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James Whiddon
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James N. (Jim) Whiddon is founder and CEO of JWA Financial Group, Inc., a Registered Investment Advisory firm in Dallas, Texas, started in 1986. JWA Financial serves approximately 275 client families in the D/FW area and throughout the country.Jim is author of "Wealth Without Worry"... More
My company:
JWA Financial
My blog:
JWA Financial Blog
My book:
Wealth Without Worry
  • “Fiscal Cliff” Looms

    If there ever was a dominating headline of the day - it is this one. Are we really supposed to think that there is some point in time in the near future where we just fall off the face of the earth? Didn't some explorer figure out that the earth is round centuries ago? In the same way, the financial world is round as well - round in the sense that life is just one big cycle after another. As long term planners we see this every day and twice on Sunday (old expression my dad used).

    Remember October 1929? December 1941? November 1963? August 1974? October 1987? September 2001? September 2008? You recognize most, if not all, of these dates instantly because the events associated with them became mental milestones that you simply cannot forget. What did they all have in common? The stock market indexes sank and many individual investors (and "professionals") panicked because of their lack of understanding that markets were declining temporarily before continuing their permanent long term advance.

    Now, the way the media is hyping the expiration of the Bush tax cuts - which may or may not occur- you would think that the same type of seared-memory event is in the offing for January 1, 2013 - that it too will become one of those infamous dates. (And that is assuming we make it past the Mayan Calendar "end of the world" scheduled for December 21st).

    Well, hold on. Let me see if I can shift the fear and victimization that is always the undercurrent of news reporting. Check out some other things going on that give rise to long term economic optimism ….

    • The USA will keep beating China. With all the hype China gets concerning their economy, the big headline this week was that the new leaders there are pro-economic growth. No kidding! Wow, that is amazing. I did not realize they had to announce that. I was just assuming that every country was pro-growth. Know this: China is a mere ~2% of the global equity on the planet. The USA is ~48%. The Rule of Law in China is much weaker than in America. The world's reserve currency is still the dollar. Those three points alone make for a continued USA winning streak.
    • Shale oil extraction and natural gas discoveries of the last several years are enormous. The potential for millions of additional jobs in the energy industry and indirectly in other industries - including reigniting manufacturing with cheap energy - are huge.
    • There is enough money sitting in all money funds to buy the 120 largest companies in the S&P 500 ($9.5 trillion). That money is going to buy something at some point. I am willing to bet that a large portion will be invested via the securities markets in the great companies in America and the world. (The same ones you own in your super-diversified portfolios).
    • I was visiting with an 82-year-old client the other day and mentioned that the day he was born the S&P 500 Index closed at 18. Today it is above 1400. And that does not include eight decades worth of dividends. Enough said.

    Does the world have problems? Yes. Don't get me started. But as financial planners, we are concerned with your personal economy- those things we can control. The fact is… the world is not flat financially. There is no cliff, if for no other reason than the government is notorious for implementing retroactive solutions on legislative tax matters. So please remain calm and cogitate on the long term, positive outlook I just mentioned. You will not get this in the mainstream media. Optimism is boring. Nobody would watch.

    "The wind is never for the sailor who knows not to what port he is bound."

    -Og Mandino

    Dec 11 2:56 AM | Link | Comment!
  • Here Is What I Am Sick Of.

    One of the secrets to a successful investing experience depends on our ability to ignore those things that we have absolutely no control over. Here are a few of those things: interest rates, government policies, stock prices and other people's decisions. That covers a lot. Knowing that our Personal Economy is the only one we can have some influence over, I am deeply troubled when I hear radio commercials that bemoan the "volatility" and "roller coaster ride" of the stock market. In my daily 8 minute commute this morning I heard two commercials promising "stock market returns without the stock market risk." Really? Which planet? Because it does not exist on this one. And thank goodness!

    Remember, when you hear paid advertisements that make such promises, run as fast and far as you can. Risk is neither a negative nor positive word in the world of investing. It is a neutral word of measurement. And a useful one at that. It defines the standard deviation - or amount of fluctuation - that will be present in a portfolio based on the level of investment return you need. Stocks are rising-income investments (as opposed to bonds which are fixed-income investments). By properly defining the risk level that is right for your specific situation - just like all fingerprints are different (or today maybe a snowflake) - everyone has unique circumstances in their financial life. The only way toavoid outliving your money is to own the great companies in America and around the world (stocks).

    So, investing does not make me sick (like it evidently does some people). But commercials feigning illness from investing certainly do. Avoid those with this kind of thinking or your portfolio may catch a fatal illness long before you are ready to end your retirement.

    Dec 11 2:54 AM | Link | Comment!
  • Performance And Behavior-Part 2

    In the last article we considered the idea that investor behavior accounts for far more of the real-life returns in an investment portfolio than investment performance. In fact, we showed how the Dalbar Corporation in their annual Quantitative Analysis of Investor Behavior, indicates that the average stock fund over the past 20 years had an average return of over 4 percent more - per year - than the average stock fund investor.

    If this premise of "behavior trumps performance" is really true, then how can we explain the investing world as it has existed for decades? There are billions of dollars spent on advertising, analysts and infrastructure in this behemoth system of financial services that communicates and supports this message: "We can help you time the market just right. We can help you choose the best stocks to beat the market. Your investing troubles are over. We can be your guru." How do they make investors believe this? Basically, they baffle them, charm them and appeal to their emotions. They use every psychological fallacy, influence technique and emotional entreaty "in the book" to enact their plan of compliance. And it undoubtedly works with great efficiency and effectiveness.

    I wish we could take the time and space here to talk about all of the techniques they use. JWA University has featured several books over the years that would explain many of them (such as Paradox of Choice, Economic Facts and Fallacies andWhy Smart People Make Big Money Mistakes). But let's focus on just three emotional compliance techniques to make the point.

    1. Appeal to Bias (or the Confirmation Bias)

    X is true because I desperately want to find any possible evidence to confirm my bias and will selectively ignore anything that does not.

    OR, for example:

    The financial advisory system is structured so that "experts" can advise which stocks, bonds and other financial instruments can be selected and timed to provide superior returns on a consistent basis.

    This line of reasoning is fallacious because it has no bearing on whether the belief is true or false. Just because the financial industry has successfully conveyed that this is a true statement does not support that the statement is true. But what a powerful impact this assumptive attitude has had. Ask any man or woman on the street what an investment advisor does and you will get an answer that contains similar components to "they help you pick winning stocks and advise you on when is the right time to invest." Both are exercises in futility.

    2. Appeal to Authority (or the Expert Fallacy)

    Person A is (claims to be) an authority on subject S.

    Person A makes claim C about subject S.

    Therefore, claim C is true.

    This is a sister fallacy that often times simultaneously appeals to the Confirmation Bias and exponentially increases the behavioral influence over its victims. The Financial Industrial Complex will often parade what they claim to be "brilliant economists" who are adept at making the most accurate macroeconomic forecasts. Then they march their Chief Investment Strategist out to all the business talking head shows to convey the market metrics that coincidently just happen to simultaneously promote his/her fund or fund family. The truth is that no matter what the market or economic topic might be, there will consistently be a healthy balance of "experts" taking either side of the claim made to the investing public. This gives investors ample opportunity to selectively cherry pick the experts willing to defend and deliver a "solution" that caters to his/her biases. These highly educated, highly paid, highly positioned executives make the case compelling. You can begin to easily see the pattern that is emerging with the coercing techniques. You are also catching on quickly I'm sure, that these are transferable to any walk of life in which one might want to make a point. Politics comes to mind….

    3. Appeal to Emotion

    Favorable emotions are associated with X.

    Therefore, X is true.

    This one may be the most effective and insidious of the three we have chosen to discuss. It is so simple and immutable. It works in almost any situation concerning any topic. But let me challenge you to do something that you will find intriguing. One evening while watching TV, just do an unscientific survey of the appeals to emotion in the commercials you see. Yes, this means you will actually have to watch them instead of fast forward through them. But within two to three hours, you will be fascinated with what you see. Note the recurring grandparent themes, or "saying goodbye", and the number of ads featuring dogs! (To make it even more fun, make a note concerning financial advertisements only.)

    I think you would agree that believing something simply because A) you are looking to confirm your biases, B) an "expert" said so, or C) "it makes me feel good"; is NOT how a wise and prudent person makes good decisions. These items speak to the very essence of behavior - which is what we already emphatically stated - is the key to success.

    So how do you feel when you consider how these and many other compliance techniques are employed on you constantly? Hopefully, by simply being reminded that techniques such as these exist, you may be able to inoculate yourself when they are used against your best interests.

    Next time we will delve into some more practical applications of proper behavior as we consider the virtues of patience and discipline when it comes to investing. You may be surprised when you learn what these terms really mean to the wisdom based investor.

    Until then, be on the lookout for compliance techniques in your life - and try to be on your best behavior!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Nov 19 10:07 AM | Link | Comment!
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