The Kindzia Blog

Threshold Day - October 15, 2009

Thursdays = Threshold Workout = YUK!

Threshold = pain, discomfort, agony, heavy breathing, sweating, desire to quit, bad attitude = YUK!

Yasso 800's - October 13, 2009

For my speed workout I decided to do some YASSO 800's .  I've run into a number of athletes that have tried this in their training and their attempts to predict marathon race pace and many have had some success.

If you surf the net on the subject, you'll come up with a lot of people that poo-poo the idea of the predictive qualities of the method.  But I tend to put those arguments in the same camp as other unrealistic or ignorant arguments that don't keep it all in perspective (many athletes are not literate from a science perspective).  That's not to say that I have the science mastered - I don't, but I understand how to keep things in perspective when claims are made on training principles.

Investment Signals - October 8, 2009

 
I'm standing in a line that is out the door at Chipotle on Pleasant Hill off of Interstate 85 at 1:00pm (when the lunch crowd should be thinning out.). If you've ever wondered what kind of qualitative research you could do as an individual investor, there's probably a few lessons in here.

Meredith Whitney and Having Faith - October 2, 2009

One of my biggest struggles as an advisor is getting individuals to realize what is important information and what isn't important.  In addition to information (which is in abundance since the invention of the internet), how do we get back to focusing on what we can control and what we can't control.  After all, collectively, we are all subject to the same economy, the same tax code, the same president, the same government, the same environmental laws, etc.

So if we are all subject to the same information and playing field, why is it that some people will undoubtedly pull ahead of others and accomplish more?

The Dang Joneses - October 1, 2009

  Hi Mom.  If you're wondering if your son has been productive today, the answer is, "Absolutely!"

Sometimes life is just an interesting mix of boredom and absolute chaos.  It's just tough to tell when it's transitioning from one to the other.  I tend to say, "I wish things were a little slower speed" but if I really was honest with myself, I'd have to acknowledge that most of my chaos and high speed episodes are entirely self inflicted.

The Pain Of Loss - September 29, 2009

Research in the field of behavioral finance (one of my favorites), has taught us that the pain associated with loss is far greater than the joy of an equal amount of gain.  As an example, let's say an investor started out with $1,000 and made an investment.  In scenario A, the investor losses $200 dollars (20%) of his/her investment.  In scenario B, the investor gains $200 dollars (same 20%).  What researchers have found is that the pain associated with a $200 loss far exceeds the relative joy associated with a $200 gain.

Armed with this knowledge, I look to apply it in various aspects of life (my life).  Usually I use myself as the case study and although I lack independence I find it to be a fun game and a challenge to step back and do my best to analyze what is happening with my thoughts, emotions and follow up actions.

Rain and Sickness - September 21, 2009

Guess what the weather was bringing today?  More rain.  More thunder.  More lightning.  My basement walls are starting to get moist at the concrete joints.  My A/C unit is starting to show leaking in the basement.  Fun wow.

But I could have it worse.  You could see Joe Reger swimming in his backyard by clicking here and scrolling down to his September 21, 2009 entry.

Out The Window - September 30, 2008

With the turmoil in the political and economic arenas over the past few days, it's an interesting view of the reactions from all the different stakeholders.

One area of interest to me is the behavior of man and the influence of social perspectives upon any particular individual.  More specifically, I work with and surround myself with people that share a common desire; to be a long term investor interested in securing a bright financial future. 

We all say that we are long term investors (until we aren't).  Now is a good example of that in the markets.  There are many who are selling, just because others are selling.  Their decisions are based on emotion and social influence.  Their long term plan, their long term strategy, their inherent beliefs...are...well...right out the window.  Fear once again rules the world.

To quote the most successful investor of all time, Warren Buffett, who when asked the "secret to his success" replied with a wry smile, "It's easy, I am fearful when others are greedy and greedy when others are fearful."

Buffett is quite the contrarian.  One of the few that is capable of tuning out noise, emotion, panic, and social influence and makes decisions on analytics, fundamentals, logic and an eye for profit opportunity.  He's a master.

But while we all might not have the nerves of steel, or the brainpower or the desire to purge through financial reports everyday of our lives, there is an alternative.  The alternative is to apply the time tested and proven methods of investing success.  For a quick recap of things that you've heard a thousand times before, here they are;

1. Use asset allocation.  Invest in a variety asset classes.  Examples would include stocks, bonds, real estate, natural resources, etc.
2. Always diversify.  Have you ever heard the saying, "Don't put all of your eggs in one basket?"  Of course you have.  When creating a portfolio, use diversification.  Invest in domestic U.S. stocks and international stocks.  Invest in growth stocks and value stocks.  Invest in large cap, mid cap and small cap stocks.  Also take note of sector weightings.  Being fully invested in energy or technology is a disaster waiting to happen.  So ensure that you have exposure to a broad range of economic sectors such as healthcare, manufacturing, energy, technology, utilities, retail, consumer durables.
3. Invest for the long term.  Oh yeah, one more time...invest for the long term.
4. But low and sell high.  I can't tell you how many people violate this common rule.  When markets are down, they sell.  When markets are rising fast and overpriced, they buy to get in on the "easy money."  Regardless of how many people have tried, buying high and selling low just doesn't seem to work for some reason???
5. Build a portfolio that is designed for long term prudent accumulation of wealth and preservation of capital.  Don't take unnecessary risk.  Large firms (mainly investment banks) violate this rule to the detriment of the entire company and all of the stakeholders.

Finally, one of the good things about the equity markets is the ability to turn to instant liquidity.  If you no longer want an exchange traded security (like a stock), you have the opportunity to sell it at market prices (which are dictated by supply and demand).  But as we see, market prices can often be strongly influenced by emotions such as fear or greed as opposed to intrinsic value.  We often forget that a good strategy during emotional markets is to just sit and wait it out.  Nobody says that we have to accept the offering price of that day, hour or minute.

Imagine for a moment that you owned a 2008 Honda Accord that was worth $22,000 and somebody came up to you and offered $5,000 bucks.  Without hesitation you would tell them to take a hike and wouldn't think twice.  The same would hold true if you owned a $400,000 house and someone offered you $250,000.  You wouldn't sell unless you were desperate (which does happen from time to time).  But that's the point.  From time to time, others act irrationally, with emotion, they may actually be cash strapped, or desperate and make rather bad short term decisions.  If you are an opportunist, a capitalist, a savvy investor you welcome those opportunities.

If you can keep your wits and stick to logic, you might just be able to tune out the noise, put all the fear in the drawer and be greedy when others are fearful.  In a few years and on the flip flop of another cycle, it will be time to be fearful when all others are greedy.

Work the plan.

Are We Lemmings? - September 17, 2008

"Lemmings - Small rodents often associated with odd behavior.  Lemming suicide is a frequently used metaphor in reference to people who go along unquestioningly with popular opinion, with potentially dangerous or fatal consequences."

As a practicing student of what I call "behavioral finance," the moves in the financial markets over the past few days give me plenty of opportunity to study human behavior.  The main behavior that can be witnessed is "mob mentality" mostly pointed in the direction of people displaying the ability to "FREAK OUT!"

Mob mentality and FREAK OUT sessions are well documented and well proven.  These sessions can create enormous momentum through what could be described as a snowball effect.  The more the snowball moves downward, the larger and more powerful it becomes.

The difficult part is having the ability to calculate and predict when human behavior crosses a threshold that ends in a self-fulfilling prophecy of personal defeat. 

Maybe some observations could help:

1. If I started out stating to the average person that the key to long term investing success is to "buy low and sell high," I would get a lot of heads nodding in agreement.

2. If I stated that "An investor in stocks can yield very good returns over long periods of time if they could buy quality investments and hold them over these long periods of time," I would get a lot of heads nodding in agreement.

3. If I stated that "Most people can do themselves a favor by having a long term game plan and could do very well by sticking to the fundamentals of investing which includes buying quality, diversifying, using asset allocation, not getting caught up in high risk areas/bubbles and not trying to time the market," I would get a lot of heads nodding in agreement.

4. The average investor cannot assess the intrinsic value of a publicly traded corporation.  What I mean by this is that if I asked a random investor, "How much should Coca-Cola or IBM or Johnson & Johnson be worth if we wanted to buy the entire company ourselves?  How much would we pay?"  They would have no idea other than to say, "Probably somewhere between a million and a trillion dollars..."

5. The stock price of a publicly traded corporation should be nothing more than the intrinsic value of the entire enterprise divided by the number of stock shares outstanding.  However, we just stated above that the average person doesn't have any idea what the intrinsic value of the entire enterprise is and can't figure that out.  So by default, they aren't making decisions on the stock price based on their own knowledge but rather the numbers determined by others.

6. If others one day FREAK OUT and say that an enterprise is no longer worth X or Y or Z but something less than X or Y or Z, the average investor will most likely go with the mob mentality.  Again, they have no idea how to value stocks themselves.

7. As we act like lemmings and FREAK OUT we lose focus on our personal goals and objectives.  We no longer think about being long term investors with a game plan.  We no longer think about asset allocation and diversification.  We no longer care that holding quality stocks over long periods of time earns very good returns that will fund our retirements.

We are all "long term investors" with a game plan and a strategy until others FREAK OUT.  Then we're not.  When we stray from our game plan and strategy we become short term investors acting on emotion and making decisions that are no longer based on our long term plan and strategy.  We feel it is better to "make decisions on the fly" because everybody else seems to be doing it that way.

I know it's hard to keep the emotion out of our lives.  But the best investors make decisions based on math, logic and revolve around a game plan/strategy.  The best investors don't FREAK OUT, they assess and make decisions as an opportunist.  They often find that the best opportunities are the result of the masses making big mistakes and taking advantage of those opportunities.

Reasons to FREAK OUT;

1. Half of your house was relocated to Oklahoma free of charge from someone named "IKE."  The other half is still in Texas.

2. Your 16 year old daughter comes home late from school one day with a tattoo that matches her 18 year old boyfriend.  When you ask where she got the money from, she responds with, "I just took a little from the money that Grandma gave me for college...there seemed to have been plenty..."

3. You are a New England Patriots fan and you watched Tom Brady go down on opening Sunday.

How often do people FREAK OUT in financial markets?  About once every 5 years.  We've had 11 instances where markets have gone down greater than 20% in the last 55 years.  The last FREAK OUT session followed the tech crash of 2000 and the attacks of September 11th.

Some perspective.  Many people remember (or are at least aware of) Black Monday which was the stock market crash that occurred back in 1987.  The Dow Jones Industrial Average (DJI) closed on Black Monday at a level of 1,738.74.  After the tech bust and attacks of September 11, 2001, the Dow Jones was at 8,920.70 on September 17, 2001.  Today, after people had their FREAK OUT session, the Dow is above 10,600.  Can you see a trend here?  1,738.74 to 10,600 after a pull-back.

But I can tell you first hand, when emotions get in the way, "Buy low and sell high" goes right out the window.  Being a long term investor goes right out the window.  An investing strategy and game plan goes right out the window.  Instead people end up buying high and selling low.

It's awfully tough to secure a comfortable retirement by buying high and selling low.

Are We Lemmings? - September 17, 2008

"Lemmings - Small rodents often associated with odd behavior.  Lemming suicide is a frequently used metaphor in reference to people who go along unquestioningly with popular opinion, with potentially dangerous or fatal consequences."

As a practicing student of what I call "behavioral finance," the moves in the financial markets over the past few days give me plenty of opportunity to study human behavior.  The main behavior that can be witnessed is "mob mentality" mostly pointed in the direction of people displaying the ability to "FREAK OUT!"

Mob mentality and FREAK OUT sessions are well documented and well proven.  These sessions can create enormous momentum through what could be described as a snowball effect.  The more the snowball moves downward, the larger and more powerful it becomes.

The difficult part is having the ability to calculate and predict when human behavior crosses a threshold that ends in a self-fulfilling prophecy of personal defeat. 

Maybe some observations could help:

1. If I started out stating to the average person that the key to long term investing success is to "buy low and sell high," I would get a lot of heads nodding in agreement.

2. If I stated that "An investor in stocks can yield very good returns over long periods of time if they could buy quality investments and hold them over these long periods of time," I would get a lot of heads nodding in agreement.

3. If I stated that "Most people can do themselves a favor by having a long term game plan and could do very well by sticking to the fundamentals of investing which includes buying quality, diversifying, using asset allocation, not getting caught up in high risk areas/bubbles and not trying to time the market," I would get a lot of heads nodding in agreement.

4. The average investor cannot assess the intrinsic value of a publicly traded corporation.  What I mean by this is that if I asked a random investor, "How much should Coca-Cola or IBM or Johnson & Johnson be worth if we wanted to buy the entire company ourselves?  How much would we pay?"  They would have no idea other than to say, "Probably somewhere between a million and a trillion dollars..."

5. The stock price of a publicly traded corporation should be nothing more than the intrinsic value of the entire enterprise divided by the number of stock shares outstanding.  However, we just stated above that the average person doesn't have any idea what the intrinsic value of the entire enterprise is and can't figure that out.  So by default, they aren't making decisions on the stock price based on their own knowledge but rather the numbers determined by others.

6. If others one day FREAK OUT and say that an enterprise is no longer worth X or Y or Z but something less than X or Y or Z, the average investor will most likely go with the mob mentality.  Again, they have no idea how to value stocks themselves.

7. As we act like lemmings and FREAK OUT we lose focus on our personal goals and objectives.  We no longer think about being long term investors with a game plan.  We no longer think about asset allocation and diversification.  We no longer care that holding quality stocks over long periods of time earns very good returns that will fund our retirements.

We are all "long term investors" with a game plan and a strategy until others FREAK OUT.  Then we're not.  When we stray from our game plan and strategy we become short term investors acting on emotion and making decisions that are no longer based on our long term plan and strategy.  We feel it is better to "make decisions on the fly" because everybody else seems to be doing it that way.

I know it's hard to keep the emotion out of our lives.  But the best investors make decisions based on math, logic and revolve around a game plan/strategy.  The best investors don't FREAK OUT, they assess and make decisions as an opportunist.  They often find that the best opportunities are the result of the masses making big mistakes and taking advantage of those opportunities.

Reasons to FREAK OUT;

1. Half of your house was relocated to Oklahoma free of charge from someone named "IKE."  The other half is still in Texas.

2. Your 16 year old daughter comes home late from school one day with a tattoo that matches her 18 year old boyfriend.  When you ask where she got the money from, she responds with, "I just took a little from the money that Grandma gave me for college...there seemed to have been plenty..."

3. You are a New England Patriots fan and you watched Tom Brady go down on opening Sunday.

How often do people FREAK OUT in financial markets?  About once every 5 years.  We've had 11 instances where markets have gone down greater than 20% in the last 55 years.  The last FREAK OUT session followed the tech crash of 2000 and the attacks of September 11th.

Some perspective.  Many people remember (or are at least aware of) Black Monday which was the stock market crash that occurred back in 1987.  The Dow Jones Industrial Average (DJI) closed on Black Monday at a level of 1,738.74.  After the tech bust and attacks of September 11, 2001, the Dow Jones was at 8,920.70 on September 17, 2001.  Today, after people had their FREAK OUT session, the Dow is above 10,600.  Can you see a trend here?  1,738.74 to 10,600 after a pull-back.

But I can tell you first hand, when emotions get in the way, "Buy low and sell high" goes right out the window.  Being a long term investor goes right out the window.  An investing strategy and game plan goes right out the window.  Instead people end up buying high and selling low.

It's awfully tough to secure a comfortable retirement by buying high and selling low.