Are We There Yet? Bipolar Markets And The Return Of Volatility

After a few years of complacency, markets as of late have shown their alter-ego: volatility. The very nature of volatility is that (a) it eventually returns and (b) the more granular we view it—i.e. the closer we are to it—the more concerning it seems. The reverse is also true. As we view markets from a higher perspective over a longer time frame, volatility becomes much less scary.

Human nature leads us to view the short-term consequences of things. A view of the CBOE VIX (an index showing the market’s expectation of volatility over a 30-day period) over two years shows what seems to be an extreme divergence from the mean. However, over ten years the picture is much different. In fact, many would argue (myself included) that the recent uptick in volatility is a return to a healthier balance of fear/optimism.

In our Q3 letter (How Low Can It Go?), we pointed to the historically low level of the VIX index stating it was:

…a symptom of three underlying causes: (1) the perception of growing global financial stability, (2) the prospect of domestic tax and regulatory reform, and (3) the continuation of what I would describe as complacent optimism… markets are largely priced as if all will be well over the next few years and investors continue to be indifferent to the potential for geopolitical conflict, reductions in consumer spending, or problems with the Fed’s unloading of its balance sheet.

Over the past few months, the geopolitical situation appears to have become less stable, tax reform was passed, and complacent optimism has come into question. Keep in mind, we were not predicting what would happen, but simply observing where prevailing thought seemed out-of-balance and how that might affect our investment decisions. The passing of tax reform led to a surge in stock prices—the S&P 500 was up 14.03% from October 1st to January 26th of this year, roughly 7.5% of which came from January 1st to the 26th.

The market now more closely resembles what many people thought we would see after Donald Trump was elected, with stocks boosted by the enactment of pro-business policies and a decrease in the regulatory burdens faced by U.S. companies. Unfortunately, there was also the potential for a lot of chaos and other controversy that would increase volatility. Does that sound like a pretty good summary of where things stand right now? Every day it seems like something new can pop up at any moment and that things can change in an instant. While horrible things happen much less frequently today than they did, say, a few hundred years ago, we must nevertheless remain prepared for the unpredictable because, where in the past it might have taken several months for a market to decline 10%, it now happens in days.

As things stand today we have clients positioned a little more defensively than a few months ago. It isn’t because we are concerned about a massive correction. In fact, we feel that everything that is happening now is more reflective of a normal market. The bottom line is that equities got a little ahead of themselves earlier this year, and now we have seen things pull back. There are more wild swings from day to day (even intra-day sometimes). We expect that this will continue over the next few months. We believe the key to handling volatility is maintaining an investment strategy that prevents clients from taking more risk than they need, focuses on a diverse basket of securities, and has enough fixed income/cash to cover your income needs if the market does get into a prolong decline (or, for clients that are more aggressive, hedges their holdings using options). Things tend to move in a positive direction over time. The movie tends to end well. But any individual scene, standing alone and without the broader perspective, can seem dispiriting. We do not make investment decisions on ‘snap shots.’ That would be too easy. Provided we do not take uncalculated risks, avoid rash decisions, and keep our eye on the higher level, we believe we’ll do very well over rolling five- to ten-year periods. That is what investing is all about, embracing patience and focusing on what matters.

Are We There Yet? Bipolar Markets And The Return Of Volatility

After a few years of complacency, markets as of late have shown their alter-ego: volatility. The very nature of volatility is that (a) it eventually returns and (b) the more granular we view it—i.e. the closer we are to it—the more concerning it seems. The reverse is...

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A Letter to Our Clients

To my dear friends and valued clients:

I write this memo to share a bit of exciting news with you about the future of our firm and our efforts to improve our capacity to serve you: Weise Capital is merging with Spotlight Asset Group, Inc. As Mark Twain once said, “If I had more time, I’d have written you a shorter letter.” I feel that is somewhat relevant here, although I’ve tried to make this letter concise while retaining the vital message.

In 2012, with the incredible support of my wife Beth, I founded Chandler Advisors (which we later rebranded as Weise). Our aim was to more transparently help clients understand their options and make quality financial decisions. I had noticed a few issues in the financial services industry, most of which were simply accepted as the status quo. Hence, I set out to give clients a better option by:

  1. creating an infrastructure to provide you with truly objective and impartial advice,
  2. providing greater transparency for you to make more informed decisions, and
  3. reducing costs to what was truly in your best interest.

I wrote about this in The Wealthy Physician (2012), reiterating what Vanguard’s John Bogle had been saying for years: conventional investment fee structures made no sense. Clients were often paying north of three percent per year for advisory and portfolio management services.[1] I pointed out that, over 25 years, a 3% annual fee could easily lead to an account balance 40% lower than a simple 1% annual fee. Circa 2012 these issues were surprisingly not widely acknowledged by the industry. Worse, clients usually received little to no value, other than market returns (and losses)—and maybe a new, very expensive, friend. Hence, over the past five years, my mission has been to build a firm that substantively helped clients move forward, sweeping away industry biases and pride that too often hinder real progress.

Throughout this journey, I’ve been fortunate to meet many wonderful people and I’ve learned a great deal (much of it the hard way[2]). I’ve become convinced it is impossible to build sustainable success without effective leadership and management, a team environment, and a culture with high moral, intellectual, and performance standards. Second, most people are as incapable in certain areas as they are capable in others. Therefore, at least for me, it has become apparent that awareness of weaknesses is often as or more important than awareness of skillset. For example, the distinction between professional roles (i.e. management, operations, sales, legal, finance, etc.) has become clearer as I’ve seen how effective leaders lead compared to how effective analysts analyze.

I’ve met a handful of great leaders in the financial and investment business—people who run some of the top financial planning and asset management firms. I noticed a pattern among the most successful organizations:

  • The focus was always on the team and the organization’s value to clients, rather than the importance of a single individual.
  • The founders, partners, and the overall team were very modest. They generally turned down opportunities to go on TV and ‘prove their brilliance,’ a trait I wouldn’t have assumed just five short years earlier. They shunned ego, seeing it as a distraction and deterrent to sustainable success.
  • They consistently and quickly dealt with reality, rather than running from it. Decisions were grounded in merit, rather than one or two person’s opinions. Problems were swiftly resolved (not allowed to linger). Personnel decisions were based on attitude and competence. And they had low tolerance for gossip, excuses, and other traits that tend to erode a culture.

In short, effective organizations are made up of people with varied backgrounds, specializations, and ways of thinking.[3] This is something I have strained to build over the past few years. But my thinking has evolved from “I can do it myself!” to “No one can do it alone!” Futility is the gift of trying to do everything yourself. We all need the right people in our lives; be it friends, family, coworkers, or professional advisors. We also need those people to remain focused on doing what they do well.

The Relevance…

Stephen Greco, founder of Spotlight Asset Group, is one of the leaders I was fortunate enough to meet during my journey. Mr. Greco left a lasting impression, not only because of his experience as head of wealth management for one of the nation’s largest independent firms, but, more importantly, because of his focus on integrity and transparency (hence the name Spotlight). Through many conversations with Steve, I determined it would be a much better fit to join forces (for reasons I detail below).

We will be merging with Spotlight, effective end of this month. With the Spotlight team, we will significantly increase our capacity to add higher levels of real value to clients. Far beyond simply creating a marketing perception, Spotlight’s objective is to help clients effectively merge goals and reality.

Benefits for You

  1. Lower fee structure. The integration into Spotlight will allow for a lower overall fee structure for clients. Additionally, Spotlight charges a true ‘all in’ fee – meaning, the investment management fee also goes to cover all trading and administrative costs.
  2. Higher levels of sophistication for you and your plan. The Spotlight team provides:
    • complex financial and estate planning strategies for high net worth individuals;
    • tailored investment and risk management strategies;
    • strict adherence to their fiduciary duties and an ability to navigate a complex regulatory compliance environment; and
    • a dedication to client service.
  3. Unparalleled Competence. Leadership and management with senior level investment, financial planning, insurance, trade execution, and regulatory experience and backgrounds.

I believe this move will make a significant, positive impact on our ability to add value for clients and it is my sincerest hope that you find the same. As always, feel free to reach out to me with any questions or thoughts. I look forward to helping you for many years to come.


[1] Mostly related to 401(k)’s and mutual funds. Most investors at the time were paying about 1% to 2% separately for both of advisory (financial advisor or planner) and investment management (portfolio manager) services, totaling an average close to 3% annually.

[2] Which is fairly predictable when people start businesses in their late 20’s.

[3] Rather than by people with very similar backgrounds and competencies.

Are We There Yet? Bipolar Markets And The Return Of Volatility

After a few years of complacency, markets as of late have shown their alter-ego: volatility. The very nature of volatility is that (a) it eventually returns and (b) the more granular we view it—i.e. the closer we are to it—the more concerning it seems. The reverse is...

A Letter to Our Clients

To my dear friends and valued clients: I write this memo to share a bit of exciting news with you about the future of our firm and our efforts to improve our capacity to serve you: Weise Capital is merging with Spotlight Asset Group, Inc. As Mark Twain once said, “If...

Protecting your loved ones… after you’re gone

My client, Mr. B, was an artist in his late 50's. His late wife had been the decision maker, as well as the primary income earner. I had been the family's advisor for a few years at the point of her sudden death. Mr. B wasn't just devastated. He was in shambles,...

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By B. Chase Chandler, CFP® There are two primary factors to consider when planning for Social Security Retirement Benefits. Here is a quick overview: #1: Your Benefit Your Social Security Retirement Benefit will be based on your Average Indexed Monthly Earnings...

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By B. Chase Chandler, CFP® Decision making in the financial world can be challenging. You have so much information coming at you so fast, it’s difficult to process and think through all of it. But we can improve our financial thinking if we simply adhere to core...

Desiring What Doesn’t Exist

By B. Chase Chandler, CFP®

Decision making in the financial world can be challenging. You have so much information coming at you so fast, it’s difficult to process and think through all of it. But we can improve our financial thinking if we simply adhere to core principles relevant to every important area of life. When we internalize that core truths of business, relationships, and life are also applicable to investing and money management, we have an advantage. We’re less likely to be persuaded by harmful mental errors that threaten our long-term wealth.

Clients, employees, colleagues, and myself – we’re all prey to mental error. And one of the most common of these errors is the idea that a person can get something for nothing. Most people want the benefits before the work, the rewards without the risk. Given how much our society spends on lottery tickets, short-term diets, and the like, it shouldn’t surprise us that our natural inclination is towards solutions that promise the benefit without the sacrifice.

Imagine you observe a person very skilled at what she does. She has become a master of her craft. There’s a tendency for us to believe she’s simply gifted. But we must be cognizant of what we do not see ― years of experience, practice, preparation, long hours, and mistakes that built the skillset. Achievement in any endeavor doesn’t just happen. Purpose, commitment, focused action, resilience, and repetition of tedious tasks – these are qualities that build success. Or as Carol Dweck put it, “We like to think of our champions and idols as superheroes who were born different from us. We don’t like to think of them as relatively ordinary people who made themselves extraordinary.”

This relates to investment and financial planning because, by default, we want the easy road, leading us to desire what does not exist. The symptoms are as follows:

  • Focusing on short-term returns rather than result over entire lifespan
  • Looking at historical returns as an expectation for future returns (i.e. fixating on past results over the fundamental investment process)
  • Unknowingly ignoring what we don’t know – i.e. tax consequences, long-term income potential, downside risk, etc.

The signs are similar in managing a business. I seem to speak with at least one person a week requesting benefits without sacrifice. In other words, they want us to pay up for their talents before they’ve developed those talents (or proven they have them). They want us to fund their idea, introduce them to our clients, or pay them a salary but not hold them accountable. All of this because people tend to overvalue their “talents”, misunderstanding that they must first prove they have developed a skillset that adds value before they can be paid for it.

The point being – the sooner we realize we cannot get something for nothing, the sooner we can begin to make real progress. In financial planning terms, we must realize: (1) we cannot reap the rewards without accepting some risk, (2) we cannot build true success without building a valuable skillset, and (3) we can only build a skillset by putting in the time and effort required.

Don’t tell me how talented you are. Tell me how hard you work.”

– Artur Rubenstein

 

Are We There Yet? Bipolar Markets And The Return Of Volatility

After a few years of complacency, markets as of late have shown their alter-ego: volatility. The very nature of volatility is that (a) it eventually returns and (b) the more granular we view it—i.e. the closer we are to it—the more concerning it seems. The reverse is...

A Letter to Our Clients

To my dear friends and valued clients: I write this memo to share a bit of exciting news with you about the future of our firm and our efforts to improve our capacity to serve you: Weise Capital is merging with Spotlight Asset Group, Inc. As Mark Twain once said, “If...

Protecting your loved ones… after you’re gone

My client, Mr. B, was an artist in his late 50's. His late wife had been the decision maker, as well as the primary income earner. I had been the family's advisor for a few years at the point of her sudden death. Mr. B wasn't just devastated. He was in shambles,...

Social Security Retirement Benefits: The Basics

By B. Chase Chandler, CFP® There are two primary factors to consider when planning for Social Security Retirement Benefits. Here is a quick overview: #1: Your Benefit Your Social Security Retirement Benefit will be based on your Average Indexed Monthly Earnings...

Desiring What Doesn’t Exist

By B. Chase Chandler, CFP® Decision making in the financial world can be challenging. You have so much information coming at you so fast, it’s difficult to process and think through all of it. But we can improve our financial thinking if we simply adhere to core...