SEE THE GREATER TRENDS
     Do you remember the scene from the movie "Patch Adams" in the mental hospital when the grouchy businessman neighbor teaches Robin Williams to hold up four fingers, but to look past them to see the true solution, therefore blurring them to eight?  He urged Patch to look beyond problems to see the true issue.  As we build and protect our special organizations in this new year, we must see past the noise and understand the greater trends.
     As a young financial advisor, and with the help of many people much smarter than myself, I was able to see that technology would then enable a new business model creating boutique wealth management companies.  These boutiques could provide the same level of expertise and access for investors through advanced automation and partnerships with Wall Street, while providing the small company personal service and attention which had nearly become extinct in the the large firms.  In a rare moment of clarity, I got off the train carrying everyone else, and with a little bit of luck and a lot of hard work, was able to build this model to serve clients in 42 states and 5 countries.
     Our busy task list, the trillion emails in our inbox, and the sensationalized media divert our daily attention from the big picture.  In business and the economy, we focus on the noise of here and now while Adam Smith's "invisible hand" is actually creating the broader result, or negatively, bringing us the next Black Swan to destroy our best-laid plans.  This year let's promise to take a breath, raise our head out of the trenches, and see through the fog and friction of warfare [and I promise to stop mixing so many metaphors!].  Let's look at a few bigger trends:

1.  Bet on America!  I love the following synopsis from the Wall Street journal last year. "The lesson here is that, as Warren Buffet likes to say, don't bet against the United States to succeed.  America makes mistakes, voters sometimes hand power to misguided politicians, and the public sometimes succumbs to financial manias that turn into panics and crashes.  But left to work, trade and invest without too much political interference, Americans unleash their energies in productive fashion.  Stocks fluctuate, but over time they go up - often in years you least expect it."  Amazing.  We must look past stumbles and short-term failures, and put our chips on winners, not just America but also those quality companies and quality people you should never bet against.  I have a short list of people I would never bet against.

2.  There's a ton of oil, the U.S. is a net-exporter, and it plays a smaller and smaller role every year.  So, there will be short-term spikes and crashes in prices and production in which fortunes can be made and lost, but long-term it will not be the controlling variable it used to be.  We will have plenty of it, thanks to fracking and other technologies, until the world's smart people figure out how to make nuclear and sustainable energies, and the batteries, economically-self-sustaining without tax dollars.
     President Trump alluded to the same last week when he basically said, "Why am I messing around in the Middle East?  I don't need their oil anymore."  Around 21% of global crude and petroleum products flow through the Straight of Hormuz, and oil prices barely budged last week with the threat of war.  Richard Soultanian, co-president of energy consulting firm NUS Consulting Group, said despite the geopolitical risks, the market is still oversupplied, and he points to record supply from the U.S. and OPEC's resistance to meaningfully reduce global output.  Move onto water.  Water is the next oil, and it will even be congruent with your save-the-planet mission.

3.  We have already won the trade war with China, but they haven't told you yet.  The daily tweets and media stories declaring trade Armageddon, when impeachment hearings or other scandals have a light news day, are just noise distracting you from the Invisible Hand.  In his Political Economics column, Joseph Sternberg recently provided a clear synopsis.  "China's current-account-surplus  -  the amount by which its exports of goods and services and income from overseas investments - has shrunk for years.  It's likely to tip into a deficit early this decade, meaning China will import more goods and services (and receive less profit from overseas) than its exports."  That might be startling to you.  Let's repeat, soon China will be importing more than it exports.
     To accommodate this radical global economic shift, China will have to entice more foreign investment into its domestic economy - factories and service companies.  This will demand that China implements better rule-of-law protections for foreigners and intellectual property, even human rights.  In other words, everything we have been arguing about will come about simply because of the demands of demographics and silent rules of free markets.  Don't we keep saying in JAM VIEWS that money rules all?  Markets always override government interventions.  See past the 8 fingers.

     Shut out the noise and think through the larger trends in your business, charity or world mission.  On Oct. 21, 2016, Politico wrote, "Wall Street is set up for a major crash if Donald Trump shocks the world on Election Day and wins the White House."  The S&P 500 has risen approximately 46% since then.  The Bureau of Land Management released its plan to be green and install a 7,100-acre solar farm in the desert outside Las Vegas, but it's now being opposed by the Greens because the arrays will disturb the desert tortoise, the Kit Fox and the Threecorner Milkvetch plant.  Keep chanting to yourself, "It's all nonsense!"
     Finally, a thought to help us foresee the bigger picture, hang a frame in your home office of Dorothy Lange's 1936 iconic image, "Migrant Mother."  I know I am planning to.

"Haste ye.  Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth." John 12:35

** Many thanks to the WSJ, Forbes and Fortune for the above quotes and statistics.

** Photo credit goes to www.iucnredlist.org

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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WHY WE NEVER MAKE 10%!
     As you may have seen recently during the 917 commercials interspersed with a few moments of football (my attention span just can't sit through that many commercials anymore!), Schwab finally just cut their trade commissions to zero.  E-Trade quickly followed, along with TD Ameritrade, and Fidelity rolled out their zero expense ration mutual funds.
     This prompted a few requests for JAM VIEWS to delve deeper into uncovering why real people, you and I, over the long-term never make the rates of returns advertized in the latest Wall street book, or espoused by Jim in Receivables who always lies about his 401k performance.
     First, realize that trading commissions only make up about 7-12% of these institutions' top line revenue, so we don't need to fret over their future success.  After running a Broker-Dealer (B/D) and Registered Investment Advisor (RIA) for two decades, I can tell you that the company makes money in twenty different ways aside from the client commissions.  But, this week let's focus on why these commission prices are just one of the shiny objects which distract us from achieving long-term wealth.  A quick list of more fundamentals below:

1.  INDEX FUNDS VS. ACTIVE FUNDS?  Bottom line is that it doesn't matter.  Index funds buy or track a fixed basket of stocks or other investments, while active funds are daily operated by a manager or team of managers who make specific decisions on what to buy or sell.  Generally, active funds will charge a .5% to 1% higher expense ratio because there are actual managers.  Recently, for an extended period, index funds have outperformed active funds, so the marketers and the media now promote this as a historical truism.  This is usually the point when the cycle reverses, as this one will also.  They always do.  Joel Greenblatt of Gotham Asset Management, a very successful hedge and mutual fund advisor, states, "Warren Buffet says most people should index, and I agree with him.  But Warren Buffet doesn't index, and neither do I."  The answer for us is to buy both.  Buy the index funds which are appropriate for your long-term goals, and buy high-quality, experienced managers who have weathered many different cycles.

2.  BUY STOCKS, BONDS, MUTUAL FUNDS, HEDGE FUNDS, EFTs, INDEXES, FUTURES, OR COMMODITIES?  Bottom line is that we should buy a little bit of everything.  In our investment firm, we preached thirteen (13) slices of the pie as a minimal blend to smooth out a client's performance chart, so they didn't hurt themselves (covered later).  The simple key is to own a big basket of different investments which are aligned with your mission, yet which likely perform well (and poorly) at different times.  In your Statistics 101 Course they labeled things that moved in tandem as having a correlation of 1.0, and things that moved opposite of each other as having a correlation of -1.0.  You want your basket to, as closely as possible, have a correlation of 0.00.  You want some things to be "zigging" while others are "zagging."  Again, for most of us the answer is to access all of these categories through mutual funds, ETFs or Indexes, since we don't have the money, expertise or time to buy all of the individual stocks or bonds.

3.  BUY GROWTH OR VALUE, LARGE-MID-SMALL CAP, CORPORATE OR GOVERNMENT BONDS, DOMESTIC OR INTERNATIONAL?  Bottom line here is to invest in each style and sector.  You, or the smartest managers and computers, will never predict what is going to be the hot spot next year.  As in #2, take a little slice of each, and you will be light-years ahead of your neighbors.  Remember, just when every singe advisor on CNBC and CNN says that Value Investing is dead, these funds will begin to outperform growth funds.

4.  AMAZON'S LAST MILE?  Have you followed how even mighty Amazon has struggled with the most efficient and effective logistics answer to get those Tory Burch shoes to your front door step?  They offered employees to buy truck routes, are testing automated trucks, and of course those drones.  Investing has the same problem.  All of the above strategies, plus a million more, never work for us real humans, because we are human.
     The television commercials and the ads in Forbes, Fortune and the Wall Street Journal are simply marketing strategies to gather dollars, trillions of dollars.  They never help real people master Behavioral Economics.  If you want to build wealth long-term, you must understand this.  Everyone, and I mean everyone, buys high and sells low, especially Jim in Receivables - he just won't show you the real truth.  Warren Buffet for many decades averaged 21% a year, double the average of the stock market, by simply buying good investments at fair values and holding them forever.
     Joel Greenblatt again states, "When people can check their returns 30 times a minute on the internet, time horizons shrink, investors are impatient and sell at any sign of underperformance."  The truth is that Jim in Receivables always does much worse than Susan in Shipping who never checked her 401k until a week before retirement.
     Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions.  Economist Richard Thaler was awarded the Nobel Memorial Prize in Economic Sciences of "establishing that people are predictably irrational in ways that defy economic theory."  Robert Shiller, winner of the 2013 Nobel Prize in economics, claims "the central issue in behavioral finance is explaining why market participants make irrational systematic errors contrary to the assumptions of rational market participants."

     I know it sounds complicated, a lot to understand, but as with so many other topics we dissect in JAM VIEWS, successful long-term investing is much simpler than the world makes it out to be.  Schwab's zero fees marketing is BS.  Vanguard's 40-year war claiming .5% less fees were the Holy Grail didn't' make one real person one more dollar.  More importantly, in October 1987, in 2000, and in 2008 Vanguard's .5% less fee didn't stop one American citizen from selling out their 401k after the market dropped 50%, and didn't ensure they were fully invested when the markets recovered up another 100%.
     Don't be distracted by the shiny objects.  Do opposite of what feels good.  Understand that these cycles many times last for years.  Just as I try to always talk you into first doing your own taxes, first understand the long-term investing basics.  Then, if you want some help and oversight, get yourself a partner who doesn't follow the noise.
     Have a great week!

ps.  Did you see that CNBC hedge fund guru, Jim Cramer, has now joined Bull Market Fantasy to provide "expert opinion and advice on Fantasy Football with a Wall street twist?"  Need I say more?

pss.  Secret -  Schwab makes 60% of its total revenue by simply sweeping cash nightly from customers' brokerage accounts into the firms' banking accounts.

"Humans make 95% of their decisions using mental shortcuts or rules of thumb - heuristics."  -  Daniel Kahneman.

** Thank you to the WSJ, Forbes and Fortune for their above quotes, statistics and advertisements.

** The above is not investment, tax or legal advice.  Consult your advisors

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

* SUBSCRIBE TO JAM VIEWS

* PLEASE USE THE BELOW SHARE BUTTONS TO SPREAD THE WORD!