Unemployment Data - "Investment Pornography"?

By Arianna Capital

Investors may closely watch economic data to decipher what that means for their investment portfolios. While the data may prove useful in some respects, it does not offer much insight into the potential length, severity, or timing of a recession or rebound. Sound a lot like the mug's game of market timing? That's because it is.

If history is any indicator of what financial news we should and shouldn't worry about, unemployment numbers are a wave in an ocean for long-term investors. The following slides graph the S&P 500 Index’s total return over the past four recessions and in the current downturn. Although each recession was unique, they all share certain traits. For instance, each was not recognized until many months after it started. Meanwhile, the stock market began to rebound even though many indicators, including employment, were still in decline and did not show an uptick until well after the recessions were over.

It is the nature of economic data to look at the past, while stock markets look forward. This is why investors should not let current business sentiment in any cycle affect their long-term investment decisions - stick to your plan and relax.

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In both the mid 1970s and early 1980s, the recessions last 17 moths each, while in the early 1990s and 2000, the recessions lasted nine months each, but all were not announced until after they were over. Moreover, the NBER (National Bureau of Economic Research) did not announce each recession’s end until almost two years later. The take away: unemployment also peaked in the months prior to the official end. Consideration: this is not a pattern to necessarily look for, rather an observation from the data.

In the 1970s, 1980s, and 1990s recessions, the market began its recovery before the end, while the market languished for two years before rebounding after the 2001 downturn. This provides additional evidence that the stock market does not behave predictably through business cycles.

Now, to the most recent recession.

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The current economic downturn began in December 2007, although it was not officially announced until a year later, in December 2008. NBER has concluded that the recession officially ended in June 2009, drawing end to a 18-month blunder.

Of course, no one can offer a reliable forecast in the future. As the previous slides suggest, a recovery will only be identified many months after the fact and the market may recover long before unemployment peaks or the NBER announces an economic expansion.

With this in mind, investors should concentrate on maintaining discipline throughout business cycles rather than attempting to time them. Unemployment numbers in the Wall Street Journal are a number, and they represent just merely that, a number. There is no reliable way to identify when stocks are poised for recovery, and past business activity does not offer any insight. The stock market looks to the future and incorporates information into prices more quickly and efficiently than experts can collect business data and analyze it. Individual investors will fare better watching the latest clip of SportsCenter, rather than be influenced by financial "pornography" - that's the Arianna Capital solution.

So, You’ve Heard The Bad News, Eh?

By Arianna Capital

By now, you have most likely read about dollar inflation, potential Medicare/Medicaid cuts, social security lost for future generations, declining government services, or an increase in taxes. Sounds dismal doesn’t it? Yet, this should not affect the way you invest or the positive hope that you have about the future.

First, you must understand that all of the previous problems are caused by, not solely but mainly, a single factor – the present value of the government’s liabilities minus its assets at approximately 120 trillion dollars. Yikes, and thank God for the present yet seemingly declining reserve currency status.

Second, it is important to understand that this should not change the way you invest. It does mean that you should factor some of these problems into your financial plan, however, but your portfolio should remain relatively the same – assuming you have a diversified portfolio of low cost index funds invested in equities and bonds that is. Now the rest of what your portfolio should look like and why is quite technical. I recommend giving us a call so we can see if your portfolio is right for you.

Third, sure it sounds bad, but find one instance where doom and gloom ever helped anyone. Doom and gloom generally only serves to motivate the bravest or most fearful to action. But, in general the attitude only slows us down. So the situation is bad, but being doomy and gloomy only makes it worse. Instead, have hope – look for solutions – there are plenty!

Finding and Knowing That This is the Right Advisor For You

By Larry Swedroe

I saw the video by our MoneyWatch editorial director Eric Schurenberg on “How to Find an Advisor,” and I quickly thought about the principles I recommend you follow when trying to find an advisor you can trust. I thought it might be helpful to share this list with you. The following are 11 principles your advisor should live by.

Please note that I touched on a few of these in my post “How to Choose a Financial Advisor,” but I thought the full list would be beneficial as well.

Act in the best interests of clients
This should go without saying, and thus should be your advisor’s guiding principle.

Follow a fiduciary standard of care
This goes along with my first point. Many advisors (including broker-dealers) only have to follow a suitability standard, meaning the investments they recommend only have to be suitable for you and not necessarily in your best interest. There’s no reason why you should accept a suitability standard. If an advisor will not provide a fiduciary standard in writing, run.

Deliver attentive service
You want to work with an advisor who will develop a strong personal relationship with you and your family. This becomes especially important during times of stress. I know that there will be times when the conversation won’t be pleasant (like many I’ve had during the market decline), but that’s when it’s most important to be discussing the issues. Thus, you want to make sure you are working with someone who will be communicating even more during such periods.

Build customized investment plans
All investors have unique abilities, willingnesses and needs to take risk. Your investment plan should reflect those unique characteristics.

Give advice that is goal-oriented, not returns oriented
Your investment plan runs into danger when you focus on the short term instead of the long term (and your goals). That’s why advice should be focused on your goals and not on the noise of the market or the product du jour.

Seek out experts when needed
When I think of your investing needs, I think of the App Store for Apple’s iPhone: “There’s an expert for that.” Those experts should be leveraged to make sure you’re getting the best advice possible. No one can be an expert on everything. There should be a team or the advisor should be able to leverage strategic relationships to provide you that expertise.

Focus on advice, not products
It’s more important to figure out your needs, and then find the most appropriate investment vehicles to meet those needs.

Make sure fee structure is in your best interests
You want to minimize the potential conflicts of interest between yourself and your advisor. A fee-only structure is the best way to do that.

Practice full disclosure
For those conflicts that still exist, make sure they are fully disclosed and explained.

Take advantage of academic research
Make sure that the advice given is based on the latest scientific research, not on opinions.

Practice what I preach
Why would you work with an advisor who doesn’t invest in the same vehicles he or she recommends?

Commodities Are Fun to Eat and Use - Now How Do I Gain Exposure For My Portfolio?

EFF/KRF: Many companies have long positions in commodities and gain when commodity prices rise. Energy companies, for example, have reserves of oil, gas, and coal, and profit when energy prices rise. Other companies, such as airlines, buy commodities and suffer when prices rise.

Conceptually, investors can manage their exposure to commodity prices by increasing or reducing their ownership of firms that are positively or negatively exposed to commodity prices. This is probably not, however, an efficient way to manage commodity exposure. Few firms' fortunes are driven solely or even predominantly by commodity prices. Oil refiners and airlines, for example, are both affected by labor costs, regulations, taxes, economic conditions, and many other factors. An investor who adjusts his exposure to oil by increasing his allocation to either oil refiners or airlines also changes his exposure to all these other factors.

Financial Planning - What's it All About?

By Arianna Capital

Most families do not have a good sense about the relationship of the size of their assets and what they are trying to accomplish in their lives. Once we help the client identify what they are trying to accomplish and if they have the resources present to meet those resources peace of mind abounds.

To do this we spend much more time talking about what the client wants to accomplish in life. We spend time getting to know what the details of their lives are. We want to know what they like so that they can keep getting what makes them happy while cleaning up some of the inefficient portions that they do not need to hold on to any longer. We also put together a team of experts to contribute knowledge and experience into this peace of mind plan - as we like to call it. Make sure your financial adviser understands you well enough to put together a holistic plan made for your unique life.

By analyzing key areas of estate planning, tax mitigation, business models, charitable gifting, and much more we are able to simplify our clients' lives to make for a better today and a better tomorrow.

Advisors Really Can Help!

By Ramin Baranpourian

Before becoming a wealth manager I had to ask myself - "Is this really an area in the world that I can make better and add value to peoples lives, or should I just continue to medical school where I know that I will make a difference for others?" As it turns out there is overwhelming evidence that independent fee only advisers with passively managed funds can do wonders for a client's goals. Combine the previous with successful financial planning techniques and one has a solid solution for a client's life. In previous posts we have pointed out that active management, private equity, hedge funds, venture capital, and more are sub par investment experiences for clients. That was the first bit of research that helped me see that I could make a difference. The second bit of insight and the subject of this blog has shown even more solidly that advisers are necessary for successful wealth management and goal realization. In other words, an adviser is worth his keep as they help point the client in a positive direction towards a client's said goals.

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This chart shows that DFA advisers (Arianna Capital) with passively managed strategies succeed much more often than indexers that try and do it themselves. They also outperform actively managed funds by a land slide. So, if your adviser uses active techniques, or if you are an indexer that likes to do it yourself think about looking into a change that serves your future.

Chart reference -

Hebner, Mark. "Investors Success With Capturing Return With and Without Advisors." Index Funds Advisors Blog. Web. 10 Sept 2011. .

Anheuser Busch & the Billion Dollar Question

By Arianna Capital

Back in the 80’s Anheuser-Busch had billions of dollars in their pension plan. With their seemingly limitless resources, Augustus Busch III and his investment committee decided to hire the best stock pickers and market timers on the planet. Three to five years later they found that these active managers had failed to beat their respective benchmarks – they had no investment skill; they couldn’t add value. Appalled, Augustus Busch III and the committee reversed their earlier decision and fired all the managers deciding to instead buy the simple benchmark, better known as index funds. Now, if Augustus Busch III had received our unique offer perhaps he would not have found himself in such a quandary.

Our Complimentary Financial Review

Because of our commitment and passion to help people become smarter and better informed investors, we have decided to offer complimentary financial reviews for portfolios of $300,000 dollars or more regardless of whether you choose to work with us or not.

We know that education, understanding, and discipline are key components of a successful investment experience. Also, we understand that recent times have been challenging for investors and that some have gotten off track by making emotional decisions due to stress and uncertainty. We look forward to helping you improve your investment portfolio and make educated decisions in the future.

About Arianna Capital Management

We strive to build a lasting relationship with you —to understand your needs and empower you to accomplish your life goals. We believe this strong relationship is the key to aligning your wealth with your values and providing the financial solutions you need to realize your vision. By utilizing the science of markets and strong academic ties to the likes of the University of Columbia, Yale, Dartmouth, MIT, University of Chicago, Nobel Laureates, and our experienced team we are able to add value to your financial health.

That is the Arianna solution – a solution that offers a level of personal service and investment solution unmatched in the industry.

Scott Wisniewski and Ramin Baranpourian are the Co-Founders of Arianna Capital Management. We benefit from the experience and knowledge of a team of 4 Certified Financial Planners, 1 Chartered Life Underwriter, 2 Masters in Business Administration, and 3 Juris Doctors. Cross-generational families, successful business owners, executives, lawyers, and doctors, both young and old in various stages of life have entrusted our team with their wealth management. More than 400 families with over $500 million in assets are benefiting from our team’s highly personalized process of managing wealth to help achieve our client’s unique life goals.

We ask people three questions:

Do you know your returns, your fees, and allocation (risk)?

Most likely, the answer is no.

The average person knows next to nothing about their financial portfolio. It’s not just the average person. Take a Harvard graduate in the Finance department at Exxon Mobil—they don’t know either. We know this because we have asked them. What does that tell us? There is a problem with transparency and simplicity in the financial industry. Investment managers hesitate to provide complete information to their clients. The industry confuses people. Many investment managers claim they know when the market will rise and fall or which stocks to pick. In fact, powerful academic evidence suggests that picking stocks or timing markets is next to impossible and will actually leave you worse off. Unfortunately the average investor is unaware of this compelling research that has existed for several decades, and their investment experience shows it.

Many of these same investment managers have high costs, high taxes, low performing funds, and take unnecessary risk. So, what is it that keeps clients around? We believe the answer is the current perception built on trust, lack of financial knowledge in the school system, pumped up media reporting, and past experiences with their current managers.

Furthermore, our society is not proficient at proactively identifying and fixing problems as we have noticed with diminishing fossil fuels and growing health care costs. As this relates to portfolios, we have seen people shy away from a complimentary analysis simply because they are afraid of leaving their comfort zone to take a look at their financial health. Conversely, we have seen people take advantage of this analysis to rid themselves of cancerous spots in their portfolios and heal themselves financially in order to accomplish their life goals.

So, get proactive and confident— let us take a look at your financial health.

Excellent podcast of David Booth and Eugene Fama

Excellent interview of Dimensional Fund Advisors Co-Founder's, David Booth and Eugene Fama at the University of Chicago Booth School of Business on iTunes Podcast (Click the #1 podcast).