Why Investing With Integrity Is So Important

Investors Need To Be Investing With integrity

                By: Brendan Magee

Integrity is defined as, soundness of moral character, being whole, or undiminished.

I can’t think of anyone who had more integrity than Jack Lalanne, the fitness guru who passed away this week at the remarkable age of 96. He preached and lived a message of eating right and exercising.  In all the times I saw him, I never saw him stray from that lifestyle. As a result of his consistency, millions of people are living healthier and with more vitality.

Could you imagine how many people would have followed his example if it was only for show? What if at some point a video of him had been put on Youtube of him hanging out at a bar drinking a few beers and smoking cigarettes. His message would have lost all of its integrity. Thankfully though this was not the case and thousands of people have benefited from Mr. Lalanne’s message and example.

Unfortunately, many investors never have had the opportunity to fully understand what it means to invest with integrity. This isn’t to say that the majority of investors are bad people. What it means is having the opportunity to invest consistently with how you believe the world of investing works. As a result, there is a disconnect between how people believe markets work and how their money is actually being invested and suffering is abounding. As a opposed to being tired, listless and unhealthy, an investor’s suffering occurs in the form of confusion, stress, anxiety, poor performing portfolios, and the disappointment of  having to compromise on the things that people really wanted to accomplish for themselves and their family. (The shore house that can’t be purchased, The school you can’t afford to send your child to)

Now to put the integrity back in your portfolio and end the suffering is not a complicate process. There’s a choice between only two philosophies, Free Markets Work or Free Markets Fail.

Free Markets Work has a few core beliefs:

-Free Markets are setting prices accurately

-Supply and demand are the best determinants of price

-The randomness of markets (people) make it impossible for anyone or entity to accurately predict

Market prices or movements in advance without incurring more risk  

Free Markets Fail also has a few core beliefs:

-Free markets do not set prices accurately

-Some individuals or entities have the ability to know which securities or markets are overpriced or underpriced in advance.

-By identifying which markets are under or over priced investors can increase returns and avoid losses

So which philosophy would you align yourself with? Free Markets Work or Free Markets Fail? There isn’t a wrong answer here. It’s just a matter of what sings to you. However, if you’re going to have integrity as an investor, you are going to have to invest consistent with your philosophy. What that means is this:

As a Free Markets Work investor, you would want to invest as follows:

-Focus on capturing market rates of return, not out performing them

-Diversify prudently

-Measure your risk tolerance

-Eliminate all gambling and speculative practices (No stock picking, market timing, or track record investing, as these are all activities whose aim is above market rates of returns)

-Work only with a coach who shares your beliefs

As a Free Markets Fails Investor, you’d be investing under the following guidelines:

-Make use of stock picking, market timing, and track record investing, as you’d be trying to produce above market rates of return.

-Stay connected to all sources of financial information so you can act quickly to the news and events of the day

-Work with a coach who shares your philosophy.

Now the question is why is all this so important? The answer is, You can’t know who to believe until you know what it is that you believe. Imagine the stress and the lack of peace in having your life’s savings invested in or with someone who you don’t fully believe? What are the odds your money will be invested in accordance with what you’d want done with it?

So if you’re an investor who is suffering,  the cause is most likely a breakdown between an investor’s core beliefs and the strategy of how their money is being invested, and the solution is to put the integrity back in. It’s not hard to do and if you’d like my help, give me a call or send me and e-mail.

Brendan Magee is the president and founder of Inevitable Wealth Coaching in Drexel Hill, Pa. With a question, comment or suggestion, call 610-446-4322 or send an e-mail to Brendan@coachgee.com

The Leopard Eventually Reveals Their Spots

The Leopard Eventually Reveals Their Spots

By: Brendan Magee, 1/10/11

I am in my first month of doing the Investor Coach’s Radio Show on am 1340WHAT. To try and get better, I have made it a practice to listen to other shows to see what they’re doing. Most of the shows I have listened to are steeped in traditional financial planning which means they promote gambling and speculation over prudent investment strategies.

Surprisingly, I tuned into one show and was hearing something that really peaked my interest. The host was talking about what a bad idea it was to try and time the market. He was using a study I had used in the past. He was talking about how if investors took their money out of the market and missed just a few good days out of thousands of trading days how they could incur drastic reductions or even losses in returns.

As I was listening to this, I was happy because I felt as if I was listening to someone who stood on the same side of the aisle as me. I thought here was another person ready to stand up against the establishment and say that stock picking, market timing, and track record investing were not in the best interest of investors.

In the host’s next comments I realized this was not the case. He spoke about how his strategy was to help investors find high dividend paying stocks. So in his opinion on the one hand, gambling and speculation that involved market timing was foolish, but the gambling and speculation that was stock picking was prudent? This to me doesn’t make sense and it’s dangerous to investors.

It’s great to be invested in high paying dividend stocks, but how does this host know who those companies are going to be in advance? How does he know which companies, through circumstances that are unkown at this time, will have to cut their dividend? How does he know in advance which companies will or won’t be the next Bear Stearns, Enron, or AIG?

Suppose I have invested in 10 or 15 of these hopefully high paying stocks, and one or two of them endure a 2008 collapse? What’s going to be the impact of that on my retirement? You don’t have to go far to see it. Some of our neighbors are living the nightmare.

As the show went on though, I did understand the host’s motivation in encouraging investors to invest via stock picking. He was a representative of a large brokerage house. Brokerage houses employ three schemes when investing your money, stock picking, market timing, and track record investing. These are the life blood of the brokerage industry. It is the source of their profits and stands in direct conflict with the investor’s agenda. Try as they might, , the leopard eventually reveals their spots.

So what is the solution to this dilemma? After all one of investing’s golden rules is to own stocks. History has proven that stocks are one of the best ways to outpace the rising cost of living and have your money last.  The key is to have a portfolio of at least 11,000 holdings. That is the minimal amount to be sufficiently diversified. This way if one or twenty five of them tank or cut dividends the impact won’t be too severe. Also when a company unexpectedly has a good year, odds are I will already have owned that company and will be there to enjoy its growth. What most brokerage houses don’t want investors to know is these portfolios are available at a cost lower than most mutual funds.

Proper diversification is the least costly way of protecting an investor against the unknown, as well as the dangers of gambling and speculation.  Any one not speaking about that should simply be tuned out.

Brendan Magee is the president and founder of Inevitable Wealth Coaching in Drexel Hill, Pa. With questions, comments, or suggestions, call 610-446-4322 or e-mail Brendan@coachgee.com. You can also hear him every Sunday at 10:30am on am1340 what during the Investor Coach’s Show.   

  

Ignore Brokerage House Titles

Ignore Brokerage House Titles

By Brendan Magee

Go into a bank, a financial services company, a brokerage firm, etc. to have a conversation about your investments and  there’s a very good chance the person who greets you will give you their card which reads senior account manager or vice president equity strategist or some other very prestigious sounding title. The title makes you feel as if you are talking to someone with a lot of credibility. This is a person who you should pay special attention to. That is the only purpose of the big title, to get your attention. It doesn’t mean that vice president knows anymore about investing than you.

Last week a national publication ran an article titled, “Experts Agree: Get Over Your Fear and Get Back Into Stocks.” The experts were five brokerage financial services executives who were either the CEO of their brokerage house or chief equity strategist of huge firms. Again you would think given their titles these were people with a lot of investment expertise. However, a little analysis of their recommendations and few key questions reveal there isn’t any expertise in their investment picks. Matter of fact, it would be extremely dangerous to follow their advice.

The experts were encouraging investors to get back into the market for 2011. Their confidence was buoyed by the previous two years which provided investors with a nice rebound. What they never address in the article was the damage investors did to themselves by getting out of the market in the first place. No attempt was made to make sure investors who panicked and got out of the didn’t repeat it in the future. The fact that those who got out sold low nor to the fact that those getting back in after two straight years of rebound now are buying high was completely ignored. There was no attention paid to the returns that have been missed by being out of the market over the last two years. Success or failure according to these executives comes from being in the market at the right time, not the investor’s prudent or imprudent behavior. A complete misrepresentation of academically proven facts.

There’s also a dangerous strategy being promoted by these executives, and that is market timing. “But now that we’re seeing  that the U.S. economy has some traction, and the likelihood of recession is remote, it’s time to look again at so-called risky securities like stocks….” This is part of a quote from an executive of Goldman Sachs and clearly it is promoting market timing. This is a strategy that makes it imperative that an investor be able to predict the future accurately at least twice, knowing exactly the time to get in the market and when to get out. Note that the Goldman executive is only making this statement and given her outlook after 2009 and 2010. It’s speculation and it’s a waste of time for investors. All you had to do to take full advantage of the rebound was not panic and get out in the first place.

Each of the executives gave their stock picks for 2011, a one year time horizon only. Stocks are universally known as a long term investment, not short term. So not only are investors being talked into gambling and speculating with their money via market timing, they’re  being misled with regards to the time horizon needed for stocks. This lays the ground work for the buy high/sell low tragedy to go on indefinetly.

Lastly all the executives are directing investors towards U.S. Large stocks. There isn’t any conversation about diversification, the one thing that would have saved an investor’s bacon in 2008. If you hadn’t learned your lesson about diversification from 2008 or the tech stock crash of 2000 to 2002, you’re never going to learn it. How come these experts are completely ignoring diversification?  It’s unbelievable that these so called executives would ignore the importance of diversification or at least talk about the danger of being poorly diversified. One executive’s recommendations would have an investor putting 80% of their  money in U.S. Large Stocks. All of it in individual stocks taking two to three times more risk than if they owned those same stocks in an index.

Unnecessary speculation, buy high/sell low, no diversification, short term time horizons, it just doesn’t seem as if these executives know a whole lot about prudent investing. Kind of makes you wonder how they were given their titles or if the title means anything at all.

Brendan Magee is the president and founder of Inevitable Wealth Coaching located in Drexel Hill, Pa. With questions or comments call 610-446-4322 or email Brendan@coachgee.com. Tune into his radio show, The Investor Coach’s Show every Sunday at 10:30am on am1340 WHAT.