

Attempting to Quantify the Value of Financial Advice

It is difficult sometimes for folks to grasp just how valuable financial advice is when look at the dollar amount associated with getting that advice.  Sometimes I have likened it to me visiting my preventative health doctor.  What is it worth in dollars to "not get sick."  It is hard to know but safe to say, that it is substantial.  

That said, there have been some good efforts and quantifying it, most notably, a study by Vanguard. They unfortunately called it, Advisor's Alpha, which means nothing to most folks.  They claimed that the value of the financial advisor was worth 3% a year net of fees.  If that is true, that is big.  You can download the study for yourself by clicking here.

One of the advisory community's thought leaders is Michael Kitces of the blog Nerd's Eye View He also took a stab at quantifying the value a while back.  Michael gave us permission to share a summary with you.  Check out this chart and let us know what you think. Is this compelling to you?