In a recent interview published on his Kort Sessions blog (KS), here’s what we discussed:
KS: Today, when you recommend a client take on, or increase equity exposure, what are the most common push-backs that you get? Have these changed in the past few years? If so, could you explain.
Wade Slome: “Given the events that have transpired over the last 15 years, I expect to receive a healthy dosage of pushback. Many investors have naturally been scarred from the 2008-2009 Financial Crisis, so convincing certain people that the 100-year flood will not occur every 100 days can be challenging. Regardless of the skepticism I receive, I feel it’s my duty to provide the best possible advice I can to existing clients and prospective clients. I can lead a horse to water, but I believe it’s not my job to force clients into a single investment option. At Sidoxia, we customize investment plans that meet clients’ risk tolerances, time horizons, and overall objectives.
With regard to sentiment changes in recent years, it is true that the tripling in equity market values since early 2009 has changed investor moods. Risk appetites have definitely increased. Nevertheless, cynicism is still rampant. Surveys done by Gallup show that stock ownership is near 15-year lows and despite stocks at or near record highs, ICI fund flow data shows money fleeing U.S. stock funds in 2014. With generational low interest rates, I see many long-term investors being too imprudently conservative. However, on the other hand, my responsibility is to also prevent other clients from taking on too much risk, especially if they have shorter investment time horizons or have limited funds in retirement.”
KS: When you speak with clients today, what are prominent worries do they have about their investments: The general level of the market, valuation, the economic backdrop, U.S. political issues or geopolitical concerns (all of the above)? Could you rank or tell me which concerns seem to be paramount.
Wade Slome: “In this 24-hour news cycle society we live in, an avalanche of real-time data gets crammed down our throats daily through our smartphones and Twitter-Facebook pages. As a result, the overwhelming barrage of news gets disseminated instantaneously, which in turn spreads fear like wildfire by word of mouth. In this type of environment it comes as no surprise to me that the general public is on edge. Every molehill is made into a mountain by media outlets for a simple reason…fear sells! Before the internet 20 years ago, virtually no one could find the location of Cyprus, Syria, Ukraine, or Gaza on a map – now we have Google and Wikipedia to show us or the Twitter feed scrolling at the bottom of our television sets reminds us. As far as concerns go, it’s tough to rank which ones are paramount. One day it’s the elections or Iran, and then the other day it’s the stock market crashing or the Ebola virus. Eventually the emotional pendulum will swing from fear and pessimism to optimism and euphoria, it always does. Like a lot of different professions, one of best strengths to have as an investment manager is the experience in knowing what noise to filter out and the ability to identify the relevant factors that drive outperformance.”
KS: Could you share the short-form responses that you might give to your clients when addressing the aforementioned issues.
Wade Slome: “The best advice I can give investors is to ignore the headlines. This principle is just as true today as it was a century or two ago. Mark Twain famously said, “If you don’t read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed.” This is obviously presented a little tongue-in-cheek, but the main point being is headlines should not drive your investment decisions. It’s perfectly fine to be informed about the economy and politics, but people must realize the stock market often moves independently and in contrarian directions to prevailing media stories. Rather than emotionally react to news flow, it is much more important to create an objective, long-term investment plan that takes advantage of market noise, hype, and volatility.”
KS: Finally, this is a little bit of a leading question that I hope you might run with. Do you find any useful purpose being served by the financial, general or political media that might aid an individual’s investment process?
Wade Slome: “In my view of the financial markets, there are a few underlying principles that drive stock prices over the long-term, and they include such basic factors as earnings, valuations, interest rates, and market psychology. What I would objectively try to argue is that the financial, general, or political media have little to no impact on the first three factors and only modest influence on the last one (market psychology). Part of the reason I have been so constructive on the markets on my Investing Caffeine blog over the last five years is because all these factors have generally pointed in the right direction. I will become nervous when earnings decline, valuations get stretched, interest rates spike, and/or psychology turns euphoric. Right now, I don’t think we are seeing any of that occurring.
With that said, I do believe there are exceptions to the rule that the “media is evil.” If you have the time, interest, and patience to stagger through the endless desert of financial media, you can find a few rare flowers. Although I do consume mass amounts of media, 99% of it ends up in the trash or ignored. I do my best to reserve my media consumption to those successful investors who have lived through multiple market cycles and have a winning track record to back it up. It is possible to find sage investment bloggers; Warren Buffett (Trades, Portfolio) interviews on CNBC; or newspaper interviews of thriving venture capitalists, if you properly dine on a healthy media diet. Unfortunately there is a lot of junk food financial content out in media land. What should generally be avoided at all costs are rants from economists, journalists, analysts, commentators, and talking heads. No matter how eloquent or articulate they may sound, the vast majority of the people you see on television have not invested a professional dime in their careers, so all you are getting from them are worthless, vacillating opinions. I choose to stick to commentary from the tried and true investment veterans.”
Bill, thanks again for the thoughtful interview questions, and continued success with your Kort Sessions blog!
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own GOOG/GOOGL, and a range of positions in certain exchange traded fund positions, but at the time of publishing SCM had no direct position in TWTR, FB, WFC, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.