Once Upon A Time….
It seems like every nursery rhyme I read to William begins with “Once upon a time.” So I’ll start this brief missive with “Once upon a time, there were capital markets that went up and down.” We know this story finishes with the trend historically finishing “up.” The few times one or two of our clientele have been “hurt” in my near 30 year career, have been when I let them talk me into sitting on the sidelines (better known as cash). When I say, “hurt”, I don’t mean they lost their savings. I mean they didn’t reap the benefits that participating in the capital markets provide. As a result, they didn’t do as well as the rest of us. I know now to push back even harder if clients get nervous.
I’ve had a few folks recently ask me, “How are you holding up with this crazy market?” Well, my answer is “Which market are you referring to?” You see, a properly diversified, globally allocated portfolio offers all of the potential returns that exist out there, across all markets. So how are we holding up? Well, when the S&P was down about 10% a week back, our portfolios were about level. I’m happy with that! We see this time as an opportunity. When others are selling, someone must be buying right?
Clients that have been with us ten or even twenty years know we’re holding up just fine. They know we’re going to continue to do our job, keep them invested, and keep them properly allocated. I’ve had a couple of newer clients ask me if they should stop contributing or stop investing until things get better. So you’re telling me you want to wait until prices go back up? So much for the old saying, “Buy low and sell high.”
In any event, don’t let these “markets” bother you. Stay the course, keep focused on things you can control, like tax planning, estate planning, and planning for your legacy. Leave the markets to the markets. Invest globally in low cost, tax efficient diverse portfolios that have proven themselves time and time again.
Now back to the “Once upon a time” stories. Our best to you all and have a great week!
Tom Wiseman and the team at Wiseman Wealth Management
Mid Year Update
I hope each of you have had a tremendous start to the summer. I’d like to provide a brief update on things happening around our Firm, along with some commentary on the global markets and their impact on our portfolios.
Lucy’s Visit To Dimensional
As many of you know, Lucy Zimmerman joined our team last December. Lucy predominantly works out of our Middleburg office, is a Registered Paraplanner, and fully licensed. Lucy was able to find time for a visit to Dimensional Funds’ home office during a recent trip to Austin, TX. This provided a wonderful opportunity to expose Lucy to the day-to-day work being done by academics, portfolio managers, and a host of other Dimensional representatives. Direct exposure to Dimensional’s operation helps our team members better explain to our clients the investment principles we so strongly believe in.
Dimensional Stewardship Award
Morningstar recently awarded Dimensional their highest rating (A) for fund family stewardship. Morningstar’s Stewardship Grade is based on the premise that good stewards are more likely to provide shareholders a better experience than poorer stewards. A few of the factors that impact this award are disclosure, quality of communication, compliance, performance, and others. While there are many great investment companies out there, we are incredibly proud to partner with one that is acknowledged for putting the interests of their investors above all else. The attached article provides specific details.
Licensed Team Members
Congratulations to Jordan Braithwaite and Akhtar Khan for recently passing their Series 65 exam. The Series 65 exam is designed to test an individual’s knowledge and ability to advise clients in the area of investing and discuss general financial concepts. In addition, Lucy Zimmerman recently passed the Series 66 exam. The Series 66 now qualifies Lucy to act as an Investment Advisor Representative and as a securities agent representing a broker dealer.
These accomplishments not only display a general commitment to our industry, but a desire to improve their knowledge and capabilities when interacting with you. We’re very proud of them.
The Firm created a new Investment Committee in late 2013 as we became a Registered Investment Advisor (RIA) with the Commonwealth of Virginia. The committee meets quarterly and is tasked with searching the financial landscape to identify and review new investment opportunities. While our partnership with Dimensional Funds is the cornerstone of our approach, we’re continually looking for new opportunities that will compliment the investment principles we so firmly believe in. Each potential investment is put through a rigorous test to ensure its potential use will meet our Firm’s high standard.
We’ve witnessed new events take place in the U.S. and around the world during the first half of this year: Supreme Court rulings, a terrible earthquake in Nepal, and others. In addition, familiar themes from previous years have reemerged: most notably Greece and the Eurozone. These events have had varying impact on global equity markets. They remind us that unpredictability across markets remains the one true constant. Given all this, we see investors with the courage to follow a disciplined investment approach being rewarded.
We stood alongside each of you last year, as our diversified approach didn’t keep pace with the U.S. market rally that occurred in December. Like many of you, we were a bit disappointed but understood that an uptick in one sector doesn’t mean we abandon our principles. Experience tells us that those who fight the urge to rotate investments and chase returns will ultimately come out ahead. When it comes to investing, patience is undoubtedly a virtue.
In 6 short months we’ve seen markets regress toward the mean. The S&P 500 was flat through the first 2 quarters of this year. Depending on your specific asset allocation, the portfolios we manage are up anywhere from 0.55% – 2.61%. Of all things, the international sector is up 8.90%! Who could have possibly known the international markets would thrive through the first half of this year given all the uncertainty surrounding Greece? Please know we’re closely following the issues as they unfold in Greece and the Eurozone. However, we believe making any sort of financial or investment decision based on a news event is not in your best interest. Despite its attraction on CNBC, event-based-investing does not lead to long-term success. After all, Greece’s economy is about the size of Metropolitan Miami!
It’s difficult to say where markets will go from here. Will 2015 be a year to remember or forget? We take comfort in understanding the answer to that question is anyone’s guess. We know markets process information in a rapidly efficient manner. This allows us to focus on those things we as investors can control: Global Diversification, broad ownership of Small companies, and minimizing fees where possible.
Thank you for your ongoing support. We wish you and your families a safe & healthy summer. As always, please don’t hesitate to reach out to us with any questions.
The shooting incident in Chattanooga, TN yesterday serves as an unfortunate reminder of how precious our time together can be. We would like to send out our thoughts and prayers to the families impacted by this horrific event.
Jeffrey A. Hahn Thomas R. Wiseman, II
Managing Director/CCO President
I hope each of you are having a wonderful start to 2015. It appears many of us in Virginia have a bit more winter on the horizon. We can only hope that much like the financial media, the predictions of the weather media miss the mark.
Our investment team recently had the opportunity to participate in a conference call hosted by Dr. Marlena Lee, Dimensional Fund Advisors (DFA) V.P. of Research. The objective was to identify potential value from an investment strategy many of you may be hearing about: Smart Beta. We felt this strategy deserved some attention as it becomes increasingly prevalent in the investment community. To summarize, Smart Beta strategies weigh securities by “fundamental factors in an attempt to outperform capitalization-weighted indices” (Lee, 2015). These fundamental factors may include: book equity, sales, cash flows, total assets, dividends, etc. Please click here for a review of Capitalization-Weighted Indexing and here for a Bloomberg summary on Smart Beta. Smart Beta is often associated with providing two value adds:
Reduced risk without sacrificing expected return
- Increased returns by selecting stocks based on perceived mispricing
As a refresher, four factors do a remarkable job of explaining expected returns and are the foundation of our investment strategy. These return dimensions are represented in the following graph:
Dr. Lee evaluated several Smart Beta strategies and routinely found that any perceived advantages of Smart Beta are the result of the strategy unintentionally targeting the dimensions of expected returns as described above. As an example, a dividend focused Smart Beta strategy may have outperformed because it accidentally targeted more “Value” companies, not because it actually held better dividend paying stocks. Smart Beta is yet another reminder that correlation is not causation.
It’s worth noting that some Smart Beta strategies, e.g. Momentum, produced higher expected returns in computer simulations. However, these models required large, and probably costly, trading techniques. “A strategy designed to outperform the market is only profitable if it can do so after costs” (Lee, 2015).
Smart Beta has built momentum among investors in recent years. The finance industry does a wonderful job of coining terms to attract new investors while simultaneously communicating the message of differentiation and value. However, it’s our opinion that Smart Beta does not add significant value to our investors once properly evaluated. Further, any advantages found in modeling specific strategies are usually discounted when taking into consideration the sizeable trading and tax cost required to support the strategy. We will continue to focus on the various factors influencing return premiums while managing the cost of the investment process.
We would like to make available a detailed summary of this analysis completed by Akhtar Khan in our office. Please don’t hesitate to reach out to Akhtar or myself for a copy. We would be more than happy to provide it.
Stay warm and we wish all of you the best!
Jeffrey A. Hahn
Who is Gene Fama?
You may have seen the news last week that Eugene “Gene” Fama was awarded the Nobel Prize in Economic Sciences. You might be asking yourself, “Who is Eugene Fama?”
The 74 year-old Fama, considered the “father of modern finance”, is a professor at the University of Chicago’s Booth School of Business. Unlike other Nobel Prizes, the Economic Sciences prize tends to highlight the work of those who aren’t often seen in the headlines – until they win a Nobel Prize that is.
Many in the financial community know Fama’s work, and it is the foundation for much of the work we do at Wiseman and Associates. For Fama, it is all about research and empirical evidence, not the headlines. Years ago, Fama demonstrated in layman’s terms that capitalism works, the capital markets are efficient, and that no one person knows any more about a stock than the next person. As Fama would say, “It’s priced in!” It’s quite difficult, if not impossible, to know which is a good stock or a bad stock. We just know that we want to own them all!
Fama’s research led to the development of stock index funds, which eventually lead to ETF’s. He has proven that it is highly unlikely that anyone can pick fund managers who will beat the market this year, let alone year in and year out. This research, and the passively managed, globally diversified, low cost portfolios that it led to has made a world of difference to the average investor. To our firm it is the foundation of our wealth management philosophy.
After 25 years in the investment management business, I have learned that whatever the headlines, Fama would tell you “it’s priced in” and you should own not just the US market, but the whole global market. If that is the foundation of your investment philosophy, as it is ours, you will find that you are no longer challenged by the latest “financial news” and you wont let it distract you from making smart financial decisions.
I hope you and your family are getting ready for the upcoming holiday season. As always, if we may be of service in any way in helping you reach your financial goals, please reach out to me or one of our team members!
For more on “Who is Gene Fama” See the video below!
Click here to view the 3-minute video
Our best to you and your family!
Wiseman & Associates Wealth Management
Thomas R. Wiseman, II
February 17, 2014
It’s hard to believe February is almost over. We’re sure our clients in Virginia share our anticipation for leaving this winter behind as we crawl toward spring. The past year brought many positive changes to Wiseman Wealth Management and allowed us to reorganize our business to focus on what we consider our core strengths: Client Service, Wealth Management, Comprehensive Financial Planning, Wealth Transfer and Life Insurance. We would like to take this opportunity to outline a few things happening behind the scenes to help solidify these commitments.
- Accessibility – Email & office phone call connectivity with each WWM team member’s mobile device.
- Social Media – Sharing of financial & industry relevant material. We encourage you to follow and “Like” these pages at Facebook.com/Wisemanandassociates and @Wisemanwealth on Twitter.
- Wealth Management Efficiencies – Improved account rebalancing in July of 2013 to help eliminate trade fees. These enhancements produced over $15,000 in trade fee savings last year: Fees matter!
- Financial Planning - In September we began working feverishly to implement an industry leading financial planning tool: eMoney. This gives us the power to know exactly where you stand on your financial path at a moment’s notice. We continue to expand this program and will explain its application in the coming months.
- Wiseman Wealth Registered Investment Advisor - The growth we’ve enjoyed the last few years now allows us to begin establishing a separate, State Registered Investment Advisory entity. While our day-to-day business will not change, it will create further opportunities for us to service your needs.
I recently noticed a headline in a section of the Wall Street Journal titled “Flight to Safety Hasn’t Left the Gate”. The article discusses increased concern over the stability of emerging markets and their influence on the global economy. One expert forecasts a “stiff correction of 10% to 20% sometime in 2014”. To the left of this article, on the same page, another piece touts Ben Bernanke’s tenure at the Fed. In summary, he leaves behind an enormous task for his successor, Janet Yellen, but has placed the U.S. Economy on a bright and prosperous trajectory.
Who is correct? Which markets will decline and which will prosper? When will all this movement take place? Despite the divergence of these opinions, in our eyes, the answer is clear.
Many of you have heard us say that investing is “a math problem”. The attached article from Barron’s outlines the approach that our partner, Dimensional Fund Advisors (DFA), takes to solve this math problem. Briefly, their approach is to pursue higher expected returns through advanced portfolio design, management, and trading. All of this built around decades of research with the help of Nobel Prize laureates. Of the 315,000 registered financial advisers in the USA, only 1,900 offer the DFA Investment Products. We are proud to be among this select group, with the ability to offer access to the DFA approach and philosophy to our clients.
With all the positive changes happening at Wiseman Wealth in 2013-14, we remain committed now more than ever to our investment philosophy. We understand, along with you, that the science of capital markets directly influences our approach and the wealth you’ve entrusted to us. We acknowledge there are many different strategies to investing. However, we garner more conviction with each passing year in the story we tell.
We hope you find the attached article to be of interest. We thank you for placing your trust in us. From our families and our team in Middleburg and Winchester, we wish the best to you and your families. We look forward to working with you in 2014!
Wiseman Wealth Management
Thomas R. Wiseman, II Jeffrey A. Hahn
President Managing Director
June 3, 2013
As the first half of 2013 comes to a close, we as a country have been through a lot. From the attack at the Boston Marathon, to the horrific fertilizer explosion in West, Texas, or through the unleashing of Mother Nature’s wrath by the tornados in Oklahoma; it has been a long six months. We have all been united in grief and prayer for those in need whether or not we have been personally touched by these tragedies. I am sure you will join me in praying for a second half of the year that is a bit more reserved.
Turning to the financial markets, the S&P 500 Index is up over 15% through May 31st! The three-year average of the index is up just over 12% as I write this. However, if we dig a bit further back into the five-year return to include the infamous year of 2008, our favorite index’s return drops to a respectable but much lower annualized return of just 5.81%. This reminds us that what can go up can also go down. We are starting to hear the pundits say that maybe this market is overblown, or the bubble is upon us again. Just this past Friday, I had a prospective client in the morning tell me he had been on the sidelines for the last couple of years because he wasn’t comfortable with where the markets were going but is looking to get back in the game. Later that afternoon, I had a conversation with a friend who was convinced that with all the turmoil it was time to get out. A complete 180⁰ from my morning meeting!
Those of you who know me are well aware that I stand by the conviction that the globally diversified, passively managed portfolios we employ are the best way to obtain the returns we all seek. In addition, we continue to focus on ways to reduce risk, reduce risk, and reduce risk! After all, our job for most of you is to keep the money that you entrust us with, not to take unwarranted risks trying to hit the ball out of the park.
Thus, our approach is not to tinker with portfolios, time the market, or allow the pundits to sway our resolve. Our job is to keep your money, and to keep you invested appropriately for your risk tolerance. We take this job very seriously and appreciate the trust and confidence you have shown us over the years.
The attached article by Jim Parker applies a bit of Chinese “Taoist” philosophy to our passive investment management strategy. In short, Jim says the same thing that Benjamin Graham and Warren Buffet have preached for years, get invested in a diversified way and leave it alone….
Our best to you and your families for a great summer and a fantastic second half of the year!
Wiseman and Associates Wealth Management
Thomas R. Wiseman, II
27 West Boscawen Street, Winchester VA 226014 West Washington Street, P.O. Box 2264, Middleburg VA 20118 540-974-2039 www.wisemanandassociates.com Securities offered through LPL Financial, member FINRA/SIPC