Carnegie Investment Counsel Blog

We tell ourselves that we will get to it, tomorrow. Just like our pledge to increase our time in the gym, those New Year’s resolutions we make about reviewing our financial plan disappear from our radar by Valentine’s Day. Then we push it out until we get our taxes done. Then we promise to look at it after our vacation to Myrtle Beach.  Feeling guilty that we missed that self-imposed deadline, we start stressing about what we don’t know about the new tax laws and how it will affect us when we file in 2019.

Fortunately for anyone who has procrastinated, there is still time to evaluate three areas of your finances before the end of the year. Our advisors are meeting with clients to discuss three specific areas to make tax-smart moves before year end:

1. Required Minimum Distributions
2. Tax Cuts and Jobs Act
3. Gift Planning

The last few weeks have been a little unnerving for those invested in the stock market. The media constantly bombards you with reasons (trade wars, higher interest rates, China) as to why the market is falling. Of course, it’s important to know why but understand that we have little control over the variables that make markets move.

This week in the financial media, there have been many articles and stories written about the 10th anniversary of the financial crisis of 2008. The bankruptcy of Lehman Brothers, sale of Bear Sterns to JP Morgan and the near collapse of the U.S. financial system were all very scary and taught us a lot of lessons. I was just getting started “in the business” during this time and I remember watching on TV the House of Representatives voting down the initial $700 billion bailout bill (which would later be passed). I won’t forget seeing the Dow Jones Industrial Average plunge hundreds of points in just a matter of minutes after the first failed vote. This was a very difficult time as many people lost their jobs, saw their retirement account values decline dramatically and most importantly, shook the confidence of many.

The after effects of the financial crisis are still felt today as people remain worried about when “the next shoe will drop” so to speak. I’ve had more conversations with clients and individuals about

While I was traveling last week on vacation, I read Michael Batnick’s latest book Big Mistakes: The Best Investors and Their Worst Investments. So often, when we think of great investors, athletes and leaders, we tend to define them by how successful they are. Many remember Michael Jordan’s game-winning shot to win the 1998 NBA Finals, but you don’t often hear that he lost to the Detroit Pistons 3 years in a row before winning his first NBA championship. Batnick’s book does a great job of highlighting the fact that not even the most intelligent and wealthiest investors come away with a perfect record. Often, when clients call to ask about the securities in their portfolios, they ask about the ones that are down (this is loss aversion at its finest). I try to focus on the fact that not every stock we buy is going to go up and

As many of you know, I am fascinated as to why people make the choices and decisions they make. Many people who work in our industry are focused on valuation ratios, dividends, profitability ratios, balance sheets and charts. With data becoming so easily and readily available these days, I think the extra “edge” these data points produce is becoming smaller and smaller. I believe one area of investing that remains important and useful is sentiment. Digging a little deeper, one can find some interesting cross-currents between expected returns and investor sentiment.

What exactly is investor sentiment? In the most basic sense, investor sentiment is how investors feel about the overall direction of the markets or a particular stock.

One way in which investor sentiment is measured is through the AAII Sentiment Survey. This is a widely cited survey and AAII stands for the American Association of Individual Investors. This association is made up of roughly 150,000 investors, with the average member being in their mid-60s with a median portfolio over $1M. Every week, the AAII surveys about 300 members asking them if they feel bullish, neutral or bearish about the direction of the stock market for the next 6 months.

Those of you who know me or have read some of my previous blog entries know I am a fan of behavioral finance and psychology. A couple of months ago I read Richard Thaler’s book Misbehaving, which chronicles his findings that would forever change the way we think about economic decisions. One of the basic premises of economic theory is that human beings always make rational decisions for their best interests. Thaler, along with the works of Israeli psychologists Danny Kahneman and Amos Tversky, found that while people said they would act rational, their actions proved otherwise. Their studies showed that humans are much more prone to error in their decisions and judgments than we think. 

After Thaler won the Nobel Prize for economic sciences in October of last year, he said “We’re more like Homer Simpson, than we are like Spock. In myriad ways, we do things because we’re human. We do things that are predictably different from what economists expect us to do which can help inform better economic models and better monetary policy.” Some of the most interesting highlights from Misbehaving include the following...

Today is International Women’s Day and it made me think of a very interesting article I came across from Bloomberg Gadfly titled “The Next Warren Buffett Will Be a Woman”. Some of the arguments include:

• A 2010 study by Vanguard showed that men were more likely to panic and sell stocks in a financial crisis

• A University of California study showed that men are more overconfident than women which leads to more trading activity and worse performance compared to women

• A Boston Consulting Group study noted that “women are more intent on understanding the risk-return profiles of investments…” and “…are less likely to be distracted by short-term performance”

• A 2017 research study found that higher testosterone levels reduced the ability to make cognitive decisions and were more likely to act on impulses

You can do a quick search on Google and find the definition of risk as “a situation involving exposure to danger.” With the recent volatility in the stock markets, we hear and read headlines that would make you think the world is coming to an end. I think the reason we see so much of this is because it plays on our primal fears as human beings, it gets the eyes and ears perked up.

If you thought this was going to be another stuffy blog post about an economic or stock market forecast, you are mistaken. While we spend numerous hours researching, debating and discussing how we should position client portfolios for the coming year and beyond, I have grown further skeptical of “market outlooks” that are published annually in December. Instead of boring you with a bunch of market commentary or resolutions, I will make ten observations and recommendations for 2018, not all of which are investment related.