Your Personal Iceberg: There is More to Measuring Success Than What Lies on the Surface

Wallens, JordanJordan Wallens, Regional Director, Retirement Plan Services

This is part two of a two-part blog series.

Next time you catch yourself bemoaning a down day in the stock market, calmly ask yourself, “Did I need the money today?” Benchmarking yourself against daily fluctuations is like looking outside and wondering why that tree in your yard doesn’t look any taller today than it did yesterday.

All of this is not to suggest that you shouldn’t seek help – you should. Simply put, having two sets of eyes and experience on the bridge is always better than one. You’ll fare far better at the essential behavioral art of saving yourself from your base instinct to Buy High and Sell Low, by retaining a seasoned financial advisor to walk beside you and talk you down from the ledge of your litany of poorly-timed short-sighted misbegotten past investment decisions.

The key is to once and for all truly personalize your benchmarks, rather than sweat the screeching heads on CNBC, aka Nickelodeon for adults. Better to diligently establish and maintain your own benchmarks, chart your progress, toward your concrete unchanging goals, including past progress, not just fleeting future predictions.

3.22.13 Wallens Personal Benchmarks2Suppose for example you already have a plan in place to save for retirement. What percentage of annual portfolio growth did you assume? 7%? And how much longer do you expect to work? Well how did you do last year? Forgot already? Too bad, especially if say you earned 12%. Why? Because the good news is, that properly harnessed, last year’s out-performance could very well result in meeting your goals a year earlier than planned. Congratulations, you’re money and you didn’t even know it. (Industry should’ve told you so.) My guess is that rather than properly recognizing, accounting for, and adjusting your risk, you’ve probably already moved on to, “So what’s the best stock to own this year?”

Whenever someone touts a fresh baked personal stock pick, I have a pat response for that too. I ask the inquirer what was the top performing stock last year. For the record, in 2012 that would be homebuilder PulteGroup, yet not a single putative stockpicker polled has answered it correctly. This they rarely relish either. So let me get this straight, if you can’t figure out what was the top stock in the past, do you really think you’ve got edge on what’ll outperform the pack in the future? Sorry, ya don’t. But the best news is, it just doesn’t matter.

Get help, it’s never too late. Start early, and you couldn’t screw it up if you tried. Start too late, and there’s nothing Cramer or anyone can do to help. Rehabilitate your investor behavior. Assess via readily available online tools your personal risk tolerance. Establish and zealously maintain your personal benchmark, un-phased by the chattering masses.

Quit obsessing over schizophrenic ever-changing variables that are outside your control, beyond your comprehension, and have nothing to do with your steady consistent lifelong goals. Ignore the reports of others’ flashy investment performance, and instead manage your personal investor behavior, to achieve the glide path, experience, and inalienable progress toward the life of your dreams. You’ll find you arrive at the station on time and intact, and best of all, without ever disembarking from your righteous path at the least opportune moments.

Another wise fellow declared, “Be the change you hope to see in the world.” But in this instance, ’tis far wiser to simply “Stay the same you want to see from the world.”

Staying Ahead of the Curve Despite Recent Volatility

After a strong surge in global financial markets in the first quarter of 2012, risk assets – equities, commodities, corporate credit – have sold off thus far in the second quarter. Uncertainties over global growth and Europe have reentered markets. At Brinker Capital, we are not surprised that some of the euphoria is being worked off. We would not be surprised to see further consolidation.

Several of our fundamental and technical indicators were showing signs of concern earlier this spring. At the end of the first quarter, the various Brinker discretionary portfolios reduced exposure to risk assets. Future signposts suggest the volatility could continue.

For those of you who follow our market outlook and quarterly portfolio calls, this might be familiar material. Some of the indicators we monitor were flashing warning signals:

  • Event risk – European elections, particularly in France and Greece, along with stalling reform initiatives in Spain and Italy.
  • Market fundamentals – economic indicators such as consumer and CEO confidence and economic surprises appeared to be peaking. The S&P 500 appeared to have discounted a lot of good news in valuations.
  • Sentiment – though investors maintained bullish sentiment (low levels of short interest), corporate insiders were selling stock in 2012, a change from insider purchases seen last fall.

As a result, we reduced risk exposures across our various discretionary portfolios.

  • Destinations and Personal Portfolios reduced exposure to risk assets and were positioned underweight risk compared to a neutral positioning.
  • Crystal Strategy I reduced its portfolio beta from positive to now a modestly negative beta by reducing risk and adding inverse exposures designed to rise in falling markets.

We will continue to monitor the following signposts over the near term and actively manage our broadly diversified portfolios as appropriate.

  • U.S. – Fed meetings later in June and prospects for further Quantitative Easing. Later this summer, we need progress on addressing the massive fiscal cliff to be reached early in 2013, regardless of the outcome in November elections.
  • Europe – second round of Greek elections on June 17 and progress (or absence thereof) regarding further European integration (bank deposit guarantee, adding capital to weak banks, stabilization in bond yields).
  • China – further, but moderate, monetary and fiscal stimulus, enough to avert a hard landing, but not enough to bail out weak global growth or produce sizzling China growth. The government is happy to see cooling in property markets.