Patience Isn’t a Virtue, It’s a Necessity

With the increased fluctuations and heightened volatility we have experienced in the markets in the past several months, I would like to share my thoughts and perspective.

I feel the most important point I would like to state is: short-term volatility is normal. We will look at some statistics shortly, but first I desire to express that volatility is to be expected. We do not let volatility sway our opinion of the investments we own.

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Dave Anderson

Dave Anderson

As an advisor, Dave Anderson places a high priority on developing strong personal relationships with his clients. Frequent communication is important so that he works from an informed and timely view of his clients personal and life goals, financial objectives, priorities and risk tolerance. Learn more about Dave here.

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Improving Investor Behavior – Myths & Language

Note

This article originally appeared in the Denver Post, June 17, 2018.

Many people believe the stock market is risky. It’s often described as a casino, using words like crash, falling, and my favorite Wall Street word: “correction” meaning falling 10 percent or more from a previous high price. My definition of a correction is a temporary decline, which is then followed and surpassed by a permanent advance.

I help people to understand that risk is a permanent loss, or (more likely) the permanent loss of your purchasing power. In reality, money has never been lost when invested in a broadly diversified portfolio held long-term. You can easily lose money investing in stocks, but capital is not lost by an investor who is willing to hold a well-diversified portfolio of quality equities through their normal, sometimes frequent, short-term declines.

So why is it that our society seems to hold the belief that stocks are fraught with risk – a clear and present danger – when history does not show an example of this? The historical evidence is on the other side. Could it be the contrary financial messaging you hear? Could it be selling fear has a more significant impact than selling discipline?

I think the fear is inherited. The terror of a stock market crash capable of wiping out a lifetime of savings is so ingrained that it brings back generational stories of the Great Depression in the 1930s. The Depression was indeed tragic leaving generational scars. Retirees fear to invest in the ownership of companies in the form of stocks because they can crash. No wonder less than 50 percent of our population has any investments in stocks.

Over the lifetime of an individual, it is not uncommon for stocks to increase in value upwards of 100 times since birth. I was born 62 years ago in 1956. The S&P 500 equivalent was at 44.43, and today it is approximately 2,700. That is 61 times higher in 62 years. The scenario is even more stunning today for a 65-year-old born who was born on January 1, 1953. At that time, the S&P 500 was at 26.18 – versus 2,700 today – more than 100 times higher (same source). To find out where the market was when you were born, search online for “S&P 500 historic prices by month.”

When you consider a typical retirement time frame, say 30 to 40 years, living costs could more than double for a retiree due to inflation. The real risk is running out of income. The rising tide of dividend income from high-quality companies can more than offset inflation over a three or four-decade time horizon. The myth, however, is that stocks are “too risky.” My question: “Where did you get that idea?”

Good investor behavior means paying less attention to the value of your investments and more attention to the income or dividends. Since 1960, the cash dividend of the S&P 500 has increased at a compound rate of 5.76 percent versus about 3 percent for inflation or the CPI. People shouldn’t spend their principal; they should spend the income from their principal. So why is there such an emphasis on the daily fluctuation of principal?

Could it be a belief that Blue Chip companies are like casino chips? In reality, ownership in American companies represents the direct ownership in the earnings, cash flow, dividends and net assets of the very businesses you frequent each day. Ownership can be in the form of your 401(k), mutual funds, ETF products or direct ownership in the actual shares of companies. Prices fluctuate on the stock market, but long-term values are driven by real earnings and real dividends, yet most people see stock prices as random and inherently unstable.

When you own shares of a company, you are an owner of that company. Good investor behavior means acting like an owner, not playing gin rummy. Rather than becoming fearful as a result of negative financial messages, look around and pay attention to companies that provide goods and services to you and your family. Owners of successful businesses typically win.

Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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Invest in Businesses Rather than Renting Stocks

Most business owners can feel the pulse of their business. If you own a coffee shop for instance, you can go to the location, see and interact with your employees, touch your inventory, and keep your customers happily caffeinated. You can smell the aroma of your business. You can feel it.

What if you had that same feeling as a shareholder of a public company? What if you thought like an owner? Consider one that sells coffee. Yesterday, you did not own any shares of this company, but today you are an owner – a shareholder.  The feeling of being an owner of that company is divorced from owning a percentage or shares in a public company. Some may think those shares represent a lotto ticket that goes up and down every business day on some stock exchange, based on public consensus or what some analyst says or does not say about that company’s future prospects. Some almost consider it like a casino.

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Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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Improving Investor Behavior – Make Steady Savings Your Strategy

Note

This article originally appeared in the Denver Post, May 18, 2018.

There’s $15 on the line, and your buddy is stepping up to a 10 footer for a birdie on the 18th hole. It’s a slippery putt, but not slippery enough. As he takes his shot, human nature kicks in. “Miss it, miss it,” we say to ourselves. But there is no level of hoping or wishing we can do to have any measurable effect on that putt.

As humans, we do this a lot. We look at all manner of situations and hope for different outcomes. We hope the Broncos win. We hope to live well into our 100s. We hope the stock market goes up. In all of these situations, there’s very little we can do to affect what happens. We get so caught up hoping for one thing or another, that we forget the little steps we can take to improve our odds of success. Living to 100 is a hope; eating healthy and exercising is a choice. And when it comes to finance, choosing how much to save is far more important than hoping for better market returns.

Market performance tends to be the singular focus of investors and investment media alike. How is the market performing? What are the benchmarks doing? At what level are my holdings? All of these questions are similar in one regard: they are reactionary. They focus on elements that cannot be controlled.

Investment returns are important. The magic of compounding interest, sometimes called the eighth wonder of the world, is what helps rigorous savers be able to retire as millionaires. Regular old savings rates, however, can have a profound impact on the value of a portfolio over a lifetime. For compounding interest to work its magic, it has to have something on which to work. Consistency is a virtue, and it is an element YOU can control.

Life is filled with challenges, expenses, and emergencies, all of which can derail the best of intentions when it comes to saving. Having a method for saving becomes essential. Often that means “paying yourself first.” For example, can you have your employer automatically contribute to your 401(k) from your paycheck? Great! The sting of savings might hurt at first, but after a couple of months, you may not notice it. That’s the goal. We want to automate savings as much as possible. As a best practice, we encourage a 10-25 percent savings rate. The more you save, the better the outcome. It’s better to save 10 percent every month than 25 percent once or twice a year. Save until it hurts and make it a habit.

Pensions once made this easy for would-be retirees. Employees didn’t need to think about saving for retirement; it just happened. As retirement savings continues to shift away from companies and toward individual employees, making “saving” a routine becomes even more important. The great thing about Independent alternatives such as 401(k) plans is they allow you to contribute at your savings rate. You get to control how much you want to put in and where that money is invested, as well as take comfort in knowing that it’s your money, now and into the future.  These plans are designed to reward diligent savers.

Tomorrow the market may go up, down or sideways. No one knows which way it will move, and those who say they do are just guessing. The problem with guessing is that it is inherently inconsistent. Some days you’re right, and other days you’re wrong. How much you choose to save is controlled only by you. The consistency with which you choose to save is a decision over which you have complete control. The more you save, the less the market has to perform to end up with the same result. Steady savings over a lifetime helps take the “hoping” out of a retirement plan.

Praying to the golf gods won’t help us win the round. What we can do is take lessons, get a coach and practice. We can hit the driving range, and improve our odds that by the last hole it won’t matter if he sinks the 10 footer. Our goal is to stroll up to the 18th green a few shots ahead. This scenario relates to what consistent saving achieves. Make it a habit, practice it regularly, and watch your retirement account grow.

Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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Renegotiating with our Business Partner, Donald Trump

Imagine you have a business relationship with a partner. You work and run the business, and take home 65 percent of the profits for your efforts and your partner received 35%. Last December your partner recognized your hard work and rewarded you with an additional 14 percent of the business, reducing their take to 21 percent. Suddenly you are receiving a much larger portion of the profits.

At the same time your business partner has made an effort to reduce friction in the business and keep borrowing costs low. These are ideal conditions for your business to grow, and they are exactly what the U.S. Government has done.

In short, the tax cuts passed by Congress late last year are a big deal. Corporations are getting around 20 percent more tax relief and reflecting that relief in well-publicized bonuses to workers, increases in earnings, and growing dividend payments to the shareholders. All of that is not just good – but incredibly good for the American economy and citizens.

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Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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Improving Investor Behavior – Act Like an Owner

Note

This article originally appeared in the Denver Post, April 15, 2018.

Most business owners can feel the pulse of their business. If you own a coffee shop for instance, you can go to the location, see and interact with your employees, touch your inventory, and keep your customers happily caffeinated. You can smell the aroma of your business. You can feel it.

What if you had that same feeling as a shareholder of a public company? What if you thought like an owner? Consider one that sells coffee. Yesterday, you did not own any shares of this company, but today you are an owner – a shareholder.  The feeling of being an owner of that company is divorced from owning a percentage or shares in a public company. Some may think those shares represent a lotto ticket that goes up and down every business day on some stock exchange, based on public consensus or what some analyst says or does not say about that company’s future prospects. Some almost consider it like a casino.

But when you think like an owner your perspective changes. Owning a share of that business can be an abstract thought. Owning your own coffee shop worth $1 million is just as valuable as owning $1 million worth of stock in that public company. You don’t control the public company like you control your own business, but they have the same value. If your genius is anything other than running a business daily, likely you are better off with a passive equity ownership.

Make no mistake, you are an owner of that business, albeit a minority owner, but still an owner! When you invest in shares of that company, you are not just buying numbers on a screen or in your account somewhere that goes up and down in price; you are buying real ownership in that business.

The beauty of the stock market is you can choose businesses in which you want to be part owner. Our whole investment philosophy is to own great consumer companies that sell their goods and services to everyone, every day, everywhere. Companies that can do that, can make a profit which can be shared with shareholders via a dividend. That’s a tangible result of owning a part of the business. Dividends don’t lie.

Being able to walk into a business of which you are an owner/shareholder offers a feeling of ownership one can not experience when owning shares of a mutual fund, exchange traded fund, or any other financial product. And unlike running your own business, there is no daytoday responsibility of opening the doors at 4:30 am, closing at 10:00 pm, or managing payroll. Your only responsibility is to “open the envelope” each month when your investment statement arrives.

Good investor behavior also means you know, or can explain with two or three sentences, what you own. This is one of Warren Buffett’s fundamental principles. Peter Lynch once said, “Never invest in an idea you can’t illustrate with a crayon.” You don’t need to make hundreds of successful investments over your savings and investing lifetime. Rather invest in those companies that you know, and can reasonably predict with a level of confidence that their products and services will be in demand, or that the management of the company will navigate the company for the benefit of the owners (you).

It has been said that the average time someone used to hold a share of stock back in the ’60s was eight years. Now, it is claimed the average time is four months. We call this renting your investments. Buying and selling, re-balancing investments to be “active” or “demonstrate management” is akin to playing gin rummy with your investments, discarding and drawing from a deck of cards. Ideal owners make investments where the holding period is “forever”.

There are many great and wonderful companies that are publicly traded, where the leaders, managers, employees work diligently to improve their product or service to their customers every day to deliver what they do better, faster, cheaper.

Good investment behavior starts with an attitude of ownership.

Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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The Difference Between Financial and Investment Advice

There’s never been a better time to be an investor. Advances in technology have leveled the playing field in a truly unprecedented way. While these advances are great for you, they make offering value as financial advisors more difficult.

So as we continue to see improvements in technology I believe investment management will become more and more of a commodity. That means real financial advice will be a huge differentiator in the financial services industry. Anyone can create a portfolio, asset allocation or investment strategy. We are even told robots can do this with this concept called “Robo-Advisor”. What most people actually need is advice about how their investments fit into their overall financial plan, and more importantly their life. Believe me – robots cannot do this, nor do investment products do this. It takes an experienced, skilled, listening Advisor.

Both investment management and financial advice are necessary components for long-term success, but it’s important to understand the differences.

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Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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Meet Bob, The World’s Worst Market Timer

Did you invest some money on Jan. 26th? Do you ever feel “the curse” of investing at exactly the wrong point? Like your investing is too late, at the wrong time, or maybe that you’re just unlucky?

Well meet Bob – the World’s Worst Market Timer. Bob began his working career in 1970 at age 22 and was a diligent saver and planner.

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Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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The U.S. Economy & Markets

I am an optimist by nature. I feel this optimism is not pie-in-the-sky wishful thinking, but rather a view to the future that is based on a sound historical tract record and the economic progress we see across the globe. This optimism springs from characteristics that aren’t uniquely American, but we certainly are blessed by a population that exhibits many of these attributes:

  • Hard work
  • Ingenuity and creativity
  • Kean intellect
  • An entrepreneurial spirit
  • Productivity, efficiency, and a striving for improvement
  • Cutting edge mentality
  • Yet fun, fruitful, and an ever growing vision of what the future might hold

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Dave Anderson

Dave Anderson

As an advisor, Dave Anderson places a high priority on developing strong personal relationships with his clients. Frequent communication is important so that he works from an informed and timely view of his clients personal and life goals, financial objectives, priorities and risk tolerance. Learn more about Dave here.

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It’s Just the Road

In the last few days stocks have taken a beating.  Volatility has finally returned after a near two year hiatus.  Friday February 2nd saw the largest single one day drop in the Dow Jones Industrial Average history.  The following Monday (Feb. 5th) saw some of the largest intraday swings in history, ranging from down over 500 points on the Dow to closing up over 500 points, with several corrections along the way.  Hopefully you were wearing your proverbial seat belt.

Many investors are calling this a “top”, the beginning of the next great recession, the last stop on the “Bull Market Express”, or even the end of the road. But here is the reality… it’s just the road. This is not the end of the road. This is not even a bump in the road. It’s just the road. History tells us that market’s do this. They move up, they move down. They trend sideways. They are at times, irrational.

So let’s put all of this recent activity in perspective.

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Brannon Brown

Brannon Brown

Brannon is a financial advisor with LPL Financial and also serves as the team’s wealth manager. He joined Prosperion Financial Advisors in 2004. In addition to being a Certified Financial Planner® (CFP) and an Accredited Portfolio Management Advisor®, Brannon has a Master’s degree in Leadership from Denver Seminary. He is passionate about helping clients make wise, informed, investment and financial planning decisions. He is married to the love of his life, Melanie, and is the proud father of his son, William. When not working with clients or spending time with family, Brannon enjoys being in the outdoors of the Colorado high country, skiing, fly fishing, and exploring wild country.

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