The Washington Post recently outlined four possible outcomes of a Brexit, or British exit from the European Union. Barring the assassination of another British politician, campaigning is expected to resume this weekend and a vote is to take place next week on June 23rd. As the initial article states, an exit for Britain will result in further negotiations over its relationship with the EU (as well as non-EU countries), referred to by the author as the “terms of divorce”. Ahhh, parting is such sweet sorrow. A Brexit raises many questions. How will trade function? How will market volatility be affected? How will currencies fluctuate? What will happen with the EU citizens living in Britain and the British citizens living in the EU? How will specific areas currently under the authority of the EU, such as agricultural policies, be impacted? Currently there are no answers or plans, only models to feed off, and none of them paint an ideal future. So, how to hedge a Brexit? In the face of uncertainty and volatility, below are three ways one can attempt to hedge a British exit from the EU. Continue reading

robots are coming automationNever mind zombies eating your flesh and taking over, a majority of Americans believe that robots and general technological automation will replace humans in many posts throughout the economy within the next 50 years. We can certainly see throughout history that there have been reductions or eliminations of human participation in certain roles, including the telephone switch operator and numerous factory assembly positions from glass to automobile production. Households used to have ice delivered to them in blocks cut out of the insides of caves and delivered by truck. Yet, curiously enough, most (a full 80% of respondents) don’t believe their own jobs in their current form are necessarily at risk. Aside from the irony of this, there’s the matter of what the PEW Research Center study ultimately causes us to wonder, and what articles written about the study couldn’t help asking out loud the following: Will most humans one day simply be “out of work”? Well, perhaps. Continue reading

emotionalOver the last couple of years, volatility has really become the norm. And it’s gut-check time, it’s a shakeup, it’s an opportunity to check your emotions at the door and change the way you invest. If you’ve been feeling emotional lately (and you’re not alone), it’s an opportunity to drop it. If a swing of a few hundred points in a day is getting to you, then consider doing and thinking about things differently. If you’ve lost your perspective, or perhaps you never even had one, it’s an opportunity to regain it, or formulate one now, finally. And be honest in doing so, above all. Where are your one-sided stock picks and investment choices today? Where are your risky bets on marijuana stocks sitting right now? You have an opportunity right now to stop gambling and embrace passive investing.Continue reading

beached shipOnce a true asylum-seeking refugee makes the decision and takes the step to leave their country for good, their first priority is to survive the journey to their destination and ensure they can stay there. After they find a place to go, then comes the equally difficult (if not more difficult) task of beginning a new life. With the Syrian refugee crisis showing no signs of abating, the situation begs the following two questions: What does it cost to fund a refugee, and how is it best accomplished? Continue reading

gold pendulumGold is often touted as a must-have investment for the most intense of risk-mitigation situations, a “when all else fails” hedging instrument. Indeed, pick an ailment: Inflation? Hedge with gold. Economic and political crises? Hedge with gold. Collapse of modern society? Say it with me, folks, “Hedge with gold”. With the global economy as shaky as it is, multiple countries in one crisis or another, and plenty of uncertainty as to what the future holds to go around, gold continues to make the rounds as a necessary holding despite the fact that its value in US dollar terms has been steadily declining over the last four years after reaching a peak in 2011 of almost $1,900 an ounce. In the wake of the Fed’s recent decision to stand pat on interest rates and gold’s subsequent jump today, here are 3 reasons to avoid gold, both as a physical or paper holding, apart from a very small percentage of a well-balanced and diversified passive or lazy investment portfolio:

  • It’s a highly emotional and psychological asset
  • There’s no historical evidence that it hedges well against any risk
  • It has very little practical use

Continue reading

pile of us dollarsWhy is the US dollar so strong these days, and what is the significance? Well, unless you’ve been reading financial news, traveling, living outside of the United States, or really paying strict attention to the cost of all the imported goods you buy, perhaps you haven’t even realized that the $USD has been on a tear in forex markets. But, I’m guessing a good number of you have noticed or have an inkling at least that the currency these days has been bulking up considerably. What’s going on? Is it a new trainer? Mega amounts of egg protein and creatine? Performance-enhancing drugs? The answer lies somewhere between central bank actions and investor sentiment. Continue reading

volatility imageThis recent article from the Upshot over at the NY Times attempts to explain why stock markets across the world have been experiencing so much volatility. Surely some of you have noticed and have even heard reports about how the “fear index” is unusually high right now, how the “VIX has jumped”, how “China is slowing”, how “Commodities are plummeting”, how the “Fed might hold on raising rates”, and so on. Basically, if you pay attention to financial news, it’s clear that something’s amiss and volatility is back. Well, to understand the why, we should first review the what. Continue reading

crude oil rigPreviously we reviewed how, historically speaking, gold has proven to be a rather poor hedge against inflation, despite the reality that many continue to promote it for just that purpose. What, then, is a reasonable inflation-hedging investment vehicle? It just so happens that a historically-significant and helpful one is also a commodity – crude oil, the most widely and heavily traded commodity in existence today. Historical data indicates that it functions better than most other proposed hedges out there, especially gold. Continue reading

financial crime fingerprintOn Monday, August 3rd of this year, a single individual was found guilty in London and sentenced to 14 years in prison for profiting off certain fraudulent trades by participating in what many recognize to have been a systemic practice in the banking world of manipulating LIBOR rates. Tom Hayes, a former UBS and Citigroup trader, is more or less the first person to be convicted of financial crime essentially on behalf of the entire financial industry complex worldwide for any criminal activity that the industry has engaged in during this century. The presiding judge, Jeremy Cooke, made no bones about the sentence: “A message needs to be sent to the world of banking.” It’s not enough, though, and it’s not the ideal way to send the message. Continue reading

golden nickelGold is not a good inflation hedge. Yes, it has been touted as one in the past and continues to be touted as one now, but there is little evidence supporting the claim. What’s more, it is rare that any wealth manager or gold bug or supporter of such an idea will tell you why or how it is an effective hedge. It is typically presented as nothing less than a simple statement of fact, a truth everybody should already be familiar and comfortable with. If any reasoning is provided, it might sound something like this – fiat currencies are not backed by anything anymore, unlike before when they were backed by gold. Hence, as central banks the world over pump paper into the system to salvage their ravaged economies, it is inevitable that they will ultimately devaluate their currencies and trigger inflation in the process; they will overdo it, overshoot the mark, mismanage, screw up. People will “wake up” and realize that paper is just paper, that the overzealous “printing” of it has created too much of it chasing too few goods, and they will lose confidence in their central banks and in the currencies they manage. As confidence is lost, so will be value and purchasing power. Furthermore, paper is not like gold, which is a physical thing that has a limited supply (there’s only so much of it that is accessible, anyway), a thing that must be mined, processed, and stored, whereas paper is just…paper. Continue reading

port, shipping, cargoThe Trans-Pacific Partnership, or TPP, is supposedly nearing its finalization today before being turned over to a vote by the governing bodies of the various 12 countries involved. Among the final hurdles recently cleared and those yet to be cleared are environmental-protection conditions, and dairy products and pharmaceuticals respectively. Late yesterday at their reportedly final meeting in Maui, negotiators reached agreements on environmental protections although organizations such as the Sierra Club continue to say not enough is being done or committed to in this vein. The Sierra Club is not alone; aside from the remaining hurdles, there are many other concerned parties sounding off, to put it mildly.Continue reading

This week marked the five-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act being signed into law. The act is still not complete as parts of it are under review or yet to be written, but it is the biggest piece of consumer protection legislation to be passed since the legislation that was approved following the 1929 crash, including the US Banking Act of 1933 that contained the famous Glass-Steagall provisions. To commemorate this anniversary, Better Markets, a financial watchdog organization, assembled a report that details, among other things, the cost of the 2008 crisis. Continue reading

Ranakpur Jain Marble Temple Pillars Frescoes

By Acred99 (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

You want to invest, and you figure the way to do it is to (somehow) pick the best stock out there and load up. What’s the best stock out there? Right now, some people will tell you it’s Apple, some people will tell you it’s some small company in the marijuana industry, some people will tell you it’s Berkshire Hathaway, and they’ll all have their reasons why. For the sake of our discussion, it doesn’t really matter what that one stock is, let’s just pretend that you have picked your one stock and you’re going to put your money into that stock because you believe your money will be best put to use there. After all, what’s the point of diversification if you’ve picked the best stock out there? It’ll only dampen your returns, right? Well, besides the reality that you can’t predict the future, there are a host of threats your investment continuously faces. Through diversification, you can hedge your risk of investing in that one equity high-flier. Utilizing broad-based, poorly correlated assets in a well-balanced lazy portfolio minimizes your risk to each individual stock, protecting you from the possibility of an outright loss. And rest assured, there’s an immense amount of risk out there to mitigate. Continue reading

Tilting Spinning TopTilting, when done intentionally, is generally understood to be the act of pursuing an otherwise seemingly passive or lazy investment approach and then loading up on some specific additional investment so that your portfolio is more heavily weighted or biased toward that investment. This is done for the purposes of trying to earn greater return than the purely passive approach might afford you, i.e. you are attempting to outperform the market. For instance, you may buy an S&P index fund as part of your portfolio and then purchase additional shares of Apple separately. You are then tilted toward Apple in particular and technology more generally because your S&P index fund already contains shares of Apple, giving you exposure to the company and its sector. While there is absolutely nothing wrong with purposely tilting as a practice so long as you understand the risks – it’s your business – you must be wary that you not end up inadvertently doing it in your pursuit of passive portfolio diversification. If you never meant to tilt and your real objective was simply passive diversification all along, then you have done yourself a disservice without realizing it by exposing yourself to unnecessary risk. By paying careful attention to a fund’s holdings during fund selection, you can avoid this. Continue reading

mount-merapi-113620_1280To say that there are some serious headwinds that we as the collective investment community must face these days is putting it lightly. Between financial downturns and outright crises including Japan’s return to recession, Greece’s distaste for austerity, and Russia’s woes with sanctions, collapsing energy prices, and a devastated ruble; the perceived need (not unanimous) for quantitative easing (QE) in Europe eclipsing $1 trillion EUR; stark observations that the world economy is shrinking; and the actions of central banks that catch us on the toilet such as that of Switzerland removing the cap on its currency vis-á-vis the Euro, there is much to digest. How do you protect and defend your financial positions, your financial worth, your current and future holdings against such startling occurrences and circumstances? How do you protect and defend your financial, and hence personal, goals? You can do so by ensuring that you are passively invested in a well-diversified portfolio of broad-based assets with low intercorrelations, in-line with your true risk profile and investment horizon, and take advantage of the might it affords you. Continue reading

water-balance-280810Having read about how rebalancing can help you enter the financial markets with confidence irregardless of what may be around the corner, you may be wondering as to what is meant by the term in the first place. It’s fairly simple. Ideally, you are invested in a well-balanced portfolio comprised of specific allocations to certain investment vehicles that have low intercorrelations. Over your investment time horizon, you seek to maintain those allocations in order to control risk while striving to achieve your investment objectives given your particular investment profile. Continue reading

man-96868To many, the markets look expensive right now. If you’ve done a thorough job understanding and describing your investment objectives and your capacity to invest and bear risk, and you have money at the ready, you might be sitting on the sidelines wondering what to do right about now, especially as the markets see-saw. How to make a market entry? Do you wait for a big correction before you purchase anything or do you plow forward? It’s natural to feel hesitant. Nobody enjoys buying into something only to see it decrease in value in short order. It’s a sure way to feel like a sucker. Then again, if you wait for the markets to go down and they don’t, you’ve just shot yourself in the foot and missed out on returns. Instead of attempting to predict or time the markets, enter them with confidence and then rebalance your portfolio as necessary to deal with what comes next, including any potential corrections. Continue reading

HalloweenEffectThe Halloween effect just might be more of a trick than a treat – think less chocolate and more witch’s brew. The end of October and beginning of November mark the start of the six-month period of November-April during which, historical evidence shows, stocks have outperformed when compared with their performance during the other six months of the year, May-October, or with the performance of a general buy-and-hold strategy. Indeed, over the past year, the numbers seem to indicate something similar for the U.S. stock markets as per a mutual fund stand-in, the Vanguard Total Stock Market Index Fund (VTSMX) – positive returns of close to 10% from November 1, 2013 through May 31, 2014, as opposed to only a little over 5% from June 1, 2014 through October 31, 2014. This outperformance continues to lend credence to the concept of market timing and fuel the debate over active versus passive investment strategies. And so, with another potential bumper period for stocks possibly about to get under way, we owe it to ourselves to address the topic and speak to why we shouldn’t give the wolf in sheep’s clothing any candy; why it is not advisable to indulge in this active strategy in spite of evidence of a persistent seasonal pattern.Continue reading

IAI_Heron_1_in_flight_1The latest means being utilized by Mexican drug cartels of getting drugs into the United States appears to be flights by unmanned aerial vehicles (UAVs), commonly known as drones. These aircraft, which we may normally associate with surveillance or deadly military strikes with the often-touted (and disturbing) benefit of little-to-no domestic cost of lives, are reportedly being enhanced, repurposed, or built anew for carrying cocaine and other narcotics across the border for distribution and sale in the US. What’s even more fascinating than the reality that the cartels may be using them at all or how they are acquiring or developing them is how their use highlights traditional business and risk management behavior that you might otherwise expect of a bank or some other legitimized business entity and learn of in an undergraduate business course. Forget about the manufacturing of widgets or whatever other silly made-up product our made-up ACME Corp. is involved in producing as presented in some heavy hardcover textbook. Nah, instead let’s talk about cocaine and the real-life issues of how to get it to market while minimizing risks to the business organization. Here’s how the use of narcodrones highlights the ways in which cartels resemble any old rational corporate entity. Continue reading

Venn_0000_0001.svg_The US equity markets have continued to climb steadily since their abysmal lows of early 2009, so much so that it seems to be making some people nervous (then again, some folks are just perpetually nervous and others make money off creating anxiety). Posts abound voicing expectations at the very least of a correction if not a serious downturn soon. Downturn ahead or no, when it comes to investing you should ask yourself a couple of questions before you go diving down the rabbit hole one more time (or for the first time): How well do I know myself? Should I even be investing at all? Before selecting a fund, before determining your asset allocation, before putting even one cent on the table, you owe it to yourself to have a frank conversation with yourself about…well…yourself. Specifically, you owe it to yourself to assess your true risk profile. Getting a handle on this could be one of the most important activities you ever undertake as a current or would-be investor. The bottom line? Taking a risk-attitude questionnaire is not enough. Continue reading