Monday, May 23, 2011

How Committed Are You?

How Committed Are You To Fixing Your Problems?
                                                          By: Brendan Magee

I met with a very nice husband and wife who discussed a variety of financial issues they were dealing with. They had been trying to sell a piece of real estate for a view years without success. It was costing them money and added stress. They had almost a half a million dollars in a portfolio that like a lot of people’s investments in the last few years that had taken its share of lumps. They had been working with a stock broker who wasn’t giving them the service or advice they were looking for. They had options on the table but weren’t confident in choosing any of them.
These were the problems they were aware of. Our conversation revealed several more serious problems they hadn’t even considered. There was no written plan to guide any of their decisions. Their decisions were more akin to grasping at straws. They had a portfolio, but didn’t’ no how much risk they were really exposed to. Like a lot of people they were using broad ambiguous answers that really told them nothing in terms of how much risk they were really taking. They had no way of knowing whether or not they were properly diversified nor did they know what true diversification really looked like.
They had no idea of whether or not their portfolio was delivering the returns it should. With nothing to measure success or failure by, it was any one’s guess as to whether or not it was working. Cost was also something they hadn’t gotten their arms around. They really didn’t know how much their brokers were charging them to manage their money. Thus they had no way to gauge value.  So many serious aspects of their finances were being left to chance and it’s one of the reasons they described their experience of their finances as if they were just floating.  They had nothing to anchor themselves to in order to feel more secure.  They had so much on their plate and had no idea of where to begin. In their opinion they were lost. The impact of their problems was affecting their finances, stress level, etc.
 As we wound down our conversation, I asked them the most important question I could ask, “On a scale from one to ten, with one being the least and 10 being the most, How committed were they towards fixing their problems?”
For whatever reason, they both said they were a six. I am not judging them one way or another, but their answers told how much of an impact any coaching was going to have on them. The answer was zero. Their problems didn’t bother them enough for coaching to make a difference in their lives at all. I told them that yes between the real estate sale, the poor service of their brokers and all the things they didn’t know about their investments, yes they had some very serious problems.
However, they had an even bigger problem. They didn’t have enough motivation to fix their problems.  All the problems were going to continue because of not being committed enough.  A coach can provide all the tools and instruction, but if there isn’t enough motivation within the investor to fully participate, absorb, and implement the coaching it would be a waste of time, energy, and money. Let’s face it most of the times coaches are trying to get us to do the things we don’t want to do. Without the drive, how long are we going to put up with the b.s.? Why would we even bother?
In my opinion if you are anything less than a nine you do not have enough motivation to benefit in any way from coaching. Again, these were very nice, hospitable people. I am not condemning them in any way. It’s their right to decide how committed they are about fixing their problems.
This example does lend credence to just how important the investor is in determining how successful they are going to be. So in closing our meeting, I told the couple It would be better to not engage in any kind of coaching relationship at this point. They agreed and unfortunately the same problems they woke up with that day will be the same ones they wake up with tomorrow. Nothing changes until you first say, “enough!”
Brendan Magee is and investor Coach located in Drexel Hill, Pa. 19026. With questions, comments, or suggestions call 610-446-4322 or email, Brendan@coachgee.com. Tune into his Investor Coach’s Show on am1340what radio every Saturday at 11am. You can also follow him on Facebook at Brendan Magee-Investor Coach.





Monday, May 16, 2011

Why Cash Dividends Aren't The Sole Basis For Investing

Why You Don’t Exclude Stocks Based On Who’s
Paying A Dividend
                                                                                                                                                By: Brendan Magee
I heard a financial expert say that she wanted people to start investing, solely, in the stocks of companies that had been paying a cash dividend to their shareholders. She said this was a way to offset the low interest rates banks were paying on their certificates of deposit.
With this as the criteria for stock selection, if we could afford it, we could have invested in 29 of the Dow Jones Industrial Average Companies and felt confident in our investment decisions. Or at the very least we would have excluded Cisco Systems Inc. because until March of 2011 it had never paid a cash dividend to its shareholders. Unfortunately, if you spent too much time patting yourself on the back for the winning investment strategy you employed, you may one day regret this investment selection process.
If we go back 29 years and excluded companies that did not pay a cash dividend, our portfolio would have also excluded Kohl’s department Stores, Oracle, St. Jude Medical, and Starbucks Coffee shops.
On the other hand, our portfolio would have included cash dividend paying stocks like Eastman Kodak, Kmart, and Dana Corp., an auto parts maker. The problem here is that our portfolio inclusions and exclusions are all guided by the past. The company’s dividend paying history, which unfortunately tells us nothing about what the future is going to bring. Thus, we are engaging in speculation.
 Dana, a company established in 1936, and Kmart, which dates back to 1913, have both filed for bankruptcy. Kodak, a company which is over 100 years old, stopped its dividend payments to shareholders in 2009, and has seen its stock price drop by more than 90% since 1990.
The five companies we excluded from our portfolio simply because they were not paying a dividend have provided their investors with a different experience. All five have recently initiated cash dividend payments to shareholders.
Cisco in its relatively short history, although, doesn’t have a long cash paying dividend history does have some achievements that have been greatly enjoyed by its investors. In 1990 it posted $27 million dollars in revenue. As of today it generates $40 billion in revenue and employees 70,000 people, and if you had been fortunate enough to jump on the initial offering price (1989) of $18 per share and perhaps bought 100 shares with a mere $1,800, today that investment would have grown by over 384% and be worth $508,320.  
The moral here?
Well, there a few. First, an investment’s past has absolutely nothing to do with its future. Investing based on the past and you are not investing at all. You are engaged in speculation and gambling. Two, anyone who claims to possess the ultimate criteria for buying or selling any company really doesn’t know which stocks to own or sell and should be completely ignored ( If they did know, they wouldn’t be telling you). Three, never invest in two, three, 10, or even 25 stocks. To be properly diversified takes a minimum of 11,000 holdings globally diversified. Owning that many, I really do not have to worry about who is or isn’t paying a dividend. Most likely, I already own it and the ones that go bankrupt or stop paying a dividend won’t have too much of an impact on my portfolio.

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






Monday, May 2, 2011

What Dykstra And Investors Fail To See

Like The Majority Of Investors, Lenny Dykstra Didn’t Work On The Right Side Of His Problem
                                                                                                                                                By: Brendan Magee
A few weeks ago Lenny Dykstra may have finally hit rock bottom. He was arrested and charged with violating the terms of his bankruptcy agreement. It’s hard to imagine someone who at one time sold a car wash business for $55 million ever having any kind of financial problems, but that is exactly what Dykstra is facing. Unfortunately, if, all you focus in on his financial and legal problems, you fail to see that these are the symptomatic outcomes of a hidden, yet, much bigger and dangerous problem. It’s a problem that even at this very moment Dykstra cannot even begin to deal with because he can’t n see it. Remember, your biggest most dangerous problems are the ones you cannot see.
Many investors are dealing with serious investment problems and unknowingly are also in similar circumstances as Dykstra. They are seeing and dealing with symptoms, not the real problem. As a result, untolled damage is being done to theirs and their family’s financial security.  
Let’s focus on Dykstra for a while. Here you have a guy who by all accounts is not the most physically gifted athlete who figured out how to have a very successful professional baseball career. He was a World Champion with the 1986 New York Mets and was a major reason why the Philadelphia Phillies won the pennant in 1993. After baseball,  he becomes a very successful business man opening a string of car washes in California. By all accounts, this a very intelligent man, so a lack of intelligence would not be a reason as to why Dykstra is in the shape he’s in right now. So it begs the questions, how in the world does an intelligent guy with millions of dollars in his pocket wind up in jail?
My guess is the same things that led him to baseball success and gave him the platform to launch a successful business venture led to his demise. Unfortunately, he, like a lot of investors, fail to see that the same traits that lead to success in other areas of life,  are in many cases going to lead to your demise as an investor, and not one of them is based on intelligence. They are instinctual and emotional, and as human beings we tend to under estimate just how powerful our instincts and emotions are. When we do this, we pay a terrible price and only recognize it long after it is too late.
 I remember a news story where Dykstra spoke about how as a player he invested $200,000 with a broker and the broker lost his money. He was livid and vowed to never let that happen again. He plunged into learning how the stock market worked and how to make smart investment decisions. Remember this was a guy who figured out how to hit major league pitching. I’m sure he thought if he just worked hard enough he’d eventually master investing. Unfortunately, no one was ever there to help Dykstra figure out that he was on the wrong side of two problems. Number one, neither he nor his broker were ever engaged in investing. They were engaged in gambling and speculation. In holding himself out to professional athletes as financial advisor he couldn’t see he was in denial that he was really any different from the broker who had lost his money.  Instinctually, it would be awfully painful to admit you are what you had grown to despise.
Number two, his never say die attitude would not let him step back and realize he was fighting the wrong fight. You do not control the stock market, you learn how to go with the flow. Dykstra’s ego wouldn’t allow him to step back and recognize he was fighting a battle he could never win.  Emotionally, how many of us would want to admit defeat.  What Dykstra couldn’t see and could never become responsible for was, that his instincts and emotions were overpowering  his intelligence and were at the root of his financial and legal problems.  In other words when it came to investing , he couldn’t see that he was just like everyone else, human, and as a human being he was the biggest most dangerous factor in all his investing. He went to work on his finances and was completely oblivious to how much of an impact his instincts and emotions were having on his success or failure as an investor.
He never went to work on being able to recognize where and how his instincts and emotions could get the best of him as an investor. As he had a hitting and fielding coaches, he never enlisted the help of an investor coach. He never empowered that coach to reveal to him his personal blind spots when it came to money and investing. As result of never working on the right side of the problem Dykstra blew $55 million dollars and now is in jeopardy of losing his freedom.
So if you have been dealing with investing and financial problems, the good news is that it is not a lack of intelligence. In that regard you are not handicapped in any way. The bad news is, you may have to swallow your pride and admit you’ve failed to work on the right side of this problem. Your investment problems are the result of your humanity. You were born with instincts and emotions, and they are not wired to help you make prudent investment decisions. In fact, they are wired to make self-defeating investment decisions. You could fight them till last dying breath or you could embrace your instincts and emotions for all the good they’ve brought to your life and then acknowledge you are totally powerless and at their mercy when it comes to investing. It is in admitting a weakness that you will gain strength.  
Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or suggestions call 610-446-4322 or e-mail Brendan@coachgee.com.