BeyondProxy linked to this rare footage of Cundill speaking of his investment philosophy (Value) and approach to capturing the value premium. Peter, a Canadian, found that no matter what was happening in the home market, there was usually a market in which one could find plenty of beaten up stocks. He made it his mission to spend several months each year in the country that had stocks that had been beaten up the most in the prior year. Hence, There is Always Something To Do, which can be found in the bookstore above.

Peter suffered from a neurological condition, which was diagnosed soon after he gave this lecture, and he died in 2011.

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http://ngam.natixis.com/docs/265/1012/2015%20Individual%20Investor%20Survey%20white%20paper_FINAL,0.pdf

Many of the findings show that individuals are unrealistic and confused. Individual investors say they need 9.7% returns above inflation to meet their goals, which is higher than last year, although 84% said they would choose safety over performance, also higher than last year.

Among respondents, 57% said they had NO financial goals, 67% have NO financial plans, and 77% rely on gut instincts to make investment decisions. Despite this admitted lack of planning, 66% of respondents claimed strong knowledge of the income they would need in retirement: namely, 63% of pre-retirement income, which is less than the 75% to 80% that many advisers recommend.

Friends, if you would have answered the same way on any of these questions, call or email me. We can help you plan for the future. If costs are an issue, these findings show that the only thing more expensive than a financial adviser is the lack of a financial adviser.

It is no wonder that Natixis draws one clear conclusion from the survey:

One thing is clear: Now is the time to help investors set clear goals and plans, while also enhancing their knowledge and understanding of markets, investments and strategies to help them meet their goals.

ray@parwealth.com

PAR Wealth Management employs goals-based planning and asset allocation to help you define and reach your goals. PAR Wealth Management offers you access to Money Guide Pro, the top goals-based planning software for advisers and their clients, and Yodlee, a leading account aggregation tool, so that you can see all of your assets and real-time progress toward your goals with one login (marketable securities are updated real time across all accounts no matter where the assets are held).

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I was happy to participate in this video production (make sure your YouTube settings are on HD for the best experience).

I have come to know the participants in the video as outstanding individuals, who volunteered their valuable time to promote the CFA Charter and the Members of the CFA Society of South Florida. The video is already being viewed in Charlottesville as an “inspiration” for others.

We hope our members receive the accolades, employment, and business they deserve for their exceptional achievements and commitment to high ethical standards.

To find a Financial Adviser near you who has earned the CFA Charter, go to www.cfasouthflorida.org and click on “Find a Financial Adviser” at the bottom of the menu on the left-hand side.

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“Brokers, like those at the Toffels’ bank, are technically known as registered representatives. They are required only to recommend “suitable” investments based on an investor’s personal situation — their age, investment goals, time horizon and appetite for risk, among other things. “Suitable” may sound like an adequate standard, but there’s a hitch: It can mean that a broker isn’t required to put a customer’s interests before his own…“

“There are some specific situations when brokers must act as fiduciaries — for example, when they collect a percentage of total assets to manage an investment account, or when they are given full control of an investor’s account. But under current rules, a broker can take off his fiduciary hat and recommend merely “suitable” investments for the same customer’s other buckets of money…”

“It may be less confusing for consumers to simply pay for advice through “fee-only” independent financial planners who are fiduciaries.”

http://www.nytimes.com/2014/10/12/business/mutfund/before-the-advice-check-out-the-adviser.html?ref=your-money

The Washington Post has also jumped on this confusion.

http://www.washingtonpost.com/business/get-there/find-a-financial-adviser-who-will-put-your-interests-first/2014/10/23/21f3a898-596f-11e4-bd61-346aee66ba29_story.html

H/T: Mark Ukrainskyj on LinkedIn

Of course, the Wall Street Journal has covered this issue for a long time, so it is interesting to note the NYT and WaPo’s recent interest.

http://blogs.wsj.com/moneybeat/2013/08/09/look-whos-locking-horns-over-retirement-accounts/

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Readers of my blog know that I respect Jason’s ideas, books, and columns on portfolio and wealth management, especially given his connection with the Graham/Buffet/Klarman approach to investing. Jason’s weekly column, which appears on the front page of the Business & Finance section of the WSJ every Saturday, is a must read for me and I hope you, too.

http://blogs.wsj.com/totalreturn/2014/09/06/read-em-and-reap-smart-people-for-investors-to-follow/

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I usually have a negative knee-jerk reaction to anyone who says “it’s different this time” and true to form, I disagree with Sufi’s argument that capital can replace labor completely. His is a Luddite argument that has been made since the industrial revolution and never materialized. Capital can only replace labor when (if?) we reach the Singularity and machines can reproduce themselves. (By machines, I mean both mechanical and electronic.) Until then, back-breaking labor will be replaced by machines that, in order to propagate, will need engineers and programmers and maintenance workers and chip makers, and entrepreneurs who can employ machines in purposeful activity, etc.  That reminds me; I also added Ray Kurzweil’s website to the blogroll.

http://blogs.cfainstitute.org/investor/2014/07/23/debt-and-secular-stagnation-amir-sufi-discusses-the-us-recovery-video/

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At this month’s CFA Institute Annual Conference in Seattle, Sharpe said that Smart Beta made him sick because it implied that index investors had to be “dumb beta.” Sharpe believes the so-called dumb beta investors would eventually gravitate to Smart Beta strategies because no one is that dumb for long, and then the advantages of Smart Beta would simply melt away into average beta.

As regular readers know, Fama and French (F&F), and later Lakonishok et al. (LSV)  (See F&F and LSV tab above) demonstrated as early as 1992 that two factors consistently resulted in outperformance in the long run: Value and Small Cap. It is largely these two factors that put the “smart” in “Smart Beta.” F&F and LSV were not the first academics to publish papers on the value and small-cap factors, but they certainly popularized the factors in academia. Before these academics came along, we had research from practitioners Ben Graham from the 1930s through the 1970s; Warren Buffett from the 1950s to today; and Seth Klarman from the 1980s to today; that demonstrated that value strategies consistently outperform the market in the long run.

Since F&F and LSV published their research in the 1990s, there has been an overwhelming amount of academic research that demonstrates that value strategies outperform. Most of that research proves that value outperforms for reasons that are not related to risk, therefore value has consistently delivered alpha in the long run.

Most Smart Beta strategies are nothing more than systematic ways for managers to capture some of the factors that are known to deliver this alpha in the long run. The adoption of this approach in a more systematic and passive way somewhat proves Sharpe’s theory that no one stays that dumb for long. However, value and small-cap strategies outperform over long periods not necessarily because value and small-cap investors are smarter than everyone else, but because behavioral flaws and institutional constraints do not permit EVERYONE to FULLY capture the alpha in value and small cap. I remind you that it did take over 150 years for Smart Beta to be born.

Only small investors with contrarian streaks (see my future post on Investor DNA) can fully exploit these factors. Even Smart Beta strategies will fail to fully exploit these factors because of the amount of capital that Smart Beta will need to invest. Much of that capital will have to be allocated to large cap firms, but most of the alpha in these factors is found in relatively unknown and un-followed small-cap firms.

So, my answer to Sharpe’s queasiness is this: Smart Beta is just a label. Would he have taken less umbrage if that label were “Behavioral Beta” or “Factor-Focused Beta?”

http://advisorperspectives.com/newsletters14/Bill_Sharpe-Smart_beta_makes_me_sick.php

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1. He’s super-smart;

Yet, as Buffett himself has said, if you have more than 130 IQ points you should sell the excess because you won’t need it to be a great investor. In fact, that extra IQ may be detrimental if it leads to behavioral flaws such as overconfidence or lack of discipline.

2. He’s guided by an overarching philosophy;

That philosophy is value investing, which can be executed in several forms.

3. He’s mentally flexible;

It may seem as if Buffett had a change in philosophy when he transitioned from Ben Graham’s “Net Net” and “Cigar Butt” approaches to investing to Charlie Munger’s “wide-moat” approach. However, all three approaches are guided by the value-investing tenet that requires a Margin of Safety.

Graham’s margin of safety was found in businesses trading at less than the net value of their assets. Munger’s approach of investing in under-appreciated companies with wide moats found a margin of safety in well-run business with pricing power and even growth. The key is in the qualifier “under-appreciated.”  Value investors love growth, but tend to be more skeptical of growth projections than glamour investors, and are usually better at maintaining discipline when pricing growth, and rightly so.

Hence, value investors usually buy fast-growing, wide-moat companies only when the market does not fully appreciate their wide moats as much as it should. One example: Buffett paid $1.02 billion for shares of Coca Cola by the end of 1989 after the 1987 crash had damaged Coke’s shares. By 1999, that investment was worth $11.6 billion according to Hagstrom.

4. He’s unemotional;

Marks: “Many of the obstacles to investment success relate to human emotion…perhaps worst of all, (most investors) have a tendency to judge how they’re doing based on how others are doing, and to let envy of others’ success force them to take additional risk… (Warren) doesn’t care whether others think he’s right or whether his investment decisions promptly (my emphasis) make him look right.”

My Take: Warren is disciplined, which can make a person appear unemotional. I would be willing to bet that on more than one occasion in his career he lost sleep over a decision, but that his discipline allowed logic to triumph.

5. He’s contrarian and iconoclastic;

As Charlie Munger likes to say, I have nothing more to add.

6. He’s counter-cyclical;

Marks: “Many of the best investors accept that they can’t predict what the macro future holds in terms of economic developments, interest rates and market fluctuations…the greatest bargains are accessed by buying when the economy and companies are suffering…how many acted as boldly (as Buffett) when fear of financial collapse was rampant (in 2009)?”

7. He has a long-term focus and is unconcerned with volatility;

One should only invest in the equity or long-term debt of businesses to cover long term liabilities such as college tuition that is due in twenty years, retirement liabilities, and bequests, so volatility is the friend of the long-term value investor. Volatility gives the long-term value investor the chance to buy low and eventually sell high, in contrast to what most investors do; that is, buying when rising prices make them feel good and selling when plummeting prices are too painful to bear.

This is where a good wealth advisor comes in for an individual investor or family office. He or she will help such investors identify their goals and estimate when the invoices for those goals need to be paid. Then, a good advisor will allocate assets to broad asset categories that “immunize” those liabilities and help make the euphoria of rising prices and pain of plummeting ones easier to ignore and bear because short-term goals are covered in cash or high-quality short-term debt, and opportunities to cover long-term goals will arise over a multi-decade run.

This is known in High Net-Worth Investor (HNWI) Wealth Management circles as Goals-Based Investing (GBI).  The underlying assumption is that all investors would be happy to simply meet their goals and avoid their nightmares so that they can focus on their careers and the things that make them happy.

In GBI, capital for near-term goals is held mostly in cash and short-term bills, and capital for long-term goals is invested in less liquid or more volatile (in the short run) investments such as equities, long-term debt, real estate, and alternatives in order to exploit the return premiums that are available there.

Within asset categories a good advisor will help clients find investment managers who understand each asset’s risks and who can manage those risks well. He will also find managers who can exploit specific premiums in those asset classes such as the value premium in equity investments.

8. He’s unafraid to bet big on his best ideas;

So many active investors have capital spread thinly, and almost all of it is allocated to S&P 500 companies. They have low “active share,” so they are essentially closet indexers who charge higher fees than indexers.

9. He’s willing to be inactive;

According to a speech that Seth Klarman delivered at a Grant’s conference in the fall of 2013, Baupost Group has about 50% in cash. Klarman is fearful of returning cash to his investors because he believes that they may go out and invest it with a hot-hand manager and will suffer during an inevitable shakeout.

PAR views cash as an investment in an option on every asset, an option that has no expiration date. That option is worth quite a lot right now.

10. Finally, he’s not worried about losing his job;

Professional portfolio managers who work for large firms lose their jobs if they underperform. That is why many make the rational decision to become closet indexers in order to hug their benchmark and avoid underperformance.

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http://post.nyssa.org/nyssa-news/2011/05/book-review-the-big-secret-for-the-small-investor.html

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