Holiday Horror?

This is the time of the year when the approach of the holiday season can begin to weigh on folks.  My birthday is at the end of October, and back when I was a young child, that was a LOOONG way from Christmas.  Now, the Christmas decorations are up before Halloween.

Are you feeling a little bah-humbug about it all?  Do you find the holiday season to be irritating, or disturbing?  Does all of the urging to make merry sort of curdle your porridge?  Well, you are human!   There are reasons that so many of us actually feel cranky and out of sorts at the end of the year.  And, I have a suggestion about how to turn it around.

Notice that it's getting darker earlier each day?  And mornings are gloomier, too.  Then, we leave daylight savings time, which will make the evenings darker even sooner.  Winter is approaching, and a primitive, yet powerful, part of our brain begins to worry about cold, enough food, and whether or not spring will in fact return.

As a coping mechanism, we have developed many rituals and celebrations for the year end, involving a lot of symbols that represent our hope that winter will transition into spring.  Ornaments on a green Christmas tree represent the hope of life (the evergreen tree) and abundance (the ornaments symbolize fruit).  We eat a lot, as an act of faith that more will follow.  We light up our homes, burn logs in the fireplace, and indulge in scented candles to recreate the sunlight that we hope will return.

This is not the season of natural cheerfulness and urges to make merry - we create these rituals to chase away the atavistic fears that come up at this time of the year.  This is especially true of northern European cultures, where the climate is more harsh in the winter.  (Cultures closer to the equator have New Year rituals as well, but there's a different emphasis.  Here's a link to an article about Venezuelan New Year customs, and others around the world.)

Therefore, if you are feeling not so cheerful during the holiday season, you are having a NORMAL reaction.  If you can alter your frame of reference, and understand that these rituals are meant to restore optimism in the face of the dark and the cold, then you can view this time of the year as an opportunity to create a little cheer for yourself in some creative way - 'tis the season to be jolly because you have chosen to be jolly.  Cold and dark begone!

You Should Never Walk Alone

A few blogs back, I expounded upon the virtues of having a guide (such as a ski instructor or a voice teacher) who will help you to acquire specific skills much more quickly and easily, rather than trying to learn them on your own. I do not even want to contemplate what would probably have happened if I had tried to teach myself how to ski…

I have also noticed another benefit of working with a guide – increased efficiency and actual financial savings can occur, often through unexpected channels. For example, I discovered that I could get a private ski lesson for the cost of a group lesson by signing up for an advanced class in the afternoon. I would often be the only student! Still got the expert guidance, but for half the cost. Yet, I don’t believe in being cheap, either. You can learn to be skillful in detecting value, and sometimes paying for the best gets you the best results.

The most striking example in my personal life is the results I’ve seen over the years that I worked with a personal shopper/style consultant. This is otherwise a big area of uncertainty and insecurity for me (drop me off all alone at Macy’s, and watch me go into shock), and if I didn’t have Denise’s help, one of my friends would surely have nominated me for “What Not to Wear” by now. Yes, I do have nice clothes but believe me, that’s not my doing. What’s important about this? It’s not the wardrobe per se, but the confidence that comes from knowing that I look put together and approachable. Appearance DOES count, not in the sense of coming across as an intimidating fashion slave, but in allowing your outer appearance to match and support your inner self. And for me, it has been immensely helpful to have an objective third party (Denise) reassure me that I have accomplished that!

I’ve finally noticed something that has been occurring over time with Denise; as we have gotten to know each other, our entire process of working together has become more efficient from a both a time and money standpoint. Now, I don’t mind paying for good clothes that will last for years (although it can feel rather challenging to spend the money all at once – we do two major shopping sessions each year and I do have to breathe deeply when we approach the cash register). Yet, over the years we have been discovering that we are more and more likely to find many if not most items on sale, and/or find what we want at less expensive stores. This last fall shopping session seems to have set a world record as far as finding great stuff on sale!

I see a pattern in all of this – the longer you work with your guide, the more efficient you are likely to become (in addition to acquiring the skills that you want). This will manifest in different ways depending on what you are doing. I can now get through a three hour rehearsal or a major concert without vocal fatigue. I can get down most intermediate ski hills without killing myself, and enjoy the ride. I have confidence about my appearance (well, most of the time) and have learned that the number on the cash register is OK – and has been going down over time - because we only do this twice a year, yet I’ll wear many of those clothes for years.

One might consider working with a financial planner in the same light. Many folks perhaps could object to the cost, at first, which is not trivial. But the value of having a guide will become apparent over time (steering you through a rough market or economy comes to mind, as avoiding short term emotional behavior is more important than “doing something”). The greatest value in any type of advisory relationship is not always what the advisor does for you, but often what they keep you from doing!

Economic Data - React to the Immediate or Look at the Long Term?

There has been some discussion in the press lately, speculating on whether or not humans are actually hard wired to make poor financial decisions. Behavioral finance, a sub-set of economics, has suggested that we have a hard time taking actions that will provide a benefit in the future, if those actions require thwarting immediate short term desires (such as the simple act of delaying a purchase today, in order to save the money for a future goal).  We can, however, set up systems for ourselves that will help us to work around these behaviors (such as an automatic savings plan).

I think that we also experience short term reactivity when we hear news about the economy, especially if the economic data being discussed has a strong emotional pull. We may not be distressed by the price movements of copper, but it’s easy to react with discomfort to less than happy news about jobs, employment, and housing since most of us work, and many of us are homeowners. The news last week, reporting only 80,000 new jobs created in June, was disappointing on face value, yet our short term emotional reactions to this disappointment could easily lead us to believe that this is permanent bad news, and it won’t get better, ever.

However, if we take the time to look at at historical economic data over longer periods of time (which we are not naturally inclined to do), perhaps we can curb our impatience that things are not “fixed” yet, and see the larger long term pattern. (Of course, the political haranguing leading up to the election will definitely take the short view and splatter blame for this freely and generously).

The chart I’ve provided shows us the historical pattern of job formation over the last twelve years, including the last two recessions. The gray areas indicate periods of normal economic activity, and the clear areas show the two most recent recessions. We do see the dive in job creation during the two recessions, and the gradual, and bumpy, climb-out afterwards. Notice, however, that there were also periods during normal economic times, when we had zero new job formation for a given period. The truth is, job formation is choppy after recessions (look at the pattern!) and seasonal (for example, it typically slumps during the summer months).

Yet, the media reports pretty much overlooked a couple of happier items: total hours worked and wages jumped up during the same period.  Humans have another unfortunate trait (which is a survival mechanism that does not always serve us well) - we pay far more attention to negative news than to positive news.

It’s really important to have context and perspective while looking at the economy and its indicators. My next economic update Webinar will be Wednesday, August 22 at 11:00 am Pacific Time. These Webinars provide you with a system that allows you to learn about “hot button” economic topics in more depth than you will get during a 30 second news item. There is much more to GDP growth, job creation, deficits, and Eurozone issues, than meets the eye (or can be contained in a single data point), and during each Webinar, we’ll break down a couple of these topics and look at the full set of information that lies behind them, to get this needed context and perspective that can lead to a much more balanced outlook. The chart that I’ve included today is an example of the type of analysis that is provided during these Webinars.

Go to http://www.focusedfinances.com/  and click on the Event Calendar to see our Webinar schedule. You can click on the event and register for it right there.

How to Have Absolutely Nothing to Talk About at Your Next Cocktail Party

I saw this interesting excerpt from the Yale Alumni Magazine (the March/April 2009 issue, which was certainly an interesting time period for the investment world).  This is from an interview with David Swensen, PhD, Yale’s chief investment officer, discussing the type of investment "advice" that one encounters in the mass media (emphasis added by me):

"Y: I was hoping you’d mention Cramer. In the new edition of Pioneering Portfolio Management, you write: “Educated at Harvard College and Harvard Law School, Cramer squanders his extraordinary credentials and shamelessly promotes stunningly inappropriate investment advice to an all-too-gullible audience.”

S: Jim Cramer exemplifies everything that’s wrong with the advice—and I put advice in quotation marks—that is given to individual investors. Investing is a serious business. We’re talking about retirement security of American citizens, and he turns it into a game. It’s a game where his listeners lose. It’s ridiculous. These high-turnover, rapid trading strategies enrich the brokers. If you look at Jim Cramer’s approach on an after-fee, after-tax basis, the individual doesn’t have a chance. … Unconventional Success [by David Swensen] is a book for the overwhelming number of individual and institutional investors who cannot manage a portfolio actively. Almost everybody belongs on the passive end of the continuum. A very few belong on the active end.

Y: Maybe we need new language, David. No one wants to be in the “passive” group.

S: No, they don’t. The basic problem is, it’s boring. The approach that I recommend is going to give you absolutely nothing to talk about at a cocktail party. You’re going to be in a corner by yourself, and no one will pay any attention to you. But you’ll end up with a better-funded retirement."

Now, there are a few Fridays when, after a glass of wine, I will put my feet up and watch "Mad Money" simply to be entertained by Mr. Cramer's frenetic energy (although hearing shouts of "boo yah" too many times will often cause me to flip the channel).  But never in a million years do I believe that this program in fact offers investment advice, yet apparently many viewers (especially those who call in) do so.

David Swensen's book recomends what are known as "passive" investments, such as index funds/ETFs and low cost funds run by Vanguard and TIAA CREF.  Yet, there are many effective ways to invest with well-run mutual funds that aren't technically "passive" - as long as basic asset allocation and modern portfolio theory principles are followed - that will give investors excellent long term results.  In other words, there are lots of ways to cook a chicken.  But the Cramer approach should NEVER be taken seriously; you may end up raw or burnt!

Downtrends in an Upworld

Here is an interesting bit sent to me by my journalist colleague Bob Veres; I highly recommend clicking on the link for the full article. 

"By most objective measures, the world is a better place to live today than it was in, say, the 1950s. We have color television and a zillion more channels. The Internet provides access to more information than was ever available in an encyclopedia (and it's updated). Refrigerators don't need to be manually defrosted. Cars are more fuel-efficient, and our phones are more powerful computing devices than the vacuum tube-driven processors that were used to send the first people into space. Think about that the next time you play Angry Birds.

"But a recent list first published in the Chicago Tribune offers one person's inventory of things that have NOT improved in the past 60 years. It includes the cost (way up) and quality (way down) of higher education, the lower cleaning ability of dishwasher soap, and the fact that we don't get full service--including washed windows and a check of the tire pressure--at the gas station anymore. Air travel used to feel like a special experience; now, at best the experience is more like what you get at the bus terminal; at worst, it can feel like herding cattle. Professional athletes are paid a lot more and, perhaps in a total coincidence, tickets to sporting events are dramatically higher than they used to be.

"You can see the full list here: http://www.chicagonow.com/lists-that-actually-matter/2012/05/26-things-that-used-to-be-better-according-to-my-old-man-thanks-pop/), and decide for yourself whether canned corn does or doesn't taste as good as it used to, or whether the ever-shorter racing careers of the top thoroughbred race horses makes for lower fan loyalty and interest. Perhaps the most interesting aspect of the whole exercise is that the author (who was actually compiling a list made by his father) could only come up with 26 things that are not as good as they used to be. I'll bet you'd have no trouble thinking of twice that many things that have improved dramatically since the 1950s."

What I Learned from Skiing and Singing (and Maybe Kindergarten)

I am back!  After a long hiatus, I decided to take up my blog again.  Today's article is extracted from my year end client letter, and is relevant at any time of the year. 

Although I don’t ski any more, I do remember my days as a beginner when I tried to use every physical means to “make” the skis do what I wanted. I was not ready to trust that those expensive slats of composite material were designed to do a lot of that work for me. Once I surrendered and let those skis do their part, I could relax and enjoy myself with far less effort (and fatigue) and ski with a lot more speed and control. What helped me a lot were a number of very skillful (and patient) instructors who got me to that point; not being a natural athlete, I would never have figured this out for myself. I needed to ski down a scary hill with an instructor to build the confidence that I could actually do it (and not die in the process).

Some of you know that I sing, and a few years ago I decided that I had some vocal habits that needed remediation. So I started voice lessons – what a revelation! The human vocal apparatus is a miraculous combination of physiology and physics, and I had to learn how to relax and let the right parts do their bit (rather than “trying” so hard with everything I had). Once I got my tongue and jaw to behave themselves (among other things) I got far more volume, quality, and breath than when I tried to “make” my voice happen. This happened only with skillful guidance from a couple of really great voice teachers. An important point here is that you need an outside listener to truly hear what you are doing vocally. What you hear is completely different than what a listener hears, so you need to trust the feedback from the teacher, based on what they hear. What sounds perhaps harsh or squeaky in my head actually sounds great a few more feet in front of me! I never thought that I would be able to sing a contralto coloratura aria by Rossini (and I can). I just wanted to get a better sound and better breath control. I’m amazed by the results I’m getting, and inspired to explore even further with this new confidence and ease.

My realization from these experiences is that we all need objective outside guidance to learn and execute the techniques that will help us to develop a particular set of skills, including the art of investing wisely. And a key point is keeping it simple, doing the right thing at the right time, and becoming consistent. It’s when we “try” and “try harder”, and “do something different” that we exhaust and discourage ourselves. A teacher, coach, instructor, or advisor will get you to an actual point of accomplishment, by teaching you techniques or using techniques to move you from strain to ease. It’s not sexy, it’s all in the consistent application of these relatively simply techniques.

Why We Care (or Don't) About Causes

It's unusual for me to post twice in a day, but I just saw this link posted by one of my colleagues, and it's an interesting piece on human behavior that I just had to share. Simply click on this blog title to go to the article.