Reasons To Sell

"If a picture paints a thousand words...." –Bread (song from 1971)


It’s true. Oftentimes a graphic illustration conveys a stronger message than words. If you have any doubts, check out this chart of reasons to sell going back to market lows in March 2009 right up to the present.Reasons To Sell

Think there were enough reasons to want to sell during this timeframe? The market truly does climb a wall of worry. In spite of all these reasons to sell, notice the up trending slope of the line. In fact, the S&P 500 was up 495% from the March 2009 lows.

There’s always some type of crisis going on and reasons not to invest. This has not worked out well for investors who succumbed to this fear.

2020 ADV 2

"Financial Industry Regulatory Authority (FINRA)"


As part of my fiduciary duty to you, I am required to supply you with a copy of my annual ADV 2 that I submit to the Financial Industry Regulatory Authority (FINRA). In this download you will find my filing for 2020. There are no material changes from the prior year.ADV_2020.pdf

Do You Believe In Fairy Tales?

"The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are." –Kenneth French


Have you ever fascinated about getting tomorrow’s newspaper today? Imagine knowing tomorrow’s news and all the money you could make in the stock market with that info.

Ok, then let me present you with the following facts at the beginning of this year....a highly infectious and deadly virus that cannot be contained will spread around the world in a few months. This virus will infect millions of people and kill hundreds of thousands of people. This virus would essentially close down global economies for months. People will be asked to stay at home. Entire segments of the economy come to a full stop. Forty million Americans file for unemployment benefits. Congress passes a $2 trillion stimulus bill to try and keep the economy on life support.

Remember, you know all this info before it happens. How much do you think the market is going to go down? Most people would probably say at least 50%, maybe even has high as 75% down. Now is your time to cash in big time on the info that only you know.

Well, before you get too greedy, the market had different ideas. Year to date, the S&P 500 is essentially flat. It’s up 43% from its lows at the end of March. As of last Friday, it’s only 5.1% off all-time highs. Small caps and international stocks haven’t faired quite as well but they are also well off their lows for the year.

So even with perfect knowledge of what was going to happen in this crazy year, no one would have predicted what we are seeing now in the stock market. If this doesn’t prove that market timing doesn’t work and is a losing proposition then I guess you can continue to believe in fairy tales.

Costly Negative Emotions

"I want to talk about the brain’s basic design and how it can lead to some really bad investing decisions." –Paul Winkler


Paul is an interesting character and a friend of mine. Check out his short video where he shows how negative emotions can rob the rational thought part of the brain of vital blood and oxygen. These negative emotions can cause us to loose up to 15 IQ points temporarily. That’s a lot of IQ points for most of us with average intelligence.Here's What You Might Expect from a Market Recovery

To help combat these negative emotions, we use investment policy statements(IPS) with all investors. These set guidelines and standards for prudent investment management.

Fear Itself

"Let me assert my firm belief that the only thing we have to fear is....fear itself – nameless, unreasoning, unjustified terror, which paralyzes needed efforts to convert retreat into advance." –Franklin D. Roosevelt


Wise words that certainly pertain to these strange times. Instead of bringing us together, this current crisis seems to have widened the red-blue state divide. It’s hard to know what the truth is. This uncertainty is a cause of a lot of our fear. Fear is paralyzing and never the foundation for a way out of any crisis.

Zachary Karabell had a good article in Newsweek,No Matter How Dire The Coronovirus Threat, Fear Is Not The Way Out.   I think you’ll enjoy it.

Roosevelt’s wise words helped people get through the Great Depression by giving them a sense that the future would hold better things. The same applies today. We will get through this crisis and the future will hold better things.

Have Hope

"I do have a lot of hope. That hope is based on what I see around the world." –David Booth, founder of Dimensional Fund Advisors


David Booth is one of the wisest people in the investment industry. He’s someone I take very seriously. Check out this short clip of his titled,Righting the Ship  for a good positive perspective to what’s currently going on.

I have a lot of hope also. My hope is based on the resilience of the American people and the free markets. Hey, these are the cards we have been dealt and this is the way it’s going to be. People and businesses are finding ways to move on. Everyone is adapting and finding new ways of doing things. I don’t know how this new normal is going to look. I do know that we always come back bigger, better and stronger than ever.

Asymmetrical Bet

"Owning stocks is an asymmetrical bet." –Jonathan Clements


I have been a long term follower of Clements. I have always found him to be direct and spot on. But, what the heck is he talking about here?

Asymmetrical is the opposite of symmetrical. It means unequal or unbalanced. Find out why this is a good thing when investing in stocks in Clements recent articlePlaying The Odds

When investing long term in the global markets the asymmetrical bet has always been the winner.

I love his simple formula for being on the right side of this asymmetrical bet....Buy stocks. Diversify broadly. Wait patiently.

Scientifically Engineered

"I knew there was this body of work where we actually knew something about financial markets and it was scientifically testable and scientifically demonstrated... (DFA) took all that and put it to work in real life day to day portfolios." –Jed Fogdall, Dimensional Fund Advisors


Check out this short video where Jed Fogdall talks about his transition from satellite engineering to portfolio management at Dimensional Fund Advisors.Building Satellites and Designing Portfolios

He was drawn to DFA for the same reasons I was. When I first learned of how their portfolios are scientifically engineered and backed by empirically tested research, I knew it would change the way I invested forever....and it did.

Most investors live in the unscientific world of stock picking, market timing and track record investing. I prefer to live in the scientific world of the efficient market hypothesis, modern portfolio theory and the five factor model. These are scientific models that have proven to work in the real world of investing. In fact, Eugene Fama and Harry Markowitz have even been awarded Nobel Prizes in Economics for showing investors how to invest and how markets really work using these models.

Keep in mind that your portfolios are scientifically designed. Even when things are uncomfortable or feel bad, we don’t throw away the science of investing. We try to find the best mix of assets that you can live with if markets go up or down.

I would much rather have the science of investing on my side than gambling and speculating on what I think might happen.

Matson on Fox Biz

"Investors have to stay long-term focused.....focus on the next 20 years not next 20 minutes. Do not panic in these volatile markets." –Mark Matson, CEO Matson Money


Our friend Mark Matson continues to spread the truth about investing and how the markets really works. Check out his appearance last week on Fox Business and see what he thinks.What It Will Take To See Us Out of This Crisis

Hope everyone is doing well. There is definitely light at the end of the tunnel. We will get through this.

Facts Not Opinions

"Sudden market downturns can be unsettling. But, historically, U.S equity returns following sharp downturns have, on average, been positive." –Dimensional Fund Advisors recent research paper


Everybody seems to have an opinion on how we’re going to come out of the coronavirus pandemic. What type of recovery are we going to have? Truth be told, nobody knows. It’s all speculation.

What we do know is how markets have done after other big market declines. DFA has put together a great one page chart (attached above) showing average 1yr, 3yr and 5yr returns after 10%,20% and 30% declines going all the way back to 1926. Pretty promising looking data.

Nice to see some data based on actual facts and not someone’s opinion of what they think might happen. One thing we know for sure....historically, the market has recovered 100% of the time after every downturn.

The Market Is Smarter Than You

"The real lesson of the recent action is that sometimes the stock market sees something that eludes the rest of us." –Michael Hiltzik


The stock market had a significant rally last Friday on awful unemployment news. Covid-19 forced 6.3 million workers to file unemployment claims last week. The virus has wiped out 17 million jobs in the U.S. over the last three weeks. So what gives?

The answer lies in understanding how markets really work.

The markets don’t care what you think or what you feel. The markets are emotionless. They are essentially giant information processing machines. They factor in all known and knowable information to come up with efficient security prices.

The markets are forward looking. The markets have already factored in what has happened and what is currently happening.

The markets don’t like uncertainty. In this regard, they are very much like the rest of us. It’s hard enough to process all information to come up with efficient pricing and uncertainty makes this even harder. In our current situation, the biggest uncertainty is how long will this pandemic last. This uncertainty is the major reason for the huge market swings we’ve experienced over the last month.

Now back to last Friday. The market was already anticipating bad unemployment numbers. It was already baked into current pricing. It confirmed what the market was anticipating. Things are bad. In a weird way, this removed a level of uncertainty. With Congress and the Federal Reserve all in to get us through this crisis, the market took the unemployment numbers as a positive that more aggressive stimulus will be coming if necessary.

The stock market in aggregate is smarter than any individual investor. The market incorporates the wisdom of all market participates. It sees and anticipates things that investors on their own can’t. That’s why it is virtually impossible to outperform the market on any consistent basis.

Michael Hiltzik had a good column in the L.A. Times last week, that I think you will enjoy,Why Did The Stock Market Rally On Awful Unemployment News


"No matter how dark it gets, there’s always good news in the world." –John Krasinski


There sure is good news in the world, John. In times like this though that can be easy to forget. Krasinski has done a great thing by starting a You Tube channel called Some Good News (SGN). The whole idea is to share some good news from all around the world. I found it to be just what the doctor ordered. Hope you enjoy it as well. Make sure you check out the nice surprise at the end.Zoom Surprise: Some Good News with John Krasinski Ep. 2

Hope everyone is staying safe and following the prescribed protocols. Nobody likes it but these measures will help us get to the other side of this pandemic quicker. Better days are coming. We will beat this thing.

What's a Pangolin?

"Worry is like a rocking chair: It gives you something to do but never gets you anywhere." –Erma Bombeck


We are certainly living through very challenging times. The news on the coronavirus continues to get worse and has drastically effected how we work and live.

The news on the coronavirus continues to get worse each day. Seems like the market has most of this bad news already priced in. Nice to see a bounce back last week even with giving quite a bit back on Friday. I thought the President’s announcement yesterday to keep us in shut down mode for at least another month and possibly longer would have a negative effect on the market today. Not the case so far as market is hanging tough.

Check out this video I came across over the weekend. It does an excellent job of explaining the origin and evolution of Covid-19:How wildlife trade is linked to coronavirus

What’s a pangolin? They’re also called scaly anteaters. That’s all I needed to know. Here’s the Wikipedia page if you want more detail:Pangolins, or scaly anteaters

Lastly, here’s some info put out by Harvard University on managing fears and anxiety around the coronavirus:Managing Fears and Anxiety around the Coronavirus (COVID-19)

Stay safe during these very strange and trying times. I'm here for you. We will get through this and get to the other side.

Stay In Your Seat

"The four most dangerous words in investing are...It’s different this time." –John Templeton


We are certainly living through very challenging times. The news on the coronavirus continues to get worse and has drastically effected how we work and live.

We’ve been through tough times before....the global financial crisis of 2008-2009, the tech boom bust of the early 2000’s and the tough bear market of 1973-1974.

All these crises have the same feel....panic, fear, anxiety and worry. Tough time for investors who get the feeling that “things might be different this time”. The cause is always different but the outcome is always the same. Markets always recover....100% of the time. Capitalism will find a way out of this mess.

Nobody knows how long it will take to control this coronavirus and for the markets to recover. Historically, the harder markets fall, the quicker and more robustly they recover.

The biggest mistake the average investor makes is getting out after severe market corrections. They sit on the sidelines and wait for things to get better before they get back in. This sounds comforting on an emotional level. Problem is it just doesn’t work in the real world of investing. The markets are always forward looking and by the time investors consider the coast is clear to get back in they have permanently missed that quick 20-25% upward move. Remember March 9, 2009. It seemed like the financial world might really be coming to an end. Just when things were at their bleakest, the markets took off and never looked back for over 10 years. Many investors never got back in.

Check out this short video from DFA on the perils of market timing:Missing the Market’s Best Days

The chart below shows equity returns after past sharp market downturns

I’ve also included an attachment that shows equity returns after past sharp market downturns.

Hope this helps to ease some of the anxiety and keep you in your seats to reap the rewards when we get on the other side of this.

Coronavirus Fears Continue

"The investor who is prudent and long-term wins out over investors who market time and panic when times are bad." –Mark Matson


It's only natural to be nervous about the markets. It’s our human instincts kicking in. These instincts have served us well in keeping us alive but can be our worst enemy when it comes to investing. Feel free to turn off the news media, they are feeding on those instincts for ratings. They don't care about your emotional and financial well-being. I will always contact you if there is anything you need to do.

This is the time to stay calm and stay disciplined. Our rigorous rebalancing will pay dividends when the market turns....and it will.

It's never the right time to panic.

In an effort to keep everything in perspective, check out this short video Mark Matson put together calledThe Coronavirus and Your Portfolio.

Stay safe during these very strange and trying times. I'm here for you. We will get through this and get to the other side.

Coronavirus and the Markets

"When markets come back, you better be there." –Paul Winkler


Wow! What strange times we live in. Colleges and universities sending students home to finish classes online, NCAA basketball tournament to be played in empty arena’s, NBA suspends the season indefinitely, American workers working from home etc, etc. It looks and feels like the zombie apocalypse is upon us.

I want to share with you a video that a buddy of mine, Paul Winkler, put together called Coronavirus and the Markets. It’s a very good look at market history and how the markets have reacted when bad stuff happens ....and God knows we’ve been through a lot of bad stuff over the last century.The Race To Develop A Coronavirus Vaccine

Paul poses an interesting many downturns have we recovered from? All of them.

Not easy stuff to go through but everyday we are getting closer to the end. The ability to remain calm while others are panicking is one of the keys to being a successful investor.

Remember for our part we are aggressively rebalancing accounts. Most of this is being done at the fund level so you don’t see this activity in your account. This is one of the tax advantages of using the fund of funds structure. By rebalancing we are keeping you risk levels at the appropriate levels. It also has the benefit of forcing us to sell what’s doing better (bonds) and buying what’s down (equities). In essence selling high and buying low. This will gives us the biggest bang for the buck when the markets do recover.

As Paul says at the end of his video....this too shall pass.

This Too Will Pass

"Extreme percentage swings are to be expected; they’ve always been part of being a long-term investor and achieving the significant gains that stocks have offered." –Eric Nelson


This too will pass. Going through extreme market volatility is never an easy thing. Check out this very well researched article by Nelson where he shows thatExtreme Stock Swings Are To Be Expected.

Keep in mind that this virus is happening with the backdrop of a very strong economy which should eventually lead to a faster recovery of any damage being caused by COVID-19. Capitalism has remarkable recuperative powers.

Matson on Coronavirus

"It’s never the right time to panic." –Mark Matson


The coronavirus continues to wreak havoc in the financial markets. Check out our friend, Mark Matson, in his recent appearance on Fox Business where he adds some perspective on this crisis.Focus On The Next 5-10 Years… And Not The Next 5-10 Days.

The global markets throughout history have faced wars,natural disasters, inflation, deflation, financial crisis etc. They have also had to deal with other deadly epidemics that had no cure at the time. Here’s a chart that I sent out in a previous e-mail that shows how the global markets performed during those times.

It’s only human to feel some level of stress with what’s going on. It certainly a human tragedy of vast proportions. The financial markets are resilient. If history is any type of guide, the markets will get through this and continue to reward investors with generous long term returns.

Buffett on Coronavirus

"Has the 10-year or 20-year outlook for American business changed in the last 24 to 48 hours?" –Warren Buffett


This is what Buffett had to say on CNBC yesterday about the Coronavirus spooking the global markets. Buffett is arguably considered the greatest value investor ever and certainly someone worth listening too.Warren Buffett says ‘don’t buy or sell’ on the headlines as coronavirus puts stocks under pressure

Remember, our portfolios are built to weather the storm. We don’t buy and sell based on today’s headlines.

Clements Wisdom

"Here are ten money lessons I wish I’d heard or listened to when I was younger." –Jonathan Clements


I’ve been following and reading Clements for many years. For my money, he’s one of the best financial journalists out there. He’s been studying and writing about finance for over 30 years. In this brief article, he shares 10 things he wished he knew when he was in his 20’s.Opinion: 10 money lessons I wish I’d heard — or listened to — when I was younger

Check Out These Charts

"There is no substitute for free-market capitalism as a promoter of human prosperity." –Andy Puzder


If you have any doubt about the above quote, you’ve got to check out the video that Puzder did for Prager U.The Market Will Set You Free

The charts in this video are truly amazing and could even make a hard line left wing socialist stand up and take notice.

In particular, check out the graph that Jonathan Haidt of NYU calls the most important graph in the world. This from a left wing professor and a school known as a bastion of far left wing thought. You just can’t argue with the facts.

This is also why we invest in global capitalism by investing in 45 countries around the world that have free-market economies.


"....gauged by the market’s performance during the onset of other infectious diseases...investors may have little to fear that this disease will sicken a U.S. stock market." –Mark Decambre, Marketwatch’s markets editor


Volatility has returned to the global markets with a vengeance as the spread of the coronavirus has brought China to a standstill.

Decambre wrote a good article showing how the market performed during past viral outbreaks such as AIDS, SARS, Ebola, Swine Flu etcHow the stock market has performed during past viral outbreaks, as coronavirus infects 7,700

Nobody knows how this will all eventually play out but it’s good to see how historically the markets reaction to epidemic outbreaks of quickly spreading diseases is short-lived.

Get Outside

"How long does it take to get a dose of nature high enough to make people say they feel healthy and have a strong sense of well-being?" –Jim Robbins


We all tend to feel better when we get outside and spend some time in nature. Thanks to some recent research in a study of 20,000 people, we now know how much time is enough to get the maximum health benefits. The answer is 120 minutes. The research showed that there was no benefit if the minimum threshold was not met.

Check out the article, How Immersing Yourself In Nature Benefits Your Health, that Jim Robbins wrote for Yale Environment 360.

Pretty interesting stuff. Also, a pretty doable goal for most people since you can get the 120 minutes over the course of a week. That’s less than 20 minutes a day.

Let’s stop worrying about the market and get outside to experience these health benefits.

World's Wealth

"It is not the man who has too little, but the man who craves more that is poor." –Seneca


Check out this interesting visual of total wealth by country. Sometimes a picture is worth a thousand words.
What sticks out to me is:

1) U.S controls almost 30% of world’s wealth.

2) Taken together the countries of Asia control 39% of world’s total wealth.

3) Poverty of underdeveloped countries is obvious. Africa and Latin America only control 1.14% and 2.75%, respectively.

The Secure Act

"The Secure Act delivers major wins for American savers." –statement from The Investment Company Institute


The Setting Every Community Up For Retirement Enhancement Act (SECURE) was passed into law on 12/20/2019. It's the biggest retirement bill passed in over a decade.

Here's a summary of a few of the key points of interest:

1) The Act pushed the RMD age to 72 from 70.5. RMD is the minimum age you have to start taking money out of your retirement accounts.

2) You can continue to make IRA contributions, no matter your age. Under the old rules you couldn't make contributions if 70.5 of older.

3) Under old law, Inherited IRA's allowed non spouse beneficiaries to withdraw money out over their life expectancy. This goes away with the SECURE Act.

4) A couple of new provisions that aren't getting much press are

a) Penalty free withdrawals from 401K's and IRA's for costs of adoption or having a child. (up to $5,000 per person. Looks like a husband and wife could each do $5,000)

b) can use $10,000 from 529 plans to make student loan payments.

Here's a summary from TD Ameritrade with a little more detail.Retirement Changes Coming, Courtesy of the SECURE Act: 5 Things You Should Know

Silly Season Is Upon Us

"Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future." –Warren Buffett


Silly season is upon us. That time of year when Wall Street forecasters, who are paid boatloads of money, come up with their predictions for the year.

There's one major problem, though, with these predictions. Their track record is abysmal. There's virtually no correlation between these predictions and how the markets actually behave.

Check out this recent article in the NYT,Forget Stock Market Forecasts. They’re Less Than Worthless.

Nice to see our buddy, David Booth, referenced and quoted in the article.

Booth's message remains constant. Invest in low-cost diversified index funds. Find the stock-bond mix you're comfortable with. If not, change it until you are then stick with it for years. No forecasts necessary.

The last piece of Booth's advice is probably the most important - spend your life on better things than worrying where the market is going.

Merry Christmas

"In a world that feels so divided, Christmas still unites us." –William Federer, author of There Really Is a Santa Claus


Do you know why we have lights on our Christmas trees? Or where the idea of hanging Christmas stockings came from?

I didn't either until I checked out the video. Check it out and I hope you enjoy it.The Amazing History of Christmas

Wishing you a very Merry Christmas with family and friends.

Speaking Words of Wisdom

"If you’re living in fear of the next market downturn, consider shifting your thinking instead of your investments." –David Booth, founder of Dimensional Fund Advisors


Are you living in fear of a market downturn? Check out Booth’s recent essay in Worth on why you should change the way you think about investing.
David Booth Essay Featured in Worth

This short two page essay has more wisdom than practically all the investment books I have read. By embracing the efficient market hypothesis, we know that speculation and stock picking are a waste of time. Controlling what you can control backed up with portfolios fueled by science not speculation is the way to worry less about things you can’t control and truly have peace over your investments.

This is really the whole reason I started Verity Capital Management in the first place...... to help people understand how the markets really work so they can embrace the power of the markets and have peace of mind over their investments.

Thank You Free Markets

"The world is not getting worse; it is getting indisputably better for most countries and most people." –Arthur Brooks


Yes, contrary to popular belief and all the negative news we are bombarded with on a daily basis, the world is indeed getting better.

Check out Brooks’ recent article in the Washington Post for something to be thankful for this holiday season:
The world is doing much better than the bad news makes us think

Free market capitalism is the main contributing factor. As Brooks points out.....”billions of our brother and sisters are freer, healthier and more prosperous than they would ever have been in human history”. Thank you free markets.

You Don't Have To Beat It

"If beating the market is a game that we’re extraordinarily unlikely to win, why do so many folks keep trying?" –Jonathan Clements


I ask that same question everyday too, Mr. Clements. The evidence is overwhelming that trying to beat the market is a losers game. Some money managers will get lucky here and there but it’s been proven that it’s not a repeatable skill.

Check out what Clements has to say about this on his latest blog:Bullheaded

The best news for investors (and one you won’t hear from Wall Street) is that you don’t have to worry about beating the market. Smart investors use highly diversified portfolios at appropriate risk levels to capture the generous returns the global markets have historically provided.

Happy Thanksgiving

"Reflect upon your present blessings- of which every man has many- not on your past misfortunes, of which all men have some." –Charles Dickens


We certainly all have a lot to be thankful for. Life can also drag us down the rabbit hole of ingratitude in so many ways. A grateful heart seems to be the best defense against this. With gratitude, abundance can appear and turn everyday into “thanksgiving”.

Here is a nice blog from our friends at Efficient advisors on:The Benefits Of Being Thankful In All Circumstances

Where are the market timing billionares?

"I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it." –Peter Lynch


So true, Peter. So true. Check out this chart from Dimensional Fund Advisors that shows the real cost to investors when they fail at market timing.What Happens When You Fail at Market Timing

As the chart shows, the cost of missing just a few of the markets best days can be catastrophic for investors.

Father of Modern Finance

"In an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value." –Eugene Fama


If I had to pick one person who has the the biggest impact on my investment philosophy and how we construct portfolios here at Verity Capital, it would be undoubtedly Eugene Fama. His groundbreaking academic research that has proven to work so well in the real world of investing has earned him the title of the Father of Modern Finance. His body of work also earned him the 2013 Nobel Prize in Economics.

He recently gave a rare interview at the University of Chicago where he has been an esteemed finance professor for the last five decades. The interview is about an hour long. Definitely worth the time if you’re so inclined. If not, here’s a good article that summarizes 14 things learned from the interview. There’s a link to the whole interview in the article.14 THINGS WE LEARNED FROM GENE FAMA’S LATEST INTERVIEW

A lot of good information in this article. Check out the graph on bear markets and subsequent recoveries. In the last 49 years there have been 8 bear markets ( 20% or more declines). In all but two of these, markets rebounded and reached new highs within 2 years. The other 2 periods took just over 3 years.

Yes, unfortunately, the reality of investing is that we are going to experience bear markets in our investing lives. Giving them some historical context shows that they will pass. The key is to have portfolios that that match your personal risk level tolerance. Our portfolios are built to weather the storms and capture that upside which normally happens very quickly when coming out of a bear market.

The Scariest Part Of Investing

"...time to discuss the part of investing that people are often most afraid of- losing money." –Eric D Nelson, CFA


It’s a fact of life that in order to have a successful investment experience, you’ve have to take some risk. In the investment world risk does equal reward. Without risk, investors would not achieve the generous equity premium that stocks have historically generated. Without risk, investors would get risk free treasury bill type returns that wouldn’t even keep up with inflation. A sure way to go broke slowly.

Check out Nelson’s recent blog where he discusses investment risk and how to handle it.The Scariest Part Of Investing

A lot of good information in this article. Check out the graph on bear markets and subsequent recoveries. In the last 49 years there have been 8 bear markets ( 20% or more declines). In all but two of these, markets rebounded and reached new highs within 2 years. The other 2 periods took just over 3 years.

Yes, unfortunately, the reality of investing is that we are going to experience bear markets in our investing lives. Giving them some historical context shows that they will pass. The key is to have portfolios that that match your personal risk level tolerance. Our portfolios are built to weather the storms and capture that upside which normally happens very quickly when coming out of a bear market.

Put the Odds In Your Favor

"Some of the weakest periods for value when compared to growth stocks have been followed by some of the strongest" –Recent DFA research paper


Some might call this reversion to the mean. It’s certainly no secret that growth stocks have outperformed value stocks over the last decade. Many financial pundits have claimed that value investing is dead. Not so fast says DFA in this insightful article:The Real Reason Value Has Been Lagging Growth

Seems like growth stocks have been the outlier over this period and value stocks have performed in line with their historical averages.

Our portfolios are constructed in accordance with the rigorous academic research that DFA has developed and proven that works in the financial markets. These portfolios give us the best statistical edge by putting the probabilities in our favor.

The DFA research has shown that historically the value premium over growth is about 2% annually in the US and emerging markets and 4.85% in the developed international markets. This premium doesn’t always occur as we’ve seen over the last several years. However, it has occurred historically in the vast majority of times. In the US markets, this value premium shows up 67% over 1 year periods and 83% of the time over 10 year periods. In developed international markets, it’s 68% in 1 year and 98% over 10 year periods. In emerging markets the value premium shows up 49% of the time in 1 year periods and 82% in 10 year periods.

I’d much rather rely on DFA’s exquisite research than on somebody’s opinion on what they think is going to happen. There’s always going to be outliers. That’s why it’s called a risk premium. We’re constructing portfolios that give investors the best chance of having a successful investing experience.

Thinking Outside The Box

"Looking at wealth in terms of time rather than dollars can be a powerful tool for financial security." –Alan Roth


Check out Alan Roth’s article he wrote for AARP last week. He replaces some unwise conventional wisdom with 4 new rules to help you take control of your financial future.Take Control of Your Financial Future With These 4 New Rules

I especially like new rule # 1. Rather than get fixated on a certain dollar amount for retirement, the important thing to look at is how many years of freedom that pile of money represents.

Some good thinking outside the box in this article.

Myth Buster

"Once again – active fund managers are no better in bear markets than in bull runs." –John Stepek


There’s a myth that’s been perpetuated for as long as I can remember in the investment world....and’s it’s exactly that....a myth. A big old fat myth that simply does not reflect reality.

The myth is that when markets are going up passive index funds are ok but when markets start to fall, then you need active fund managers to protect your investments. After all, active fund managers can take action to protect you. Makes sense but the facts just don’t back this up. Passive index investing has proven to outperform the vast majority of active managers in up, down and sideways markets.

Check out Stepek’s article where he talks about this myth busting truth.Once again – active fund managers are no better in bear markets than in bull runs

Another myth that is commonly held as a truth by many investors is that passive indexing works well with large company stocks in developed countries such as the U.S and Europe. However, in the less efficient small capitalization stock market and emerging markets active managers can identify these inefficiencies and outperform their passive index benchmarks. Again, from a logical view point this makes some sense. Problem is that the facts reveal the complete opposite truth. Passive index investing in small caps and in emerging markets outperforms the vast majority of active managers.

The best part of all this is the fact that passive index investing not only outperforms active management but it’s also a significantly cheaper way to invest.

Overwhelming Evidence

"In recent years, investors have been flocking to low-cost index funds, driven by their long-term record of outperforming higher cost actively managed funds." –Randall Smith, WSJ financial reporter


Yes, you read that correctly. Low cost index funds have outperformed actively managed funds and are also cheaper to own. I’m glad this message is finally starting to gain some serious traction with investors. I’ve been a strong advocate for passive index investing for over 10 years now. The evidence overwhelmingly supports this way of investing.

Guess who’s not fully on board though? Surprise,’s the Wall Street Brokers.

You think this might have something to do with money? You bet!

It’s just a fact that brokers and their firms get paid more in commissions and other compensation with active funds than passive ones.

Check out Smith’s column in the WSJ yesterday, Wall Street Brokers Missed the Index-Fund Memo, for a good read.Wall Street Brokers Missed the Index-Funds Memo -- Journal Report

There Are No Secrets

"Unfortunately, investing isn’t a solved game. There are no true secrets to be learned." –Nick Maggiulli


I’ve been reading Nick’s blog for some time now. He writes some really interesting and insightful stuff. Check out his recent blog where he explains why there are no easy answers in investing.There Are No Secrets

Investing is difficult. There’s no universally accepted one right answer as there is in many areas of medicine. Investing isn’t a solved game.

That’s why it is important to have an investing philosophy that you believe in and can stick with through good and bad. Since there are no guaranteed outcomes, it makes the most sense to have an investing philosophy that puts the odds in your favor.

As Nick points out, the closest thing we have to a solution in investing is to buy and hold a diversified portfolio.

Are You Spoiled?

"We are all spoiled!" –Jeffrey A. Tucker


Guilty as charged! When’s the last time we took one second to be grateful for all the things we have at our disposal that we just take for granted. We just assume that we have a right to all this stuff.

Check out this short article that Tucker wrote for the American Institute for Economic Research to put things in perspective,Face It, We Are All Spoiled

It’s actually a good thing that we are spoiled. No matter how good life gets, we continue to seek an even better life. It’s built into our genes and what makes us human.

What’s the source of all this progress and greatness in our lives? The government? I think not. No, it’s been the global free markets that rewards ingenuity and risk taking that allows all of us to live a spoiled life.

The Next 100% Move

"Invest for the long term. Don’t get too greedy and don’t get too scared." –Shelby M.C. Davis


Great advice Shelby. Like most good advice, it’s simple and straight forward and difficult to follow.

Case in point, there have been 17 separate 5% pullbacks since the market bottomed in 2009.Check out this chart of the S&P 500 from March 2009 to the present.

Check out the headlines that were written during these 17 different pullbacks. Scary! It’s tough to see headlines like these and not think you have to act on them. Each time, out worst fears where not realized and each pullback resolved itself to the upside.

This pattern has repeated itself throughout the history of the markets. We might not know what the next 20% move is going to be. What we do know is what the next 100% move will be.... it’s been and will continue to be on the upside.

Yield Curve Inversion

"We find no evidence that yield curve inversions can help investors avoid poor stock returns." –Gene Fama and Kenneth French research paper, Inverted Yield Curves and Expected Stock Returns, July 28, 2019


Seems like everyone in the financial media is talking about the inverted yield curve. Normally, investors would expect to be rewarded with higher interest rates the longer they go out in maturity. In rare instances this isn’t the case. Currently, the yield on 2 year treasury notes is 1.459% while the yield on 10 year treasuries is 1.456%. The yield curve is inverted by .003%.

Certainly miniscule but why are we talking about this at all? It’s a widely held belief in the active management world that an inverted bond yield curve is a strong signal of an upcoming recession and negative equity returns.

How does this assumption hold up when put under the microscope of rigorous empirical evidence? Well, attached you’ll find the answer in a recent research paper by Gene Fama and Kenneth French.Inverted Yield Curves and Expected Stock Returns

This research paper is pretty dense in content. The Reader’s Digest version is that in monthly observations going back to 1975, they found no evidence that inverted yield curves predict negative equity premiums. In fact, it is there belief that investors who try to increase returns by shifting from stocks to bonds after inversions risk sacrificing the reliability of positive equity returns.

I consider Fama and French to be arguably the smartest people in the investment industry. Their independent research is second to none and often times contrary to popular belief and what the Wall Street machine wants you to believe.

Sorry, No Free Lunch

"If there were no volatility associated with investing, it would be hard to make the argument on why we would expect to earn a higher return." –Jake De Kinder, Dimensional Fund Advisors


It’s easy to get spooked with all the recent volatility in the global stock markets. Unfortunately, there’s no free lunch. Volatility and market declines are part of the investing process. It’s also the reason why stocks have historically had higher returns than other investments.

Listen as Jake talks about the recent market volatility.Dimensional On: Recent Market Volatility

DFA had two recent studies on market volatility. One study showed U.S markets since 1979 had an average intra-year decline of 14%. Despite this, markets were up 33 out of the 40 years. The second study showed the frugality of trying to time the market. Going back to 1990, the market has averaged a 9.29% annual return. If an investor, in an attempt to time the market, missed just the best 25 single days over this period would have earned 4.18% annually.

Reacting emotionally and changing long-term investment strategies based on short-term declines has proven to be more harmful than helpful. The best way to get through these short-term declines is to have an investing philosophy you trust and believe in and have a globally diversified portfolio at a risk level you can handle. Sorry, no free lunch.

There's Always Something

"The stock market climbs a wall of worry." –Old Wall Street proverb


You’ve probably heard this expression before. Climbing the “wall of worry” means the financial markets ability to surmount a host of negative factors and keep going higher. It’s a hard concept for many investors to grasp. It’s also the reason why investors jump in and out of the markets with little success.

Sometimes a picture is worth a thousand words. Check out this graph of the S&P 500 over the 10 years. This is how the market climbs a wall of worry.There's Always Something

There’s always something to worry about. It never seems like a good time to invest. The markets are resilient and find a way through all this “stuff”. Notice the trend of the line of the S&P 500 over the last 10 years. Through all our worries, it keeps ascending to higher levels.

Don’t let the wall of worry scare you out of investing in the capital markets. Investing in global capitalism has proven to be the best wealth creation tool known to man.

He Calls It Fraud

"It’s inherently misleading." –Dan Solin


Solin is talking about survivorship bias. This is the deceptive practice that active mutual fund companies use to hide bad performance. When funds underperform, these companies have been known to shut the losers down or merge them into winning funds. The loser’s bad performance disappears forever and doesn’t reflect negatively on the mutual fund company.

Check out Solin’s video where he shows how this practice is detrimental to active mutual fund investors and why he calls this practice fraud.The Art of Deception

This practice does not exist in the passive index mutual fund world. Another good reason for using them versus actively managed funds.

Fama Speaks

"Generally, you don’t want to be paying a lot of attention to what’s going on in the markets." –Eugene Fama. 2013 Nobel Laureate


If I had to pick one person who has had the most influence on how we structure our portfolios here at Verity Capital, it would be Gene Fama. His groundbreaking research (which lead to a Nobel Prize in Economics in 2013) make up 2 legs of our 3 legged stool foundation of investing. That 3 legged stool being the efficient market theory, modern portfolio theory and factor investing. Fama’s research is responsible for our belief in efficient markets and titling our portfolios towards the factors which have proven to outperform over time. Interesting enough, another Nobel Laureate, Harry Markowitz, makes up the 3rd leg. His research, Modern Portfolio Theory, teaches us how to properly diversify our portfolios. Truly, portfolios that are based on the science of investing and not on somebody’s opinion of what might happen.

You may not be familiar with Fama since he doesn’t do many public appearances. Check out these 3 short videos ( about 3 minutes total) where you can hear him talk about risk, reward and reacting to markets.Gene Fama on Risk, Rewards, and Reacting to Markets

Optimize Social Security Claiming Decision

"So why are retirees leaving trillions of dollars on the table?" –Laurence J Kotlikoff


This is the question Kotlikoff asks in this following article.Why retirees are leaving trillions of Social Security dollars on the table

The article goes on to give six solid reasons why. Most of the reasons revolve around taking social security benefits too early for one reason or another.

Obviously, taking social security benefits at the right time increases the odds for financial security in retirement.

Here’s the best (and very easy to use) social security strategy calculator that I’ve come across to help you make the financial optimal claiming decision.Open Social Security Calculator

Be Very Careful What You Wish For

"These (socialist) policies that were supposed to give free things to everybody came at a much higher cost than what people thought they would cost." –Daniel DiMartino


Daniel DiMartino was born and raised in Venezuela. He’s a young college student and has been in this country for 3 years.

Listen as he tells it like it is in the very short video (less than 2 minutes) when Venezuela went from one of the richest countries in the world with a capitalistic form of government to what it is today under socialism.Let Freedom Speak: The Daily Signal

Be careful what you wish for to everyone out there that wants to move our great country in this same direction.

Free market economies are the most moral form of economics and human flourishing known to mankind.

Don't Be Disappointed

"Are investors better off relying on market prices or searching for mispriced securities?" –Dimensional Fund Advisors


This is the question posed in the most recent Dimensional Perspectives column. Not surprising to readers of this blog, DFA’s 2019 Mutual Fund Landscape study once again proved that most mutual fund managers underperform their benchmarks. Stock picking is indeed a loser’s game and investors are better served by relying on market prices.

Most investors search for winning mutual funds by looking at past performance. This seems to make some sense from a logical point of view but as the study points out, track record investing is most likely going to leave investors disappointed.

Check out the article. It’s an interesting read and will give you a much better perspective on what we believe to be the truth about investing.Don’t Bother Trying to Pick Stocks

Everyone Gets Richer

"How could it (capitalism) improve everyone’s standard of living?" –John Stossell


Stossell attempts to answer this question in this insightful video,In Defense of Capitalism.

It’s important to remember that wealth can be created. It is not limited. There’s not a fixed amount of money in the world. Everyone, even the poor, can get richer and have gotten richer under capitalism.

Capitalism has proven to be the best wealth creation system known to man. For this reason, that’s why our portfolios are structured to capture the global rate of return of capitalism.

What Financial History Teaches Us

"There’s one standout lesson that financial history teaches us." –Robin Powell


Check out this short video where Professor Russell Napier talks about the number one lesson financial history teaches - The Number One Lesson From Market History - Show 315

I guess it’s really two things. History teaches us that if we invest for the long term and diversify properly between asset classes, investors can be confident of a positive investing experience.

The key takeaway is understanding what is long term. As Professor Napier points out, long term is around 18 years. In the history of investing, there’s never been a period of 18 years or longer that hasn’t had positive returns. That might seem like a long time to most investors. However, even investors in their 70 and 80’s could expect to live possibly to 100. They would still need some market exposure to at least keep up with inflation. In essence, we’re all really long term investors for most of our lives.

As far as diversification goes, I defy anyone to come up with portfolios as diversified as what we put together here at Verity Capital Management, LLC. Our typical portfolio has over 17,000 unique holdings in 21 distinct asset classes invested globally in 45 different countries. That’s diversification.

The Power of Compounding

"Compound interest is the eighth wonder of the world. He who understands it, earns it.....he who doesn’t, pays it." –Albert Einstein


If you have any doubt about Einstein’s belief about compound interest check out this cool video that Josh Brown did.
The Power of Compounding

These examples show the power of compounding and how small numbers get very big over time. Share this video with your kids and grandkids. This is an important lesson to learn. The power of compounding is really the only chance most people have to accumulate wealth by doubling there money many times over in the market.

Global Economy Explained

"An economist’s guess is liable to be as good as anybody else’s." –Will Rogers


Do you have difficulty understanding what the global economy is all about? Check out this short video where the global economy is explained by using two cows.The global economy explained through two cows model

It’s very clever and contains some truth and a lot of humor. Hope you enjoy.

Market Volatility

"When people act like the sky is falling, it’s helpful to remember that volatility is normal, and there are simple things you can do to pursue a better investment experience." –David Booth, founder of Dimensional Fund Advisors


I think we can all agree that global markets are volatile. It’s normal, that’s the way they operate. That’s why there is a long term premium for investing in equities. With no volatility, there’s no equity premium and investors would have to settle for risk free treasury bill type returns. Unless you’ve got a boatload of money, it’s very difficult to accumulate a retirement nest egg on those type of returns.

Markets have a very difficult time processing uncertainty. The markets can very quickly process good news or bad but uncertainty is a different animal. There’s a great deal of uncertainty going on right now with the tariff situation with China. Is it going to get resolved? How long is it going to take? This has caused an unusual amount of volatility in the markets. Again, this is normal. The markets will eventually figure it out.

Check out Booth’s latest blog where he helps put market volatility in perspective,David Booth on Market Volatility

Most Investors Will Never Get It

"What might be a good measure of performance of the management team isn’t necessarily a good measure of what makes a high-returning investment." –Larry Swedroe


Do you remember the book, In Search Of Excellence, that came out in the early 80’s? It’s considered one of the best business books ever written and is still a staple in most graduate business schools. The book identified the 43 best run companies in the U.S using various financial and management metrics. It was written to be a template on how to create an excellent company.

This prompted many academic studies into how these excellent companies performed on an investment return basis when compared to unexcellent companies based on the same criteria. Check out one such study that Swedroe wrote about, Are Great Companies Really Better Investments. Of all the studies I’m aware of comparing excellent vs unexcellent companies, the results might surprise you. In this study which compares results from June 30, 1970 – June 30, 2013, the unexcellent companies outperformed by 222% over this time.Are great companies really better investments?

Here’s a short video that our friends at IFA put together, Admired vs Spurned, that shows another study with similar - Admired vs. Spurned - Show 312

These results are totally counterintuitive as to what most investors expect. It’s an important investment lesson that most investors will never get. Even though value investing has been out of favor for a few years, the long term results still remain the same. This is precisely why we still tilt our portfolios towards value stocks.

What Can We Learn From Buffett

"It is not necessary to do extraordinary things to get extraordinary results." –Warren Buffett


This past weekend was the annual love fest in Omaha, Ne., also known as the Berkshire Hathaway annual meeting. Thousands of people flocked to Omaha to hear words of wisdom from the Oracle of Omaha himself, Warren Buffett.

Buffett is arguably one of the greatest investors of all time. What can we learn from Buffett that can help us become better investors? There seem to be three themes that he seems to harp on:

1) Focus on the long run. Don’t overreact to short term market fluctuations.

2) Don’t attempt to time the market. Stick to indexing.

3) Don’t make decisions based on economic forecasts and events.

Like he don’t have to do extraordinary things to get extraordinary results.

Are You Blind To It?

"My generation is being indoctrinated by a mainstream narrative to actually believe we have never seen prosperity." –Alyssa Ahlgren


Alyssa really gets it. She’s 26 years old and she’s blown away by the prosperity she sees just sitting in a small coffee shop in Fla. Please take the time to read her short article that really puts things into perspective.College Student: My Generation Is Blind to the Prosperity Around Us

It is amazing that we are living in the most prosperous period in the history of civilization and most of us are completely blind to it.

Most of this prosperity can be attributed to the rise of free markets. The underlying belief in our diversified portfolios is that capitalism is the greatest wealth creation tool known to man. That’s what we do. We invest in global capitalism at a risk level that’s appropriate for each individual investor.

Ineffective Disclaimer

"Past performance is no guarantee of future results." –SEC mandated disclaimer to mutual fund investors


We’re all familiar with the above disclaimer. There was an academic study done in 2009 that showed this mandated disclaimer was totally ineffective in preventing investors from chasing past performance in selecting mutual funds. I guess it’s just human nature to assume that what has done well in the past will continue to do well in the future. In reality, when it comes to investing, the exact opposite is more likely to occur. It’s more likely that underperforming funds will outperform in the future. Nobody said this was going to be easy!

Check out this short video from DFA where they show how past performance is not a good indicator of future performance.Mutual Fund Landscape

2019 ADV 2

"Financial Industry Regulatory Authority (FINRA)"


As part of my fiduciary duty, I am required to submit an updated ADV 2 annually with the Financial Industry Regulatory Authority (FINRA). I have attached a copy of my 2019 filing for your review. There are no material changes from the prior year.ADV_2019.pdf

Where Did April Fools' Day Come From?

"April 1. This is the day upon which we are reminded of what we are on the other three hundred and sixty-four." –Mark Twain


Take a look at this short piece that our friends at Efficient Advisors put on where April Fool’s day comes from. Make sure you check out the link to what’s considered the greatest April Fool’s Day hoax ever by a reputable media organization. Guaranteed to make you laugh.Where Did April Fools' Day Come From?

As Paul Harvey used to you know the rest of the story.

Stay Globally Diversified

"It can be difficult to stay disciplined with a globally diversified portfolio during long stretches where U.S stocks outperform." –Eric D. Nelson


We know first hand all about that. We’re huge believers in developing globally diversified portfolios at a risk level appropriate to your personal situation. It’s been tough to stay the course when the U.S. has been outperforming the rest of the world over the last several years.

Check out Eric’s article,Is International Investing Still Worthwhile?

He really gets into the weeds but it’s all excellent information. If you want to cut right to the chase here it is. Long term evidence shows that globally diversified asset class portfolios generate superior risk-adjusted returns to U.S only allocated portfolios.

The Norway Model

"Ordinary investors would be better off learning from what the Norwegian government has done with it’s national pension fund." –Robin Powell


Norway’s Government Pension Fund is the largest sovereign wealth fund in the world. It’s very highly regarded in the investment industry. In fact, it’s held out as a model for how to manage financial assets.

The good news is that this Norway Model can be implemented by all investors. Check out this short video (less than 3 minutes) on what investors can learn from Norway.What We Can Learn from Norway

Wow, this sounds pretty much how we invest here at Verity Capital Management.....diversify, keep cost low and transparency.

Happy Washington's Birthday

"He was a man great men trusted." –John Rhodehamel, author of George Washington: The Wonder of the Age


Happy Presidents Day! Or is it George Washington’s birthday we celebrate today? In 1879, the United Stated made Washington’s February 22nd birthday a federal holiday. Technically, the U.S government never officially changed the name to Presidents Day. It was largely through advertising campaigns for holiday sales that Presidents Day became popularized and largely accepted.

In any event, there’s certainly no argument on what a great leader Washington was. Our founding father and 1st President of this great nation probably still deserves his own day of recognition. So with that in mind, Happy Washington’s Birthday.

Check out this short video that John Rhodehamel did for Prager University,What Made George Washington Great?

Advice From A Legend

"Over long periods of time, stocks have done 9-10% a year. Simple story but there’s so much noise all the time in the background from the popular press." –David Booth, founder of Dimensional Fund Investors


It is a simple story but one that is hard for investors to accept. Through good periods and bad, over the 90 year period we have reliable stock market information, stocks have averaged around 10% annually.

Check out this short video where David Booth suggests that instead of looking into a crystal ball to determine where to invest, consider the historic stock market record and sticking to investing fundamentals.David Booth On: Forecasting

Do's and Don'ts

"Here are 18 do’s and don'ts to keep in mind ( i.e retirement investing for 2019)." –Ken Fisher


Nice to see we’re off to a good 2019 so far. The rough close to 2018 was surely enough to rock many of us to the core. Ken Fisher had a nice article last week in USA Today to help keep us grounded for successful retirement investing in 2019.Retirement investing do's and don'ts for 2019

Advice From A Legend

"The two greatest enemies of the equity investor are expenses and emotions." –John C Bogle


We lost a legend in the investment industry last week in the passing of Jack Bogle. Very few people have had the impact that Bogle had on the investment industry and on the lives of so many investors. Very few of these investors even realize what an impact it was.

It’s estimated that Bogle has saved investors over $1 trillion over the last 43 years since starting Vanguard Group. It started when he introduced low cost index investing at Vanguard and has trickled down into the rest of the investment industry. The so called ‘Vanguard effect’ has resulted in lower fees in the whole industry. For this we thank you Mr. Bogle.

He was a wise man and well worth listening to. His book, The Little Book of Common Sense Investing, is a classic. To get an idea of his wisdom check out this article from NYT last week,5 Pieces of Advice from John Bogle.

Who's Going To Pay?

"Advocates for socialism have a problem naming the specific person who is supposed to pay their medical, school, and food and shelter bills." –Richard W. Rahn


Indulge me for a minute while I share with you another article that deals with the romanticizing of socialism. This is a hot button for me and I consider the rise in the popularity of socialism to be a real threat to our country and the standard of living we have grown accustomed to.

Check out Richard Rahn’s recent commentary in The Washington Times,When socialism is romanticized.

I like his idea of next time your in a group and someone is promoting socialism, ask that person to specifically identify the person in that group who should pay their medical bills. As Margaret Thatcher was fond of saying..." The trouble with socialism is that eventually you run out of other people’s money”.

Capitalism is the greatest wealth creation tool known to man and is the foundation of why you are living in the greatest country in the world.

Stay In Your Seats

"If you had a perfect ability to predict how far the market would fall and when it would bottom out, it would make sense to move money in and out. You do not." –Neil Irwin


Don’t feel bad that you don’t have the ability to perfectly time the market. I don’t either. In fact, nobody does. In the history of investing, nobody has been able to consistently properly time the market.

This is a hard lesson for many investors to accept. It’s perfectly logical to want to get out of the market just before it takes a nosedive and get back in before it takes off again. In fact, many Wall Street firms spend billions of dollars every year trying to sell you on the illusion that they can. Sorry to burst your bubble but they can’t. This is one of the big lies about investing.

Stocks have greater expected long-term returns precisely because they have some volatility and risk. Investors need to construct globally diversified portfolios at a risk level they are comfortable with and stay in their seats. Successful investors know they can’t predict when be getting in and out of the market.

Check out Irwin’s recent article in NYT,What Should You Do About a Falling Stock Market? Nothing. Important lessons here in becoming a successful investor.

Let's Make It Happen

"The world got better last year, and it is going to get even better this year." –Greg Ip, chief economics commentator for the WSJ


Let’s start 2019 with some great news. We are living in the best time ever for human civilization. Want even better news? It’s going to continue to get even better.

Don’t take my word for it. Check out the facts in Ip’s recent article, The World Is Getting Quietly, Relentlessly Better.

So contrary to outward appearances, things are moving in the right direction. Let’s do our part to make 2019 the best year ever!

Hold'em Longer

"Our favorite holding period is forever." –Warren Buffett


Here’s an investment truth that most investors don’t way to reduce the risk of owning stocks is to hold them longer. The data clearly shows that stocks become safer the longer you hold them.

Check out the study below for further proof. The DFA Equity Balanced Strategy Index is a good proxy for the globally diversified indexes we use for the equity portion of our portfolios.

Looking at all 586 months since 1970 for the DFA Equity Balanced Strategy Index, we find that returns have been positive in 392 of them, or 66.9% of the time. The range of returns, even at one-month intervals, has been extreme: -22.7% to +21.0%.

Moving out to a year, there have been 575 rolling 12-month periods since 1970. The DFA Equity Balanced Strategy Index was positive in 476 of them, or 82.8% of the time. The range of returns, however, was even more extreme: -51.2% to +82.9%.

At the five-year mark, the probability of a positive return has continued to go up but the range of returns began to moderate. Of the 527 rolling 60-month periods since 1970, only 11 were negative, meaning the DFA Equity Balanced Strategy Index was positive 97.9% of the time. The range of returns was -5.6% to +34.2% per year.

Finally, at the 10-year interval, we no longer see any negative returns. All 467 rolling 120-month periods have been positive for the DFA Equity Balanced Strategy Index, with returns ranging from +3.1% to +24.6% per year.

Interesting study. With time, you not only increase your chances of having a positive return but you also narrow the range of returns (ie decreasing volatility).

Probably not what you wanted to read during the Holiday season. Hopefully, you’ll see this as good news and a way to deal with the volatility we’re currently experiencing.

Market Volatility

"More money has been lost trying to anticipate and protect from market corrections than actually in them." –Kevin D. Williamson


It certainly has not been a lot of fun over the last few weeks living through this extreme market volatility. Here are a few of my thoughts on this recent volatile period:

- Unfortunately, volatility like this is normal. It’s the main reason why we get a long term equity premium for investing in stocks.

- Temporary declines like this is why we rebalance. These are the best times to buy low and sell high. We are actively doing this behind the scenes by selling asset classes that are up and buying asset classes that are down. This is how we maintain your desired risk level and get the biggest bang for the buck when the markets start to recover.

- We’ve all seen how this movie eventually ends. The plot is always different but the ending is always the same. Markets have historically recovered 100% of the time. We don’t know what the next 10% move will be but we do know what the next 100% move will be....up!

- Our globally diversified portfolios are built to weather these type of storms.

Yes, volatile periods are to be expected. That doesn’t make them any less painful to endure. I’m here for you if you want to talk or meet.

Lastly, here are some wise words from Dimensional Fund Advisors to help put this market volatility in context.Dimensional On: Recent Market Volatility

The Gift To Be Most Grateful For

"Of all the worldly goods that we hold in common, the one we almost never think about or acknowledge is the greatest." –Kevin D. Williamson


What is Williamson talking about? Check out the article he wrote for the National Review on Thanksgiving day.For These Gifts We Are Truly Grateful

If you’re not familiar with Williamson, you’re in for a treat. He’s a great writer. He thinks capitalism is too small of a word to describe what he’s talking about. He prefers the term human action. However you describe it, capitalism or human action is the gift that keeps giving and one we should be grateful for every day.

This is precisely why our portfolios here at Verity are constructed to capture the global rate of capitalism around the world at a risk level you’re comfortable with.

Happy Thanksgiving

"More than any single person, she’s the reason why we celebrate Thanksgiving today." –Melanie Kirkpatrick, author of Thanksgiving: The Holiday at the Heart of the American


Who is this mystery lady Kirkpatrick is alluding to? Her name is Sarah Josepha Hale. Check out this 5 minute video that Kirkpatrick did for Prager University, Lincoln and Thanksgiving: The Origin of an American Holiday, to find out more about Hale and other facts relating to the origin of Thanksgiving.

It was interesting to me that the celebration of our nation’s oldest tradition didn’t become a national holiday until FDR signed a proclamation in 1941.

Hopefully we can all follow Abraham Lincoln’s advice this year to “celebrate with one heart and one voice”. Lincoln spoke those words in the midst of the Civil War. That gives me hope that we too can overcome the political divide that’s currently plaguing our great nation.

Have a blessed and Happy Thanksgiving. We really do have a lot to be thankful for.

Gridlock Is Good

"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." –Groucho Marx


Well the voters have spoken. The Democrats gained back control of the House and the Republicans kept control of the Senate. This results in legislative gridlock for the last two years of President Trump’s term.

Groucho would probably say gridlock is good. Well, gridlock has historically been very good when it comes to stock market performance.

Check out this article from Marketwatch that has some great charts that show just how robust that has been.Why stock-market investors say ‘gridlock is good’ after midterms deliver split Congress

Don't Take It For Granted

"Americans take the benefits of capitalism for granted....." –Nathan Benefield


That could be the understatement of the year. There is no question that socialism is gaining in popularity. Look no further than our own Democratic Party. In a recent Gallop survey, the majority of Democrats had a more favorable image of socialism than capitalism.Democrats More Positive About Socialism Than Capitalism

Politicians love to talk about free stuff. What they don’t talk about is how to pay for it. The government doesn’t create wealth. Government gets money by collecting taxes on those who create wealth. So how is all this wealth created in the first place? You got it. It’s capitalism. Free market capitalism has done more to raise the quality of life for more people than anything on the planet. Don’t think so? Ask the good citizens of Venezuela how living under socialism is working out.

Check out Nathan Benefield’s article, To Achieve the Goals of Socialists, Try Free Markets for more insight.


"Sellers outnumber buyers as stock market plunges." –typical business headline news when stock market has a bad day


This is what is known as fake news. There is no way sellers can outnumber buyers on any day in the stock market. Why? Because for every share of stock sold there has to be a corresponding buyer. If not, there is no sale.

New information is coming into the marketplace continually. This is forcing buyers and sellers to constantly adjust their expectations. When prices adjust to the point where supply and demand come into balance, then transactions occur at a price that the buyers and sellers find mutually beneficial. This point is referred to as equilibrium.

It is our believe that competition among buyers and sellers is such that it’s not possible to consistently outguess the market. Market prices are fair and reflect the collective expectations of all market participants. The market is really a very efficient giant information processing machine. Check out this 2 1/2 minute video from DFA on The Power of Markets that does a nice job of explaining all this.The Power of Markets

Online Social Security Calculator

"I was too old for a paper route, too young for social security and too tired for an affair." –Emma Bomback


When to start collecting social security is no joking matter. It’s a significant decision that we all have to make at some point. Most people are aware that you can collect as earlier as age 62. Benefits increase roughly 8% for every year that you defer collecting up to age 70. Waiting is like buying a higher cash stream that will increase with inflation.

There are a lot of free online calculators out there that can help you make the right decision. I’ve checked them all out and here’s the one I like the best.Open Social Security Strategy Calculator

It’s simple to use and I believe the methodology behind it is more solid than the other calculators I checked out. The other calculators assume a particular year you and your spouse will die. This calculator uses probabilities that accounts for uncertainty in life spans. It can account for the possibility that you might live to be 100 or you might die at age 69. This is the same methodology that actuaries use for insurance companies in pricing out their policies.

Hope you get a chance to check it out.

Rising Rates and the Market

"Hiking regimes often take place when the economy is performing strongly and earnings growth is robust, and therefore stocks tend to perform respectably during those periods." –Joseph Davis, Vanguard’s chief economist


The hiking regimes that Davis is talking about is Federal Reserve recent rate hikes and the likelihood they will continue to raise rates into the foreseeable future. They raise rates to keep the economy from growing so fast that inflation gets out of hand.

It appears these rate hikes have spooked the markets over the last few days. History tells a different story though. Vanguard compiled data over the last 50 years that included 11 periods where the Fed raised rates. The market rose in 10 out of these 11 periods. Check out the data in the chart below:

According to Vanguard’s data, the market had an annual average return of 10.3% over these periods of rising rates. Interesting data and a good reason why investors shouldn’t fear rising rates.

Economic Freedom

"Why care about economic freedom?" –Richard Rahn


This is the question Rahn poses in his article in last weeks The Washington Times. The Economic Freedom of the World 2018 Annual Report came out last week. The U.S moved up 5 spots over last year from number 11 to number 6.Why care about economic freedom

Why does this matter? As Rahn points out, there is a direct correlation between economic freedom and the average real per capita income and liberty. Countries in the top quartile of economic freedom has an average annual per capita GDP of $40,376 compared to $5,649 in the bottom quartile.

Feel free to share this with all your socialist leaning friends who want to live a healthy, prosperous and happy life.

Capitalism is the greatest wealth creation tool known to man and has done more to increase peoples living standards around the world than any other system.

Put The Odds In Your Favor

"If the data do not prove that indexing wins, well the data are wrong." –John Bogle

"Fund investors are confident that they can easily select superior fund managers. They can’t." –John Bogle


Check out this video from Dimensional Fund Advisors that will back up both of Bogle’s claims. DFA’s 2018 analysis of mutual funds shows that only a small percentage of funds can beat their respective benchmarks. Ok then, we’ll just pick those funds that outperform. Seems like a reasonable plan. One problem though. Only a small percentage of those top-ranked funds can repeat their past success. The other problem is nobody knows which funds these will be until after the fact.Mutual Fund Landscape

Don’t let gambling and speculating determine your investment success. Put the odds in your favor with a passively managed, globally diversified portfolio with a risk tolerance you can handle.

Time not Timing

"But time overwhelmingly swamps timing, good or bad." –Ken Fisher


Fisher is talking about the fact that time in the market not market timing will ultimately determine an investors success. Check out his article from the USA Today over the weekend that really drives this point home.You don't need perfect timing, just time, to earn big returns in the stock market

The examples he presents are great. Hope you keep these in mind next time you get the market jitters and are thinking about bailing. That’s always a recipe for disaster and a sure way to sabotage your long term wealth.

Better To Wait

"What was a fair deal when it was introduced is really an outrageously good deal now." –John Shoven, Stanford University economics professor and social security expert


What Professor Shoven is referring to is deferring collecting your social security until your age 70. Terms of the deferrals were set up in the mid 1950’s when mortality and interest rates were so different. Check out this article from the NYT last week,It’s Tempting To Take Social Security at Age 62. You Should Wait.

In the example given in the article, you would almost double the amount you would receive by deferring to age 70 versus collecting at the earliest age eligible of 62. That’s right....almost 100% more by deferring.

Everyone’s situation is different. It’s hard to give hard and fast rules when it comes to determining the best age to start collecting. Shoven does go as far to say that there’s no doubt what most people should do – delay as long as possible. He estimates that people who shouldn’t defer is less than 10%. Pretty compelling stuff.

Not Fake News

"I remain green with envy decades after I first saw it." –Jason Zweig


Zweig is one of the most respected financial journalists in the industry. He’s been at it for a long time and he has written some great articles over his long career. Check out the one article though that he’s still green with envy about and it’s the one he wishes he wrote. The title of the article says it all. Hope you enjoy the satire.The First Totally Honest Stock Market Story

If I had A Triilion Dollars

"A trillion here, a trillion there and pretty soon you’re talking about real money." –Ben Bernanke, former Federal Reserve Chairman


Bernanke is stealing this quote from the late Everett Dirksen who was a Republican senator from Illinois. Only difference is that when Dirksen said this in the mid 60’s, he was talking billions not trillions. My have times changed.

Recently, Apple was the first publically traded company to be valued over $1 trillion dollars. The current national debt of our great Country is over $20 trillion. Here’s a link to a chart that will help you visualize what a trillion of dollars looks like.$Trillions

Senator Majority Leader, Mitch McConnell had an interesting way to try to put a trillion dollars into context. Here’s his take on it..... “ If you spent a million dollars everyday since Jesus was born, you still wouldn’t have spent a trillion.”

I also like Ronald Reagan’s take on why we have a trillion dollar debt ( now over $20 trillion). To paraphrase Reagan, we don’t have a trillion dollar debt because we haven’t taxed enough. We have trillion dollar debt because we spend too much.

Better Than A Free Lunch

"Diversification is your buddy and the closest thing investors get to a free lunch." –Merton Miller, Nobel Laureate in Economics 1990


It sure is Merton! In fact, diversification is the only way to decrease investment risk without decreasing your expected return. By properly correlating different asset classes, investors can actually decrease risk and increase expected return. Sounds better than a free lunch to me.

Frequently, I get asked about why we need international stocks in our portfolios. After all, can’t we get the benefits of the international markets simply by owning multinational U.S stocks?

That’s a fair and reasonable question. But when you analyze the data, it’s clear that having broad exposure in foreign markets gives investors the best chance of success.

This gets back to the basic principle of diversification. International markets ( developed non U.S and emerging markets) tend to behave differently than our domestic market. Owning asset classes that tend to have dissimilar price movements is the key to a prudent diversification strategy.

Investing in U.S multinationals will give investors exposure to large cap growth socks in developed non U.S countries. What it won’t give you is exposure to large cap value, small cap, small cap value or emerging market stocks. Being the factor investors that we are, we know that over time we will get the most bang for the buck by exposure to the value and small cap premiums.

Also, keep in mind that over half of the world’s market capitalization is outside the U.S. You want to make sure you take full advantage of this available diversification.

This is precisely why we design portfolios that have over 16,000 unique holding in 21 distinct asset classes invested in 45 different countries. Now that’s diversification that even Merton Miller would be proud of.

Time In The Market, Not Market Timing

"Eighty percent of success is just showing up." –Woody Allen


This seems like a pretty low standard but in Allen’s experience, people who had success gave themselves their biggest chance by simply showing up. It turns out that a similar principle is true in investing. While a carefully planned asset allocation is important, simply being present in global markets may have a much more significant impact on long-term returns. Being out of the market for any length of time can greatly increase your chance of missing unforeseen gains. These unexpected “best days” can make up a significant percentage of a calendar year’s returns. Missing just a few of the market’s “best days” can hazardous to your investment success. Need proof? Check out this graph. It says it all.

Potential Cost of Missing The Best Days

This time period 1990-2017, represents 7050 trading days. Being absent for just a few of them can have a significant impact on your total return. As we are all well aware, predicting when these “best days” will occur is not possible. Every investor’s mantra should be.... focus on time in the market not market timing.

This Land Is Our Land

"Buy land. They ain’t making any more of the stuff." –Will Rogers


No matter what your political leanings, it’s impossible to ignore the fact that our economy is really humming. It’s hard to get economists to agree on anything but unanimously they agree that gross domestic product (GDP) is he best way to measure a country's economy. GDP measures the value of everything produced by the people and companies in the country. Last quarter the U.S economy grew at a robust 4.1%. That’s the strongest since 2014.

I came across this map over the weekend that shows how America uses it land to create wealth. We have the largest economy in the world and I’ve never seen it laid out like this.Here's How America Uses Its Land

It’s interesting to see how it was all put together. If you’re short of time, just scroll to the end of the article to see the final result.

Let Go

"By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning." –Lao Tzu, ancient Chinese philosopher and founder of Taoism


Ok, interesting quote but what’s this have to do with investing? Probably more than you think.

In most of our endeavors in life, success requires a lot of hard work. It’s that constant grind with intense focus on day to day results. Letting go is not something that comes easy to us.

However, this constant focus on day to day results can have disastrous results for investors. Investors must learn how to let go and focus on things they can control. Things that will have a positive impact on investing results.

Here's an article The Tao of Wealth Management, by Jim Parker of Dimensional Fund Advisors that I think you’ll enjoy. Stay disciplined and stay focused on what you can control.The Tao of Wealth Management.pdf

The Price of Active Management

"Index funds have regularly produced rates of return exceeding those of active managers by close to 2% annually." –Burton Malkiel


Right you are Burton! The chart below shows the main reason why. This chart compares the cost of investing in a passive index tracking fund with investing in a typical active mutual fund tracking the same index. This chart accounts for both implicit and explicit costs and does a great job of showing the price of active management.

Check out the annual cost of 2.45% for an actively managed fund versus .41% for a passively managed fund.

It’s a mystery to me why investors continue to pay a premium for active management with the high likelihood of underperformance.

One Word of Advice

"Diversify!" –Harry Markowitz, 1990 Nobel Prize in Economics


One simple word....diversify. That’s Markowitz’s answer on how investors should approach the stock market.

In our world of investing Harry Markowitz is one of the legends. His Nobel Prize winning work called Modern Portfolio Theory taught investors how to get the maximum return for the least amount of risk. This involves properly diversifying portfolios to take advantage of the correlation factors of different asset classes. It’s one of the cornerstones on which are portfolios are built on here at Verity Capital.

Check out this short article and see why Cullen Roche considers Markowitz the greatest investor of all time.The ‘greatest investor of all time’ has one — and only one — word of advice

Investing Tip

".... 90 days generated 95% of all market gains during that period ( 1963-1993)." –Dan Solin


Think about that for a minute. Over 30 years, 7,802 trading days, 90 days or 1.2% of the trading days in this period accounted for just about all the profit in the market.

So what’s an investor to do?

Check out Solin’s short blog for the answer,A Tip About Investing

By the way, this is precisely why we invest the way we do at Verity Capital.

Pearl of Wisdom

"By giving up the slim possibility of outperformance, you increase the odds of meeting your retirement goals." –Dan Solin


Solin is usually spot on and he doesn’t disappoint in this brief article,A Pearl of Wisdom.

This really is the secret that Wall Street doesn’t want you to know.

Lessons From West Point

"Embrace the suck!" –military expression


I have a lot of respect for our military academies and the discipline and high academic standards they stand for.

Military training can be very useful in many different aspects of life. Check out this article I came across over the weekend. Here are 5 life lessons learned from a West Point Cadet that can help make you a better investor.5 ways being a West Point cadet made me a better investor — and person

Your Mortgage and You

"Now is the time to find out if you are one of the millions of Americans who won’t be able to deduct their monthly mortgage interest payments." –Laura Saunders


Should you pay off your mortgage? That is without a doubt the question I have been asked the most during my career in financial planning. We can pull out the abacus and run the numbers. What’s the after tax return you can get on a conservative investment versus what’s the after tax mortgage rate?

What I’ve found during the course of my practice is that the question of paying off the mortgage is much more about psychology than it is about math. Sure, the math is an important first step. Even if the math works in your favor, you’ve got to really evaluate how you feel about using what are usually fairly scant resources ( maybe even emergency funds) to pay the mortgage down versus the freedom that comes with no mortgage payments.

Now we have to factor in the effect of the new tax law and how this changes the math. Laura Saunders had a recent article in the WSJ, that’s a worthwhile read and does a good job explaining how the new tax act will effect the deductibility of your mortgage payments.Should You Pay Off Your Mortgage? The New Tax Law Changes the Math

The Silent Killer

"Inflation is taxation without legislation." –Milton Friedman


Inflation can be the “silent killer” of portfolios. Inflation is the erosion of real purchasing power. It happens when the purchasing power of goods and services increase over time. This results in investors being able to buy fewer of them in the future for every dollar they have saved. Not keeping pace with inflation is a guaranteed recipe for going broke slowly.

Over the long term, equities have proven to be the best hedge against inflation. That’s why it’s imperative that most investors, even in retirement, maintain some exposure to equities in order to maintain and grow their wealth.

Here's an article from Dimensional Fund Advisors, that’s very informative.The Impact of Inflation.pdf

Investment Advice From a Legend

"They never invite me onto television because my message is don’t look a television..... diversify and rebalance." –Harry Markowitz, Nobel Laureate Economist


There it is! Investment advice from the legendary Harry Markowitz....diversify and rebalance. What’s implied in this advice is to also own equities at an appropriate risk level for your personal circumstances.

Markowitz is best known for his pioneering work in modern portfolio theory (MPT). Through this work he proved that by properly diversifying their portfolios, investors can maximize returns for the minimal amount of risk. This is one of the three economic theories that all of our long term portfolios here at Verity Capital are based on. The other two are the Efficient Market Hypothesis and Factor Investing.

Check out this short video by our friends at where you can hear Markowitz in his own - Advice on Diversification from a Nobel Laureate - Show 273

Work It Is A-Changin

"The times they are a-changin." –Bob Dylan


Apparently, times are definitely changing in the world of work. At least this is the belief of author John Tamny. He’s got a new book coming out at the end of this month, The End of Work: Why Your Passion Can Become Your Job. He presents an interesting case of how we have become so advanced economically that it has freed people up to do work that they are experts at and passionate about.

Maybe the nature of work is changing right before our eyes. Maybe Confucius’ often quoted line, “Choose a job you love and you will never have to work a day in your life”, is a real possibility for more and more people.

Hear Tamny in his own words. This is from his recent talk at Ashford University as part of the Forbes Distinguished Lecturer Series. This talk is about 39 minutes long. I think you’ll find it pretty fascinating and well worth the time.Distinguished Lecturer Series - John Tamny | Ashford University

Listen to a Legend

"Stay in the game. That’s often all you need to do- don’t quit. Stick around! Don’t be a quitter!" –Hans Rosling


Richard Jenrette, a legend in the investment world, died last week. He was referred to as the “last gentleman of Wall Street”. He left behind his 24 rules to succeed in finance and in life.

I think it’s prudent to listen to what very successful people have to say about what they’ve learned to live a happy and successful life. Be sure to check out the link that has his original hand written list that’s embedded into the article as well.Legendary Investment Banker Richard Jenrette Left These 24 Rules for Success

Reasons for Optimism

"I am not an optimist. I am a very serious possibilist." –Hans Rosling


Let’s get the work week going with a little bit of optimism. It’s easy to go deep down the rabbit hole in negativity with all of it out there.

I’ve been a fan of Ben Carlson’s blog, A Wealth of Common Sense, for quite some time. I’m going to steal his list of 50 ways the world is getting better from a recent blog. Hope you enjoy and that it brings some optimism into your week.Ben_Carson's_blog_list.pdf

Sources:The Better Angels of Our Nature Factfulness The Rise and Fall of Growth Enlightenment Now

Despite all indications to the contrary, this is the greatest time in history to be alive

Words of Wisdom

"Whisper words of wisdom, Let it be" –The Beatles


Mark Matson was live on the set last week with Neil Cavuto at Fox Business. Check out the segment where Mark speaks his words of wisdom on everything from efficient market theory to tax cuts and even touches on how to deal with all the fear out there in the headlines.Don't Let Fear-Gripping Headlines Dictate Your Investing Decisions

It's Not Magic

"Capitalism has achieved things that early ages ascribed to gods and magicians." –Daniel Hannan, NYT bestselling author


Prager University has been putting out some great content for quite some time. I especially like their 5 Minute Idea Videos.

Here’s a good one done by Daniel Hannan that showshow as the rich are getting richer, the poor are getting richer faster

How? Capitalism is the driving force behind this wealth creation process.

Please share this video with the younger generation. They are not getting the proper message on the power of capitalism.

Afterall, Capitalism is the greatest wealth creation tool known to man.

A Change In Perspective

"I changed because I learned that there was a different way to think about investing." –Dave Goetsch, Executive Producer, The Big Bang Theory


The markets have certainly been on a roller coaster ride this year. During periods like this, it can be helpful to hear stories about how other people deal with this uncertainty.

David Goetsch makes common sense out of complicated science for a living. However, he used to respond to market fluctuations with panic rather than logic.

See what changed for Dave and hopefully you have the same sense of calm in your financial lives:Now and Then

Profit From Problems

"Climate change will improve life." –Ken Fisher


Did I quote you accurately here Mr. Fisher? Really, climate change will improve life?

Don’t be quick to dismiss this preposterous claim.

You might feel differently after you read Fisher’s very insightful article over the weekend in USA Today.How to profit off horse dung in your retirement

I really hope you take the time to read this. It’s a real nice concise summary of how creative capitalists profit from problems. Unimaginable opportunities await for problems that capitalism will solve in the future.

Since its inception capitalism has been the greatest wealth creation tool known to man. That’s precisely why our portfolios are structured to capture the global rate of return of capitalism.

ADV 2 for 2018

"Brokers and annuity agents are not advisors but mere salespeople who do not have a relationship of trust and confidence with their clients." –5th Circuit Appeal Court finding in financial product distribution industry case against the DOL Fiduciary Rule


Doctors have the Hippocratic Oath. Lawyers and accountants have codes of ethics that require a fiduciary duty. Trusted advisors in most professions have a responsibility to act in a fiduciary like manner.

It absolutely blows my mind that the brokerage industry ( stock and insurance) and the annuity industry would even want to argue that their agents aren’t real advisors and therefore should not be bound to a fiduciary standard. They not only argued this point, but won this point in a recent decision in the 5th Circuit Court of Appeals.

This is precisely why I got out of the brokerage world in 2010 and set up my business as a registered investment advisor in the state of Massachusetts starting in 2011. This requires me to act as a fiduciary in all client matters. In my mind, this is the only way this business should be run. Imagine the stock brokerage industry and insurance industry do not have a fiduciary level of trust and confidence and their dealings with clients. Preposterous!

As part of this fiduciary duty, I am required to file an ADV 2 annually with the Financial Industry Regulatory Authority (FINRA). I have attached a copy of my most recent filing to this download link for your perusal:Verity Capital Management_ADV Part 2A_2018.pdf

He Figured It Out

"We have met the enemy and he is us." –Pogo (comic strip written by Walt Kelly)


Victor Haghani is an interesting character. He spent 20 years as a Wall Street hotshot and hedge fund trader. At the age of 40, he had enough and wanted out of the rat race. He accumulated enough resources to take a long sabbatical. He wanted to sit back for awhile, catch his breath and invest his family’s savings. There was only one problem with this plan.... he had no idea how to invest.

So, he spent the next 5 years trying to figure that out. I’m glad to report that he did figure it out. His research led him in the same direction that we invest long-term money here at Verity Capital. Victor turned from a hedge fund trader to an index investor. He embraces, as we do too, global diversification, a long horizon perspective, tax and cost efficiency and the value and momentum approach to investing.

Check out this video (about 6 minutes long) where Robin Powell talks to Victor Haghani.Sensible Investing in a Nutshell

By the way, Victor was so enamored by what he found out, he started his own investment firm in London to help other investors have a successful investment experience.

Advice From Buffett

"I buy expensive suits. They just look cheap on me." –Warren Buffett


I’ve always enjoyed Buffett’s sense of humor and honesty. Don’t let his folksy manner fool you. He’s arguably the most successful and savvy investor who’s ever lived. I always look forward to his annual letter to the Berkshire Hathaway shareholders. It’s become a must read for all serious investors.

I came across an article in Forbes last week,Warren Buffett’s 3 Most Profitable Pieces of Advice. This advice comes from his most annual letter and it’s spot on.

There’s also a link in the body of the article if you want to check out Buffett’s most recent annual letter to shareholders.

Check Out the Charts

"I have found that the importance of having an investment philosophy- one that is robust and that you can stick with- cannot be overstated" –David Booth, Co-founder and Executive Chairman, Dimensional Fund Advisors


I’ve got a couple of charts that will hopefully help you see the significance of Mr. Booth’s advice.

The stock market as measured by the S&P 500 has averaged around a 10% average annual return since 1926. The shaded area in the chart below shows the historical average return of 10%, plus or minus 2 percentage points. The S&P 500 had a return in that range in only 6 out of the last 91 calendar years. Often times, the returns are outside the shaded range by a large margin. This highlights the importance that investors look beyond average returns and be aware of the large range of potential outcomes:

Despite on this year to year uncertainty, investors can increase their chances of having a positive income by maintaining a long-term focus. Check out this chart that reinforces this point:

There are no silver bullets when it comes to investing in the market. Understanding how markets work and having a long term perspective certainly helps though.

Don't Assume

"I assume the investment recommendations you’re getting from your broker are vastly different from what Eugene Fama would advise." -Dan Solin


In this case, Mr. Solin, that old expression on assuming would hold true. It would make an ASS out of U and ME.

In your case, you would be dead wrong. Eugene Fama’s Nobel Prize winning research forms the basis for how all of our long term diversified portfolios are constructed.

In my case, I would be a total ass not to follow Fama’s advice on how people should invest. When I first heard his Efficient Market Hypothesis and studied his factor investing research, it totally blew me away and has changed the way the I invest my and my clients money forever.

Dan Solin wrote a good article for the Huffington Post,Investor Smackdown: Your Broker vs. Eugene Fama.
This article is spot on. I hope you take the time to read it.

DFA on Market Volatility

"Investors who want to earn the long-term returns associated with the capital markets should appreciate that market declines are part of investing and one of the reasons why stocks have had historically higher returns than other investments." -Jake DeKinder, Dimensional Fund Advisors (DFA)


Everybody and their brother has an opinion on last weeks events in the stock market. For my money, DFA is the smartest mutual fund company out there. There spot on unbiased research is second to none in the industry. Check out this short 1 minute video where Jake DeKinder of DFA talks about the recent market volatility. No frills, just the facts.

The chart below shows how it’s almost impossible to time the market accurately. If you did, chances are it was based more on luck than skill. The total returns over long periods come from just a handful of days. It’s impossible to identify these days in advance. That’s why the prudent course of action is to stay invested during periods of volatility. Otherwise, you might be on the sidelines when returns are strong.

Performance of the S&P 500 Index, 1990–2017

Annualized Compound Return Total Period: 9.81%

Missed 1 Best Day: 9.38%

Missed 5 Best Single Days: 8.21%

Missed 15 Best Single Days: 6.18%

Missed 25 Best Single Days: 4.53%

So, if you missed just the 25 best single days over 27 years (.25% of the total days), you’d reduce your total return by 56%. Enough said on why market timing doesn’t work.

Volatility Is Back

"If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It’s the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money ever day, you’ll be miserable." -Daniel Kahneman, 2002 Nobel Prize in Economic Sciences Recipient


Volatility is back with a vengeance. Nobody really knows why. Fear of rising interest rates, economy heating up too much, program trading...who knows. Everybody has a different theory. Unfortunately, this is what markets do.

I’ve often made the comparison of market sell-offs to an airplane hitting turbulence. It’s never a pleasant experience, even for experienced flyers. For those who don’t fly often, it can be down right terrifying. Meanwhile, up in the cockpit, the pilots are enjoying a cup of coffee and letting the auto-pilot fly the plane. They know that the plane was built to absorb far worse turbulence than you’re likely currently experiencing. On an intellectual level, even newbie flyers probably know this also. This doesn’t help much though when experiencing this turbulence on an emotional level. They are still in a “white knuckle” state and can’t get that Jack Daniels down quick enough.

Like today’s well built planes, our globally diversified portfolios, constructed to a risk level you can live with are built to sustain market turbulence. The price we pay for the long-term returns the equity markets deliver is the volatility that goes with them. Emotionally, we all want stock market returns with treasury bill risk. Unfortunately, this just doesn’t exist.

I came across this chart from a website I follow, Safal Niveshak (Hindu phrase for successful investor) that might help puts things into perspective.Investor, Know What You Control

Benjamin Graham was fond of pointing out that the day-to-day market isn’t a fundamental analyst but more a barometer of investor sentiment. Fundamentally, we’re still we we were a few days ago. The economy seems to be running on all cylinders. Company earnings are strong and the tax reform act is certainly going to help. Sure, interest rates are going to rise but that’s a good thing. The economy is strong enough to sustain this. We’re still at historic low rates and the Fed has given guidance that they’re going to raise rates but at a steady controllable rate.

I know this can be a very trying time to get through. I’m here for you. Please feel free to call me (781-424-3493) if you feel the need to discuss this further.

My Favorite Performance Chart

"A random series will always present some detectable pattern to someone." -Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and the Markets


Please open the link and tell me any patterns you see.Callan-PeriodicTbl_KeyInd_2018.pdf
This is the Callan Chart that shows the investment returns (from highest to lowest) of the major asset classes from 1998-2017. I wish I could detect patterns from this info. Then I would know which asset classes to invest in to make the most money in the future. No such luck. In my mind, nothing shows the randomness of the markets better than this chart.

This chart is also a good reminder to think and act for the long-term and not to get caught up in short-term performance numbers.

It’s also good to remind myself of the importance of diversification. It can be boring but’s it’s also the simplest and best form of risk control.

Lastly, it reminds me to stay humble. Nobody can predict the future. There’s no easy answers. That’s why we own all asset classes in a properly diversified global portfolio.

There’s a lot of wisdom to be garnered from the Callan Chart. That’s why it’s my favorite performance chart.

Wellington's Wisdom

"Expert or not, there is little evidence that accurate predictions about future events, as well as how the market will react to those events, can be achieved on a consistent basis." -Weston Wellington, V.P, Dimensional Fund Advisors


I couldn’t agree more Weston. His annual comments on what when on this past year and what we can infer from that going forward into the unknown future are in this article.Nine Experts_Four Surprises_and_One_Million_Bet_(US_FA).pdf

Wellington is usually spot on and this short article does not disappoint. Since the markets are frequently counterintuitive, I love the New Year’s resolution: Keep informed as a responsible citizen. Let the capital markets decide where returns will be generated.

Loser's Game

"Mr. Baron is unapologetic about high fees. He argues that his skills and experience- and the arduous task of researching small growth companies- justify the fees."
–Landon Thomas Jr. , NYT reporter covering the asset mgt business


The above is from a recent article in the NYT.Why Are Mutual Fund Fees So High? This Billionare Knows. The article highlights the high cost of funds from the actively traded Baron Funds Group. Ron Baron is the Baron Funds founder and he argues that his skills and experience justify the high fees.

Let’s take a look at the data to see if this is the case. Baron Growth is the flagship fund in the Baron family. It manages over $6 billion and has an expense ratio of 1.3%. It’s classified as a midcap growth fund by Morningstar. So, we’ll compare it’s performance with an appropriate passive benchmark, SPDR S&P 400 Mid Cap Growth. For the 10 year period ended 12/31/2017, Baron Growth averaged a very respectable 8.3% per year. The passively managed SPDR S&P 400 Mid Cap Growth averaged 11.50% annual return. That’s over a full 2% points per year in favor of the passively managed index. Part of this is explained by the difference in expense ratios (1.3% vs .15%) but that still leaves .85% per year that Mr. Baron’s skill and experience negatively impacted the returns of his fund.

This is a pretty basic analysis but the results are pretty dramatic. Leaving 2% per year on the table trying to actively beat the market really is a loser’s game.

January Indicator

"As January goes, so goes the year." –Old investing axiom


Have you heard of the January indicator? Sometimes it’s referred to as the January barometer. It’s the premise which holds that the stock market's direction in January foretells the market direction for the next 11 months. It’s a theory that’s been around for a long time and some investors take it as gospel.

So how does this axiom hold up to the weight of testing? Well, as you might expect, not so well. Dimensional Fund Advisors went back to every January since 1926 and compared those returns to the subsequent 11 months. The results don’t bode well for the reliability of the ‘January Indicator’.

Here is a short article from DFA for your review.As Goes January_So Goes the Year_(1).pdf

Relying on this indicator was especially troubling for investors who got out of the markets after a bad January. The good news is that we don’t need indicators or forecasts to have a successful investment experience. With a properly constructed globally diversified portfolio, investors can harness the power of the markets and let the markets work for them.

Bitcoin Mania...To Bit or Not To Bit

"You can’t value bitcoin because it’s not a value-producing asset." –Warren Buffett


Unless you’ve been living under a rock for the last few months, you have undoubtedly heard of bitcoin. You know, that cryptocurrency that was practically worthless a few years ago and topped $19,000 per bitcoin in early December. So, do they belong on our portfolios?

Here are a couple of points to consider:

1) The total value of bitcoins currently in circulation is less than 1/10th of 1% of the aggregate value of global stocks and bonds. So even if you believe bitcoin is a good investment, their allocation to a well-diversified portfolio should be miniscule.

2) Investing in stocks and bonds you expect to grow your wealth by sharing in the future expected profits earned by corporations globally. As Buffett points out in the quote above, bitcoins produce no value. They have no earnings or cash flow. You buy bitcoin today on the hope someone will give you more for it in the future. It’s based on nothing but speculation.

3) Keep in mind that holding cash in your wallet today does not entitle you to more dollars in the future. We should not expect a positive return from holding cash. The same holds true holding bitcoins in a digital wallet. Holding a bitcoin today does entitle the holder to receive more bitcoins in the future.

This doesn’t mean that the price of bitcoin can’t continue to go up. Who knows? It’s a pure speculation play. I’ll stick to a well-diversified global portfolio of stocks and bonds titled towards the dimensions of expected returns to meet my long term financial goals.

A True Christmas Miracle

"In a sense, it’s always Christmas for us, and it always has been." –Kevin D. Williamson


A friend of mine sent me a great article over the weekend that I want to share with you. He referenced it as a great Christmastime article and it certainly is.The need for benign neglect

The article really captures the essence of a very true Christmas miracle, Capitalism. As Williamson so eloquently points out... “how manufactures and farmers and innovators of the world compete ruthlessly to lay the very best of all that mankind produces at our feet, for our own use and enjoyment”. Yes, truly a miracle and the best wealth creation tool known to man.

Wise Man Speaks

"Wise men speak because they have something to say; fools because they have to say something." –Plato


For my money, Eugene Fama is the smartest guy in the whole investment world. He is one the leading voices coming out of the prestigious Chicago School of Economics. He’s also referred to as the Father of Modern Finance for his groundbreaking and revolutionary research. Probably his greatest contribution is breaking this research down to its simplest form so it can be implemented by the average investor. In fact, his research forms the basis for all of our long term investment portfolios here at Verity Capital Management.

Needless to say, a wise man well worth listening to. Check out these snippets from a presentation Fama recently did for The CFA Society Chicago. He weighs in on everything from market efficiency to why investors shouldn’t buy hedge funds.Embrace passive management already

Again Why Diversification Is Your Buddy

"Because no one has a reliable crystal ball, a better approach is to diversify." –Jim Parker, Dimensional Fund Advisors


Jim Parker writes very insightful articles for DFA. His most recent one doesn’t disappoint:Outside the Flags_Catchphrase Investing_US.pdf

Find out how to increase your odds of being in the next big winning sector without chasing hot trends.

Hope you enjoy his columns as much as I do.

Rule of 72

"The Rule of 72 was definitely an ‘aha’ moment for opened my eyes to the power of compound growth and what it means to save and save early." –Chris Kelly


I can certainly understand that Chris. The Rule of 72 is a simple and easy to understand calculation that gives a very accurate estimate of the number of years it will take to double your money. You simply divide 72 by your expected annual return. For example, if your expected annual return is 8%, it would take 9 years to double your money (72/8=9). You could also use the Rule of 72 to determine what rate of return one would need to double their money over a certain period of time. Example, you’ve got a sum of money that you want to double in 10 years. What rate of return would you need? 72/10 = 7.2. You’d need a 7.2% annual rate of return to double your money in 10 years.

This is a great formula to share with your kids and grandkids to get them excited about the power of saving and compounding.

One key point realize the benefits of this compound growth, investors must remain invested through market ups and downs.

Here’s a link to the article Chris Kelly wrote for Kiplinger’s,How To Motivate Your Kids To Save And Invest: The Rule of 72.

Thanksgiving Truths

"I am grateful for what I am and have. My thanksgiving is perpetual." –Henry David Thoreau


It has become somewhat popular in our current culture to portray the Pilgrim’s as arrogant oppressors who deprived the Native Americans of their land and their lives. You might recall that a few years ago, Seattle public school officials made national news describing Thanksgiving as a “time for mourning” and a “bitter reminder of 500 years of betrayal”.

Michael Medved, nationally syndicated talk show host, tries to set the record straight in this 5 minute video he did for Prager University,What’s The Truth About The First Thanksgiving?

If you doubt any of his facts check the facts and sources section below the video.

Key Questions

"Focusing on what you can control can lead to a better investment experience." –Dimensional Fund Advisors (DFA) Issue Briefs, November 2017


Please review the November 2017 Issue Briefs from DFA. These are always insightful but this one is a must read. It summarizes a few of our key investing principles and how they can improve the odds of long-term investing success.
Key Questions for the Long_Term Investor.pdf

Lessons Learned

"The evidence stares you in the face." –Gene Epstein


Gene Epstein has been the Economic Beat writer for Barron’s for the last 25 years. I have enjoyed his insight and wisdom over that period of time. He’s retiring and recently wrote his final column, Lessons Learned from Friedman, Sowell and Mom.

The biggest lesson Gene has learned over this period of time is that prosperity for the masses depends on free-market capitalism. This must have been a hard lesson for him to accept seeing he was brought up in a socialist tradition by a card carrying Communist mother. It’s hard to deny though when the evidence is staring you in the face.

Smart Money Kids

"Help your kids become fluent in the language of money and how to handle it." –Rachel Cruze


Sounds great Rachel but where do we start? Check out the video Rachel did for Prager University,
How To Raise Kids Who Are Smart About Money

The ship may have sailed (or maybe not) to share this with our own kids but I think we’d be doing our grandkids a great service by sharing these 3 things everybody needs to know about money.

The Uncommon Average

"The U.S stock market has delivered an average annual return of around 10% since 1926." –Oct 2017 Issue Briefs, Dimensional Fund Advisors (DFA)


The above quote shouldn’t come as a surprise to anyone. I’m sure you’ve seen or heard this repeated many times. What may come as a surprise is that over the last 91 years, only 6 years have had an average return return of plus or minus 2 percentage points of the historical average of 10%. That means most years the returns are well above or well below the index’s average.

Investors can increase their chances of having a positive outcome by maintaining a long-term focus. Check out this very short article from DFA, that helps investors put things in proper perspective.The_Uncommon_Average.pdf

Bar None

"The percentage of people living at starvation level poverty has fallen 80% since 1970." –Arthur Brooks, President, American Enterprise Institute


That’s an amazing statistic that we’re just not hearing enough about. In fact, 84% of Americans are unaware of the progress being made against poverty worldwide.

Check out Brooks’ video that he did for Prager U.,If You Hate Poverty, You Should Love Capitalism

Yes, it’s that nasty capitalism to blame for this decrease in poverty. For the good of this country and the world, help spread the message on how great capitalism is.

If you invest with Verity Capital, you are essentially investing in global capitalism. Capitalism is the greatest wealth creation tool known to none.

The Simple and Obvious

"Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice." –Ben Carlson


True that Ben Carlson. You hit it out of the park in your recent blog,36 Obvious Investment Truths.

The above is item # 28 from his list of 36. The simple and obvious truths about investing can certainly get blurred out by the daily barrage of investment pornography. Hopefully, this can help get you refocused on the truth.

Don't Fool Yourself

"Once a country goes down a socialist path, there’s no easy way back." –Debbie D’Souza


Debbie D’Souza is a native Venezuelan and a political activist. Check out this 5 minute video she did for Prager University,
How’s Socialism Doing In Venezuela?

Some pretty sobering stuff here. Dependency on the government is a tough cycle to break. If we’re smart, we should heed her advice and don’t fool ourselves into thinking it can’t happen here.

With Socialism, you do eventually run out of other peoples money to spend. Capitalism is the greatest wealth creation system known to man.

Resilent Markets

"....doing nothing is almost always the best investment strategy during a geopolitical crisis." –Mark Hulbert


As contrary as this sounds and how emotionally hard it can be to do nothing, this advice by Hulbert is spot on.

Check out his short blog on Market Watch,What To Do With Stocks If The U.S and North Korea Go To War

The Ned Davis Research tells the story. They looked at 51 geopolitical events from 1900-2014 and it shows how the market strongly(and quickly) rebounds from post crisis panic lows.

Key take away.....selling into a crisis is hardly ever a good idea.

Something Lighter

"Mamas’ don’t let your babies grow up to be cowboys. Let’m be soccer players and golfers and such." –William P. Kelly


Sorry for the bad paraphrasing above but I couldn’t help myself. I came across this interesting article over the weekend,
The Highest Paid Athletes In The World In One Chart.

Two of the three highest paid played soccer and despite his personal and health problems, Tiger Woods made more than $37 million last year on endorsement deals.

Don't Worry, Be Happy

"When investors can’t find anything worth worrying about, they worry about why no one seems to be worrying enough." –Jason Zweig


The VIX Index is how the markets measure volatility. It’s often referred to as the “fear index”. It’s a contrary indicator and the old market adage says, investors should buy when the VIX is high and go when the VIX is low. Well, the VIX is currently trading at historic lows. Is it time to go?INVESTORS, STOP WORRYING ABOUT WHY ‘NOBODY’ IS WORRYING

You also know my feelings about market timing by now. It’s a fools game and usually ends in a not so happy ending.

Summer Reading?

"Individuals can now save for retirement far more efficiently than before by assembling a diversified portfolio of index funds. There is no better way to preserve and grow one’s savings." –Burton Malkiel


I couldn’t agree more Burton. Let me point out though, there’s a whole science behind how to assemble these diversified index funds. That’s what we specialize in here at Verity Capital Management.

Malkiel is the author of A Random Walk Down Wall Street. This is one of the most influential investing books ever written. Malkiel shows why nobody can consistently outperform the market averages. It was this book that opened my eyes to a whole different approach to investing. It’s currently in it’s 11th edition and has sold over 1.5 million copies. Maybe not exactly the summer book you were looking for but still a must in every serious investors library.

Malkiel is still at it. Check out his recent op-ed in the WSJ,Index_Funds_Still_Beat_Active_Portfolio_Management.pdf

Bogle on Bogle

"If the data do not prove that indexing wins, well, the data are wrong." –John Bogle. The Little Book of Common Sense Investing


Bogle is arguably one of the greatest investment minds to ever live. He is the founder of the Vanguard Group where he created the worlds 1st index mutual fund in 1975.

He recently wrote about his investment thinking for Financial Analysts Journal. It’s a pretty dense body of work but a recent Market Watch article,7 Timeless Investing Lessons From Vanguard Founder John Bogle, does a great job of summarizing the article into these 7 tireless lessons.

Hope you take the time to read what a genius with decades of investment experience has to say in these 7 simple ideas.

Spending Too Little?

"Too often, the same personality traits that facilitate saving for retirement become impediments when it is time to spend that money. It can lead to a much less satisfying retirement." –Dr. Meir Statman, professor of finance, Santa Clara University


How right you are Dr. Statman. I have witnessed this first hand. Check out his recent article from the WSJ:
The Mental Mistakes We Make With Retirement Spending.

Yes, some good habits that we established to accumulate our retirement nest eggs can lead to spending too little, spending it on the wrong things or taking on too much investment risk in retirement. This article does a good job of helping us recognize some old habits that may be working against us in retirement and what we can do about it.


"Having compelling ideas is important, but acting on those ideas is what really counts" –David Booth, Co-founder and Chairman of Dimensional Fund Advisors (DFA)


You certainly had some compelling ideas, Mr. Booth and they were successfully implemented through the mutual fund company, Dimensional Fund Advisors, that you co-founded 35 years ago. During that time, DFA has amassed a track record that is second to none in the investment industry.

David Booth is a man well worth listening to for investment advice. This short letter is chock-full of solid investment advice that has stood the test of time.Letter From The Chairman, 2017.pdf

Hopefully They Get IT

"The only system in human history... the only system to help ambitious poor people rise over poverty has been capitalism" –Dr. Yaron Brook


Have you ever heard of Turning Point USA? It’s a non-profit organization started in 2012 to educate students about the importance and benefits of capitalism and the free markets. TPUSA has a presence in over 1,000 college campuses and high schools across the Country. In fact, it’s the largest and fastest growing youth organization in America. That’s great news because the vast majority of college students think socialism is a better system than capitalism without really understanding what either system is all about. Hopefully this organization will help spread the truth and open students minds to the power of capitalism.

Check out this 3 minute video put out by TPUSA where Dr. Brook explains how capitalism cures poverty:
TRUTH! Yaron Brook Perfectly Explains How Capitalism Cures Poverty!

Capitalism is the greatest wealth creation tool known to man. It’s one of the founding principles that makes our country so great. Hopefully our younger generation gets the message and doesn’t lead us down the slippery slope of socialism.

Embrace Uncertainty

"Doubt is not a pleasant condition, but certainty is an absurd one." –Voltaire


Uncertainty is just an unpleasant fact of life. It’s also an inherent and important part of the investing process. Any investment that has an expected return above the “risk-free rate” ( i.e U.S Treasury Bills) involves trading off certainty for expected increased returns.

David Booth is one of the smartest people in the investing business. He’s co-founder of Dimensional Fund Advisors and the University of Chicago Booth School of Business is named after him. He has spent his life studying the markets and he speaks the truth. Check out this short video ( less than 3 minutes) where he talks about dealing with uncertainty in investing.
Dealing with Uncertainty

Sorry, there’s no silver bullet to protect from the uncertainty that comes with investing. What you can do is have a portfolio that’s in line with the level of risk you’re willing to take, understand that uncertainty is part of the process and stick to your plan through good and bad markets. Or as David Booth says, “ Everybody has to deal with uncertainty along the way. The important thing is to put yourself in the position that gives you the best chance to succeed and accept the outcome.”


"If the data do not prove that indexing wins, well, the data are wrong." –John Bogle


Nothing makes Mr. Bogle’s case better that the annual study done by Standard & Poor’s that compares how active mutual fund managers have done against their respective index benchmark. Their most recent study came out last week and let’s just say it ain’t pretty for the active management side.

After reviewing 15 years of data through December 31, 2016 and involving over 10,000 actively managed funds, 92.15% of large cap funds, 95.4% of mid cap funds and 93.21% of small cap funds underperformed their respective benchmarks. Read that statement again. That is absolutely mind blowing.

The passive vs. active debate has been going on for decades. My question is why? The data and empirical evidence clearly supports the passive side of the debate.

I’ve attached the 2016 report for those that want to get in touch with their inner geek.Spiva® Statistics & Reports

Market Gurus "Sure Things"

"The only value of stock forecasters is to make fortune-tellers look good." –Warren Buffett


Well at least they have some value, Warren. Larry Swedroe has done a nice job of tracking the “sure things” that market gurus have agreed were going to happen each year going back to 2010.

Here’s Larry’s article for how the gurus are doing so far in 2017. Most meaningful is the chart at the end of the article where he shows all the results going back to 2010.Swedroe: Following Up On 2017’s ‘Sure Things’

There were 62 consensus “sure things” and only 16 happened. That’s a dismal 25% success rate. Maybe investors would be better off listening to the fortune-tellers. Better yet, how about realizing you don’t need forecasts. What investors need are globally diversified portfolios structured at appropriate risk levels that capture market returns. That’s how you really put the odds in your favor.

One Word: Performance

"We build diversified portfolios that capture the dimensions of expected return." –Eugene Fama, Nobel Laureate and Director at Dimensional Fund Advisors(DFA)


One of the most frequent questions I get asked by clients and prospects is why we use predominately DFA Funds in our portfolios. Why not use funds from the better known passive fund company Vanguard? The answer comes down to one word: performance. Take a look at the chart below and you’ll see what I mean.

Source: Dimensional Fund Advisors. See disclosures below.

Based on Professor Fama’s research, DFA just does a better job of capturing the small cap and value premiums that have been shown to outperform over the long term. As you can see from the above chart, these premiums are no small matter. The large cap value premium over this period was 2.18% per year, the small cap premium was 1.93% and the small cap value premium was 1.18% annually. That’s a significant difference for funds that are trying to capture the same market premiums.

The reason for the 10/1/1999 to 12/31/2016 time frame is that this is the longest period that data was available for both fund companies.

Also, there’s a reason why people know about Vanguard. How? Think about the advertising dollars they spend so you do know their name. Take a guess what DFA’s annual advertising budget is? You got They don’t have to advertise. Smart advisors are willing to spend their own money to get access to their funds. Obviously, all the money Vanguard spends on advertising ultimately comes out of the returns that investors get.

That's What I Call Diversification

"Diversification is your buddy." –Merton Miller, Nobel Laureate in Economics


I love this quote by Merton Miller. Another of my favorites that Miller was fond of saying... “Diversification is the closest thing investors get to a free lunch.”

Great points from the great mind of Dr. Miller. He spent most of his career teaching at the prestigious University of Chicago Booth School of Business where he mentored none other than Eugene Fama.

Both these men have had a tremendous influence on how we structure our investment portfolios.

Here's a link to the recent article from Jim Parker of DFA showing how diversification acts as investment shock absorbers for our portfolios. Hope you enjoy.Investment_Shock_Absorbers_US.pdf

We’re obviously big believers in diversification here at Verity Capital Management. That’s why our portfolios have over 16,000 unique holdings in 45 different countries spread over 21 distinct asset classes. Now that’s what I call diversification.

Simple vs. Sophisticated

"It ain’t over till it’s over." –Yogi Berra


With all due respect Yogi, in this case I think it might be over. Back in 2007, Warren Buffet made a $1 million dollar bet with Ted Seides of Protégé Partners. The bet was simple- Buffett bet that a simple S&P 500 index fund would outperform a basket of hedge funds selected by Mr. Seides over the subsequent 10 year period. The classic simple versus sophisticated.

The results after 9 years are in and it’s not even a fair fight. Buffett’s simple index fund is up 85.4% while the basket of hedge funds hand selected by Seides is up 22%. That’s a compounded annual increase of 7.1% versus 2.2%. In terms of growth of $1,000,000 it’s $1,850,000 compared to $1,220,000. Ouch! Don’t forget, this period includes 2008 in which the S&P 500 was
down 37%.

The good news is the proceeds ultimately go to a charity selected by the winner.

In our humble opinion, even Mr. Buffett is taking too much risk with this bet. He’s essentially betting on one asset class- large cap U.S stocks. By following the principles of modern portfolio theory (MPT), he could diversify into a low cost globally diversified portfolio and obtain similar results while taking about 1/2 the risk. Now that’s what I’m talking about.

Buffett’s Berkshire Hathaway’s 2016 Letter to Shareholders came out last week. It’s by far, the most read Letter to Shareholders of any company. It’s full of Buffet’s savvy investment advice and folksy wisdom. In this letter, he talks about this bet and really rips into the hedge fund industry and their high fees.Berkshire’s Performance vs. the S&P 500

We Know We Don't Know

"99% of fund managers demonstrate no evidence of skill whatsoever." –William Bernstein, Ph.D


That’s an interesting point Dr. Bernstein. Maybe that helps explain the following interesting fact:

There are over 20,000 unique stocks traded in the U.S markets. There are over 28,000 mutual funds in the U.S.

Yes, that’s correct. There are more funds than there are stocks. Over 90% of these mutual funds are actively traded. That means they are set up to beat their appropriate benchmark primarily through stock picking and market timing. We all know how disastrous these results have been.

Think about it for a minute. If these fund managers really knew what was going to happen how many funds would they really need? Yup, you got

So next time you see an add, for say Fidelity, touting the three funds you should buy now because they outperformed their benchmarks, keep in mind that they had over 10,000 funds that were trying to do it. Just dumb luck or the law of averages would tell you that some would have to do it. The problem is how do you identify these funds in advance? You can’t.

This is precisely why we invest in over 16,000 unique holdings in 45 different countries. We know we don’t know, so we put the odds in our favor through global diversification. Sure beats gambling and speculating.

Glad You Paid Attention

"I went to the University of Chicago, where I sat in on a lot of investment classes. I’m a big believer in passive investment." –Vincent Morris, V.P of Finance, Houghton College.


So are we Vincent and good for you for putting your money where your beliefs are. I had an e-mail a few weeks ago talking about how most college endowments follow the Yale model and are heavily allocated towards alternative investments such as private equity, real estate and hedge funds.

Well, the investment results are in for the college endowments for the year ended June 30, 2016 and the winner is.....Harvard’s –2% return , no.........Yale’s 3.4% return, no....Houghton College’s 11.85% return, yes. You’re forgiven if you’ve never heard of Houghton. I never had either. It’s a small liberal arts college in western N.Y.

Here’s a link to the article that was in the NYT last week.How Tiny Houghton College Beat Harvard

So how’d they do it? Under Mr. Morris’ leadership they got out of all alternative investments about 1 1/2 years ago in favor of portfolio made up of exclusively low cost index funds and mutual funds. I’m glad you were paying attention in those investment classes, Vince. Well done.

We Are Your Fiduciary

"Demand that they (financial professionals) take a pledge to act in your best interest." –Ron Lieber


Let me ask you a question. How would you feel if you went to a doctor for treatment of a certain condition and the doctor gave you a suitable treatment but not the best treatment you could obtain? I bet you’d quickly be looking for a new doctor. You expect treatment that is in your best interest not just suitable.

The same should be true for professional investment advice you receive. Let me ask you another question. Did you know that most investment professionals don’t have to act in your best interest? Yes, you read that correctly! Stockbrokers and insurance agents are only held to a suitability standard and not a fiduciary standard that would require them to act in your best interest.

Most investors have no clue about this. So why would some investment professionals not act in their clients best interest? Greed. They put their own interests over yours. This usually rears its ugly head in the form of high commission products that are suitable for a particular investor but obviously not in there best interests.

Ron Lieber had a good article in The NYT last week,Fiduciary Rule Is In Question. What’s Next For Investors?

The fiduciary rule is becoming a political football. Regardless of what legally happens, rest assured that the fiduciary rule is alive and well here at Verity Capital Management. It’s who we are, it’s what we do. We act as fiduciaries in all of our business dealings and your interests always come first.

Do As You Say

"Unless an investor has access to incredibly high-qualified professionals, they should be 100 percent passive – that includes almost all individual investors and most institutional investors"
–David Swenson, Chief Investment Officer, Yale Endowment


Great advice David! Maybe it’s time to start following your own advice. Check out this short article to see why.How the Bogle Model Beats the Yale Model

It’s also unfortunate that you’ve led the whole endowment industry down the costly and not so profitable alternative investment road. There’s certainly something to be said for keeping things simple and efficient with a high probability of success.

That's What We Own

"Free market capitalism is the best path to prosperity." –Lawrence Kudlow


Amen Larry! Capitalism is the greatest wealth creation tool known to man. It’s the underlying basis for all of our portfolios. That’s what we capitalism at a risk level each individual client can handle.

Have doubts about the value of the free markets? Check out this short video from Prager University,Why Is America So Rich? By the way, check outShort Videos. Big Ideas. for some very informative short videos on an array of different topics. Good stuff!

The Big Lie

"The securities industry is desperate. It can’t dispute the numbers, which clearly indicate you would be better off investing in low management fee index funds, so it has concocted this big lie...." –Dan Solin


.....and the big lie is ( drum roll, please): Investing in index funds means you’ll be settling for “average returns”.

The active managed fund industry has reason for concern. In 2016 alone, it had outflows of $150 billion. Hedge funds had net outflows of $77 billion.

Why this massive amount of outflows into index funds? Poor performance. Actively managed funds continue to underperform their benchmarks. For the past five years, 92% of large cap managers lagged their respective benchmarks and 98% of small cap managers were beat by their benchmark.SPIVA® U.S. Scorecard

So, don’t believe the big lie. The “average returns” that you’d be settling for are a heck of a lot better than the alternative.

Truths Not Opinions

"I know that I know nothing." –Socrates


It sure seems like 2016 was the year that bears out Socrates’ great wisdom. Seems like all the expert prognosticators just couldn’t get it right. Look no further than Brexit and the U.S Presidential election results. You could have gotten some heavy odds in your favor on both results. Or, how about the Chicago Cubs winning the world series or Bob Dylan winning the Nobel Prize in Literature?

Why it may be fun to guess such outcomes, it’s a dangerous game to play with your investment portfolio. Remember the beginning of 2016? In the first 10 trading days of the year, the S&P 500 was down over 8%. Most financial pundits said run for the hills. The S&P 500 fought it’s way back but was still pretty much break even up until the election and finished the year up 11.9%. I didn’t hear anyone predicting that.

Here's an article by Wes Wellington of DFA,A Look Back at 2016,pdf.  Wes is one of my favorites. He’s made a living out of holding the investing pundits feet to the fire and showing how wrong they have consistently been.

I’m sure glad we have an investment philosophy that’s based on the truths of rigorous research rather that the “gurus” opinions of what they think will happen.

You Just Have To Show Up

"Eighty percent of success is just showing up." –Woody Allen


As most of you know, one of the foundation building blocks of our portfolios is the Fama-French Three Factor Model (since updated to a fourth factor). This groundbreaking research identified specific dimensions of premium returns that outperform the broad market averages over time. These market premiums are: equities return more than fixed income; small stocks return more than large company stocks and value stocks return more than growth stocks – all over time. Time being the operative word.

Investors have to be patient and be willing to be outperformed in the short run in order to obtain the superior long-term results that exposure to these premiums have historically delivered. You just have to “show up” in these specific asset classes in order to obtain their superior returns.

Here is a very brief but compelling article by Weston Wellington of Dimensional Fund Advisors that clearly illustrates how investors put the odds in their favor by staying disciplined and maintaining constant exposure to the dimensions of higher expected returns. What a difference a month can make. Through October 2016, the small cap premium was only .34% year to date and that increased to 8.01% through November 30, 2016. I really hope you take the time to peruse this article.A_Vote_for_Small_Cap_Stocks_US.pdf

They Should Come With A Warning

"The percentage of active managers able to add significant value has fallen from about 20% 20 years ago to just 2% today." –Larry Swedroe, from his book, The Incredible Shrinking Alpha


What Swedroe is referring to by "add significant value" is the ability of these active fund managers to consistently beat appropriate benchmarks. It simply can't be done as witnessed by this dismal 98% failure rate.

Our curmudgeonly old friend, Dan Solin, had a good article last week in The Huffington Post, A Required Warning On Actively Managed Funds.

Solin might be on to something here. He suggests that the 1st page in the prospectus for actively managed funds come with this warning: WARNING: BUYING THIS FUND CAN BE DANGEROUS TO YOUR WEALTH

Since most investors don't read a prospectus, he also recommends investors be required to sign a waiver before being able to buy these funds.

Check out his article. As always, it's got a lot of good information to support his case and has links to other compelling articles.

It's That Time of Year Again

"Prediction is very difficult, especially if it’s about the future." –Nils Bohr, Nobel Laureate in Physics


It’s that time of year again. No, not the holiday season but prediction season. Every Tom, Dick and Harry comes out of the woodwork during this time of year with predictions of what next year may hold for your investment portfolio. Most of these predictions tempt investors to play the dangerous game of trying to beat the market.

In case you think this might be a good idea check out the attachment from DFA called Prediction Season. Exhibit 1 says it all....85% underperformance by US equity funds trying to beat the market....and 85% is the best goes as high as 97% underperformance for small cap funds over a 5 year period.

As the article points out, the only accurate prediction for the coming year is “ Capital markets are expected to continue to function normally”. I know, pretty boring. But that’s the truth of the matter.prediction_season.pdf

It's A Shame

"The S&P 500 is up over 200 percent since bottoming out in 2009, but stock ownership has become concentrated in fewer and fewer hands." –Bob Pisani, CNBC “On-Air Stocks” Editor


This is truly a tragedy of the last decade. Many investors fled the financial markets after the 2008 financial crisis and have not come back. A Gallop poll in April showed that only 52% of Americans invest in stocks. This is the lowest level on record.

Check out Pisani’s short video and his article:Even as stocks surge, half of Americans are losing out

It’s a shame that half of us are missing out on the greatest wealth creation tool known to man. Seems like the wealthy get it though. As pointed out in Pisani’s article, 90% of all stocks are owned by the wealthiest 10% of households. I guess that’s why they are wealthy.

Congratulations! If you’re reading this your either in the 10% wealthiest of households or the 90% of households who make up 10% of stock ownership. Either way, you’re on the right track.

Why Diversify?

"We build diversified portfolios that capture the dimensions of expected return." –Eugene Fama, 2013 Nobel Laureate and current Director at Dimensional Fund Advisors


That’s exactly what we do Gene, but why? Why not build more concentrated portfolios that seek only the factors that your research has uncovered? Why not go after just the smallest and value oriented stocks? Check out this chart below from recent research by Dimensional Fund Advisors and you’ll see why:

As you can see, there’s a consistent increase in probability as number of securities increased. Notice also the benefit of time diversification as the increase in probability of capturing return premiums increases over longer time periods.

Diversification not only increases expected returns for a given level of risk, it’s also the most prudent way to capture the premiums we’re targeting.

We're Playing A Different Game

"The number of managers that can successfully pick stocks are fewer than you’d expect by chance. So, why even play that game? You don’t have to." –David Booth, Founder and Co-CEO, Dimensional Fund Advisors


You certainly don’t have to play the game and here’s why:

At Dimensional, our investment approach is based on a belief in markets.

Rather than relying on futile forecasting or trying to outguess others, we draw information about expected returns from the market itself—letting the collective knowledge of its millions of buyers and sellers set security prices.

Letting markets do what they do best—drive information into prices—frees us to spend time where we believe we have an advantage, namely in how we interpret the research, how we design and manage portfolios, and how we service our clients. It means we take a less subjective, more systematic approach to investing—an approach we can implement consistently and investors can understand and stick with, even in challenging market environments.

How Many Funds Outperformed Benchmarks?

Only 15% of US equity and fixed income funds that were around in 2000 beat an industry benchmark, 15 years later. Over the same time period, 82% of US equity and fixed income Dimensional funds outperformed their benchmarks.

I pulled the above from the new DFA public website. Check it out if you have a chance,Dimensional Investing is about implementing the great ideas in finance for our clients.

See anything interesting in the above? It’s the exact opposite of the rest of the investment industry. For the 15 year period ending December 31, 2015, only 15% of the industry were able to beat appropriate benchmarks while 82% of DFA Funds outperformed their benchmarks.

So, yes, thankfully Mr. Booth, we don’t have to play the game the rest of the industry is playing. Any questions why I consider DFA the best mutual fund company in the world?

What if, today, we were grateful for everything.

"We have so much to be grateful for" –Charlie Brown


We live in the greatest Country in the world at the greatest time in human history. Have a great Thanksgiving.
Don’t forget to save room for the pie.

Putting It In Perspective

"A picture is worth a thousand words." –Old English idiom


Well, that’s certainly true in this case. Check out this illustration of financial history.A_history_of_share_prices.pdf

The chart is an chronology of the financial crises and market panics from the Middle Ages to the present. What does this chart show that global stocks did? They steadily increased through it all...wars, revolutions, depressions. All the bad stuff that has happened over the last 500 years are buried in these results.

Markets are constantly climbing a “wall of worry”. That’s why it’s important to step back and take a long-term perspective.

Take special note of the steep increase in the rise of global stock prices from the mid 1800’s to the present. That’s no accident. That’s when capitalism really started to gain some traction. That’s why I say capitalism is the greatest wealth creation tool known to man. It has done more to increase our quality of living than anything else. It’s the engine that drives everything and provides the resources necessary to provide for the less fortunate. Government programs cannot do that.

Lessons From The Pencil

"The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are." –Professor Kenneth French, Dartmouth University


If you don’t think this is true, try to create a pencil on your own. Yes, the simple pencil that we all take for granted. In 1958, economist Leonard Read published an essay called, I, Pencil: My Family Tree. The essay is narrated from the point of view of a pencil and shows in great detail the “complex combination of miracles” necessary to create and bring to market the simple pencil. The story makes it very clear that no single individual possesses enough ability or know-how to create a pencil on their own. It truly shows how the power of the markets benefits us all.

If you have time, I strongly encourage you to watch this video. It’s 6 1/2 minutes long. You’ll be amazed at all the intricacies that go into the making of a pencil.I, Pencil: The Movie.

Hopefully, this will give you a new appreciation for the power of the markets. Our goal as investors should be to stop fighting the market and instead learn to harness the power of the markets and reap the rewards that financial markets make available to providers of capital.

Investors are finally catching on. In the last 12 months, active funds have had $303 million of outflows while passive funds had $433 million of inflows. Halleluiah, the truth is finally penetrating the Wall Street machine.


"Normally in life, we think of active as being better than passive....but when it comes to investing, sitting around may actually be better." –Kate Stalter in recent Forbes article


The idea of being passive is appalling to many investors. How can one sit around and do nothing with everything going on in the world. Many investors feel it is necessary to be proactive and adjust their portfolios to whatever is going on in the daily news. Hopefully, you’re not one of these investors.

Kate Stalter had a great article in Forbes last week and the title says a lot,Why Just Sitting There Is Better Than
Being Active.

She does a great job of presenting the evidence of underperformance by active fund managers against their index benchmark.

For instance, in the last 10 years, 85% of large cap managers, 91% of mid cap managers and 91% of small cap managers failed to outperform their respective passive benchmark.

She also presents compelling evidence to dispel some other common misconceptions such as: Small cap markets are inefficient and active management can outperform in this asset class. It can’t. Active managements ability to outperform during bear markets. It can’t.

Investors are finally catching on. In the last 12 months, active funds have had $303 million of outflows while passive funds had $433 million of inflows. Halleluiah, the truth is finally penetrating the Wall Street machine.

Thanks DFA

"Efficient markets are the only thing that creates an ordering principle in the financial universe." –Rex Sinquefield, Co-Founder Dimensional Fund Advisors (DFA)


Check out Jason Zweig’s Money Beat article in last Friday’s WSJ:Straight Talk from the Brainiacs at DFA.pdf

You know my feelings about DFA. I consider them the best mutual fund company on the planet.

What really grabbed my attention in this article was when Professor Wahal of Arizona State was talking about Nobel Prize winner Eugene Fama and Kenneth French, both directors and advisors to DFA. Here’s his quote....”They are ruthless about the truth. Gene and Ken don’t give a damn about any vested interests or incentives or marketing. They only care about the data”.

The search for the truth is exactly what drew me to DFA in the first place. After becoming very disillusioned with the market collapse in the early 2000’s, I went on my own personal search for the truth about investing. I almost gave up before stumbling across DFA. Once I heard their story, I knew I found what I was looking for. It has forever changed the way I invest my and my clients money. Thanks DFA for your academic and honest approach to investing.

Opinions and Predictions Don't Matter

"If you knew what was going to happen, you still wouldn’t necessarily know what’s going to happen in the stock market." –Warren Buffett


The question I get asked most frequently goes something like this.....”What do you think is going to happen with the economy? How’s it going to effect the market?” Then this person usually proceeds to recite a litany of reasons why they are worried and why I should be too.

Truth of the matter is I have no idea what’s going to happen and nobody else does either. Sure, I can have an opinion but that’s all it is. It normally has no bearing at all on what will actually happen.

Another truth....when you’re investing properly, your portfolio should not be based on someone’s opinion of what they think will happen. If your portfolio is based on your opinion or someone else’s opinion (no matter how smart they are) it is already doomed.

As Buffett so accurately points out in the above quote, even if you knew what was going to happen, you don’t know how the market will react.

Still another truth.....capitalism has created more wealth and has increased our quality of living more than anything known to man. I’d rather hitch my wagon to that than someone’s opinion or prediction of what they think will happen.

Capitalism has weathered all kinds of wars, depressions, presidential elections, bear markets etc, etc, etc. Since the creation of publically traded markets, there have been millions of reasons to not invest. Capitalism has defeated them all.

The key is to have a low cost, passively structured, globally diversified portfolio at a risk level appropriate for you. This last point is key. In order to not be swayed by opinions and predictions, you must know what the downside can be and you’ve got to be willing to live with that. This is the only way to have a successful investment experience and a good night’s sleep.

Harness the power of the capital markets correctly and you’ll never have worry about someone’s opinion derailing your portfolio or your good night’s sleep.

A Sense of Purpose

"Even in retirement you need a reason to get out of bed in the morning." –Jonathan Clements


You’ve finally made it. You’ve grinded through a career for over forty years and now it’s your turn to sit back and do absolutely nothing. Sound good to you?

Not to me. Ok, maybe for a few months that would be great. Then what? Sounds like a recipe for disaster to me.

I think more and more people are looking for a sense of purpose in retirement. As Clement puts it....”a reason to get out of bed in the morning”.

I’ve always found his advice to be spot on. I think you’ll enjoy his recent article in Money Magazine:
3 Steps to a Happier Retirement

He makes a good point about a part time job easing the financial strain in retirement. Finding something you’re passionate about and working a few days a week really makes sense for a lot of people. Lets say you could make $20,000 working part time doing something you like. That’s like having a nest egg of $500,000 based on a 4% withdrawal rate.

Forget about days of endless relaxation. Instead, think about what will give you a sense of purpose in your final decades.

Presidential Elections and Your Portfolio

"In America, anyone can become president. That’s the problem." –George Carlin


Boy, it certainly seems to be the case this time around George.

With the elections just over a month away, what does that mean for our portfolios?

Check out this article where Dimensional Fund Advisors answers this question in a research paper called Presidential Elections and the Stock Market.Download presidential_elections_and_the_stock_market.pdf

Knowing our investment philosophy, you probably won’t be surprised in the results of this research. Here’s what to do....nothing.

The market has produced substantial returns regardless of who controlled the executive branch. Trying to make investment decisions based on presidential elections is just a losers game.

Is It To Much To ask?

"How can an advisor not put your interest first?" –Larry Stein


This is a question Stein asked and answered in a recent article he wrote for American Association of Individual Investors.
Why Your Financial Adviser Should Be a Fiduciary

I’ve written about this before and Stein lays out the facts very eloquently why it’s important to work with an advisor that is bound to the fiduciary standard. Most advisors are not.

Is it to much to ask of an advisor to be unbiased, have no conflicts of interest and base his advice on sound principles? I think not! It’s unfortunate that most of the investment industry thinks it is.

Own Them, Don't Time Them

"Stay disciplined in equities for next 20 years, not next 20 minutes." –Mark Matson


Check out our buddy Mark Matson’s recent appearance on CNBC. My Recent Appearance on CNBC’s Closing Bell!

Nice to be able to spread our message to the masses. Unlike most guests on this station, Mark’s message doesn’t change. It doesn’t have to when it’s the truth.

Equities are the greatest wealth creation tool known to mankind. Own them long term....don’t time them.

You Will Lose

"It (investing) isn’t supposed to be interesting. If you go into the stock market because you want excitement, then sooner or later you will lose." –Charles Ellis


Charles Ellis is one of the most respected persons in the investment industry. He’s worth listening to. Reread his above quote. He doesn’t say you might lose. He says you will lose.

Up until last Friday, it was easy to become a bored investor this summer. It seemed virtually all the volatility got sucked out of the market and it went into a nice little summer nap.

These can be a very dangerous time for investors. Don’t go looking for excitement that just isn’t there. As Mr. Ellis so astutely points out, the results will be disastrous.

The legendary WSJ columnist, Jason Zweig had a good article the other day that I think you’ll enjoy: A Bored Investor Is A Dangerous Thing.

Save your excitement for interesting things to do with your life and not investing. Your financial future will thank you.

Where's The Proof?

"The difference between luck and skill is seldom apparent at first glance." –Peter Bernstein


How right you are Mr. Bernstein! Wall Street brokers and firms have made a very lucrative living on this simple fact. The active money managers are quick to attribute short term outperformance as an indication of superior skill. In fact, such outperformance is more likely completely due to luck. I challenge any active manager to show me any reliable research that proves active management can outperform the market by any measure greater than what is expected by random chance. I know of many studies that prove the exact opposite.

Dimensional Fund Advisors (DFA) recently completed such a study (Mutual Fund Performance Through A Five-Factor Lens). They examined 3,870 active mutual funds over the 32 year period 1984 to 2015. The results found that the active mutual fund industry, as a whole, underperformed the Russell 3000 Index by 1.34%. The study also concluded that the number of active managers that outperformed was less than what was expected by random chance. This is consistent with the abundance of research that preceded this study.

So again, active managers where’s your proof? It just doesn’t make any sense to gamble with your life’s savings on the hope that you might get lucky and earn an above average return. This is precisely why we put the odds in our clients favor and construct passive portfolios that are designed to capture global market returns. Save your luck for Vegas.

Bad Benchmarking

"If the data do not prove that indexing wins, well the data are wrong." –John Bogle


Well, I came across an interesting article over the weekend that challenges Bogle’s assertion. The article was in Market Watch and was titled, How This Stock Fund Routinely Beats The S&P 500. Here’s the link to the article:
How this stock fund routinely beats the S&P 500

I must admit, the article certainly grabbed my attention as I’m certain it did for many other advisors and investors. Could this be the holy grail we’re all looking for?

The fund in question is the Jenson Quality Growth Fund. I immediately checked the performance data to see what was going on. It didn’t take long to determine the reason for outperformance. It’s a case of bad benchmarking. The S&P 500 is an index that’s made up of the 500 biggest companies in the U.S. The Jenson Growth Fund invests in a subset of this index (i.e growth stocks). A better index to compare performance would be the Russell 1000 Growth Index. This is more representative of the type of stocks Jenson invests in.

So, drum roll please, how was the performance of this fund when compared to a proper index? Over the 23 year history of the fund, it underperformed its appropriate benchmark by 1.23% per year.

What’s that mean? Well if you invested in this fund at inception, you’d have 3/4 of the amount of an investor who had invested in a simple large U.S growth index fund.

Well, I guess you’re right again Mr. Bogle. I thought I might have gotten you on this one.

Moral of the careful of attention grabbing headlines. There are usually good explanations for the perceived outperformance.

Buffett's Wisdom

"One of my favorite ways to learn is to remember pithy quotations that wrap a lot of wisdom into relatively few words." –Paul Merriman


Me too, Paul. You probably already know that as I begin all these e-mails with a quote.

In the investment world, nobody packs more wisdom into simple quotes than Warren Buffett. Check out this recent article Merriman wrote for Market Watch: The genius of Warren Buffett in 23 quotes

Some good stuff here. I particularly like this Buffet quote...."Do not save what is left after spending, spend what is left
after saving".

No Tingering Zone

"Here’s how to get better returns in your retirement account: Pay as little attention as possible."
–Ron Lieber


I’ve been following Ron Lieber for awhile now. He used to write for the WSJ and currently writes the Your Money column in the NYT. He’s usually spot on and writes a lot about counterintuitive ideas that are closer to the truth when it comes to investing.

Here’s one of his recent articles, Zen and the Art of 401K Maintenance. He makes an excellent case why most investors should have a no tinkering policy when it comes to their investments.Zen and the Art of 401(k) Maintenance

I totally agree with that with two big caveats: 1) In order for this to work successfully, investors must have a low cost, globally diversified portfolio in accordance with their individual risk tolerance levels and 2) This portfolio must be rebalanced on a periodic basis. Once you have these there is no need to tinker. Then you can move on and enjoy what’s important to you in life.

Matson On The Market

"....own equities, diversify internationally and own short-term high quality fixed income."
–Mark Matson


The above quote is a sample of some of the sage advice Mark Matson was dishing out last week on his Fox Business appearance.

If you’re sick of all the political propaganda that seems to be overtaking our lives, take a couple of minutes to clear your mind and focus on some important investing advice from Mark.Catch Up On My Latest Appearance on Fox Business

I appreciate the excellent questions Charles Payne asked Mark, and, as usual, Mark was spot on with his answers. Hope you take the time to view it.

It's Not Your Father's Retirement Plan

"What sane person would try to rewire his house or take out her own appendix?"
–Steven Rattner


This is a question Mr. Rattner raised in a recent NYT Op-Ed piece. What’s he’s talking about is the current state of our retirement system. Over the last twenty years there has been a dramatic shift in who carries the retirement burden in this Country. Gone are the company defined benefit plans that provided guaranteed monthly pensions for retired workers. In its place came defined contribution plans...401K plans. Under this new animal, workers were now responsible to provide for their own retirement.

It’s one thing to put this financial burden on the workers but it’s a travesty what little resources workers are given to handle this massive undertaking. We all know how difficult it is to successfully invest in the global stock markets. Even the investment professionals can’t successfully beat appropriate benchmarks over any sustained period. Now almost every working American is supposed to be an expert in investing to provide for their retirement.

How well is this working out? Well, the average 401K balance for workers nearing retirement in 2013 was a whooping $111,000. That plus social security looks like a pretty bleak retirement to me.

Here’s a link to the article with some practical advice to follow:Pension Holders Need a New Retirement Plan, Not Stock Tips

Selfish Socialism

"’s taken as a given that capitalism with its free markets and profit motive is based on selfishness and produces selfishness while socialism is based on selflessness and produces selflessness.....well the opposite is true."
–Dennis Prager


How right you are Dennis. It shows how much contemporary society has lost its way when it sees a system that teaches people to demand more as kinder and gentler than a system that teaches people to work hard and take care of themselves and others.

Check out Prager’s video,Socialism Makes People Selfish.  It’s about 4 1/2 minutes long and makes a lot of good points to support our investment approach.

You’ve heard me say this before.....Capitalism is the greatest wealth creation tool known to mankind. Capitalism works and that’s the primary believe by all our investors here at Verity Capital. Our whole approach is based on creating portfolios that capture the global market returns of capitalism. That’s why our typical portfolio has over 15,000 unique holdings in 21 distinct asset classes in 45 different countries.

Wine and Investing

As in winemaking, investment management requires attention to detail- researching and identifying the dimensions of expected returns, designing strategies to capture the desired premiums, building diversified portfolios and implementing efficiency. –Jim Parker, V.P Dimensional Fund Advisors


I never really thought that investing and wine had much in common. That is, until I read the article, The Wine Lover’s Guide to Investing. Download Wine_Lovers_Guide_to_Investing_US.pdf

I know most of you enjoy a nice glass of wine now and then and are interested in learning the truth about investing, so I thought you might enjoy this article as well.

By the way, I think our strong suit here at Verity is precisely what Parker is talking about in the above quote. Our whole investment approach is about efficiently building diversified portfolios to capture the dimensions of returns the academics have identified that work in the real world of investing.

Just Say No

Today’s financial advice: Just say no. –Jonathan Clements


Jonathan Clements is a rare breed. He’s a financial journalist that gets it. I’ve been following him for a long time and have pretty much always found him to be spot on.

I thought you might enjoy one of his recent blogs:51 Things You Shouldn’t Do.

They’re all good but I especially like #’s 27,36 and 41.

We Are Different

America means opportunity, freedom and power. –Ralph Waldo Emerson


Happy belated birthday America!

Sometimes we forget how different and great our Country really is. Check out this short video where an outsider, Australian author Nick Adams, does a great job of reminding us.What Makes America Different?

Brexit Now What?

The four most expensive words in the English language are 'this time is different.' –Sir John Templeton


Well, we’re all certainly aware of the historic vote by the citizens of the United Kingdom last week and leave the European Union. We’re also all aware of the negative effect this is having on the financial markets.

Let me try to put this in perspective and I won’t sugarcoat it.....this is what markets do! Markets are volatile and they do not like uncertainty. Investing is hard. Staying disciplined is even harder.

The fundamentals of Capitalism have not changed. England getting out of the EU should have no bearing on your long term financial goals or on the investment plan you have in place to reach these goals.

I came across two articles over the weekend that I think you’ll find helpful. Here’s the first one by Ron Lieber of the NYT:
Advice as Markets React to ‘Brexit’: Take Some Deep Breaths and Don’t Do a Thing

The second article is from Barry Ritholtz of the Washington Post:
Brexit happens. Know your investment plan, and stick to it.

A lot of good old fashioned common sense in both these articles. We’re in this together. I know events like Brexit can really shake investor confidence. Please feel free to reach out to me if you’re feeling any angst. In the meantime do as Ritholtz suggests and take a deep breath and don’t do a thing.

Patient and Disiplined Investors Will Be Rewarded

"Markets are efficient, but there are different dimensions of risk and those lead to different dimensions of expected returns. That’s what people should be concerned with in their investment decisions and not with whether they can pick stocks, pick winners and losers among the various managers delivering basically the same product."
–Eugene Fama, Ph.D, Nobel Laureate in Economics 2013"


That’s quite a mouthful Professor Fama. It also pretty much sums up our approach to investing. In last week’s e-mail, I talked about the different risk premiums that lead to outperformance over broad market indexes. You’ll recall these premiums as the equity, small cap, value and high profitability premiums. I even sent a short video explaining these risk premiums in more detail. Well, these are exactly what Fama is talking about in the above quote. These are the different dimensions of risk that people should be concerned with rather than trying to pick winning stocks.

Today I’m attaching another video that shows the performance you can expect from these risk premiums. It’s just short of 4 minutes long and I strongly urge you to watch it. Along with last week’s video, these give a great explanation of our investing approach.The risk and rewards of evidence-based investing: Video 2/2

These risk factors are not guaranteed every year. In fact, it may take several years for a particular risk factor to deliver its expected outperformance. The academics have identified these risk factors and they have also identified that they happen a lot more often than not and over time they deliver significant outperformance over the broad market. Patient and disciplined investors will be rewarded over time for tilting their portfolios towards these risk premiums.

You Know It When You See It

"Investment Pornography: The depiction of investment and/or financial information in a sensual manner so as to titillate or arouse quick emotional reactions."


Investment pornography is something we’re all exposed to on a daily basis by the financial media. There’s no universal definition of what investment pornography is. It’s one of those things that you know it when you see it. Think of magazine covers or internet articles you’ve seen touting 3 Quick Ways To Double Your Money or 10 Hot Stocks To Own Now. Chances are articles that have words in their titles like hot, safe or now might just be investment pornography.

How do we combat this junk? With the truth. Problem is, often the truth is boring. It doesn’t have the sizzle and sex appeal of investment pornography. It’s a constant uphill battle. In an effort to continue to get the truth out there here’s a video that talks about the premiums that drive investment returns. This is where returns really come from. These risk premiums, primarily the size, value and profitability factors, have been identified by the academics through rigorous independent peer reviewed scrutiny.The risk and rewards of evidence-based investing: Video 1/2

So we all have choices. We can rely on hot tips from supposedly market experts or the truth of the academic research. I think you know where I stand and that’s why we tilt all of our portfolios towards these risk factors. I’d rather put the odds in our favor this way rather than hoping the market “expert’s” predictions come true.

Tidbits of Wisdom

"Focus on the next 20 years and you don’t have to worry about the next 20 minutes....investors have been doing the exact opposite." –Mark Matson


Our friend and money manager of most of our portfolios, Mark Matson, appeared on CNBC’s closing bell last week. Mark’s mission is to spread the truth about investing. When he goes on CNBC and other such shows this usually means going up against adversarial forces. Check out his recent appearance:Is The Current Rally The Real Deal?

The above quote is just one of his tidbits of wisdom. There are a lot more buried in this 5 1/2 minute video. It’s refreshing to hear the truth versus the blah, blah, blah of most of the talking heads on these shows.

Never Forget

"Our debt to the men and women in the service of our Country can never be repaid. They have earned our undying gratitude. America will never forget their sacrifices." –Harry S. Truman


The picture pretty much says it all.


It might not be a great day for the beach today but let us never forget.
Thanks to all who paid the ultimate sacrifice.

Have a great Memorial Day.

It's More Than Owning "A Lot Of Stuff"

"Diversification is your buddy." –Merton Miller, 1990 Nobel Laureate


We all know there is no free lunch when it comes to investing. Properly diversifying your portfolio is probably the closest you’re going to get to a free lunch.

It appears many investors don’t believe this and unfortunately won’t realize it until it’s too late. Check out this very brief article,The Mistakes Wealthy Clients Make.

From the survey mentioned in the article, failing to diversify their portfolios was the number one mistake these wealthy
investors made.

I challenge anyone to find portfolios that are better diversified than the portfolios we construct here at Verity Capital. Our typical portfolio has over 12,000 unique holdings in 19 distinct asset classes spread out over 46 countries. Also note that diversification just isn’t about owning a lot of stuff. There is a whole science involved to diversify properly. In fact, Nobel Prizes have been giving out showing how investors should properly diversify their portfolios. That’s what our portfolios are based on.....not someone’s opinion on what they think will happen.

Slow GDP Growth and Stock Prices

"If you knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market." –Warren Buffett


How true that is Warren. I recently attended a presentation where the speaker gave us various headlines concerning the economy and the audience had to guess how the stock market would react. I’d say we guessed wrong over 90% of the time.

A question I get asked occasionally is about the slow growth of the gross domestic product (GDP) in this country. Many investors use GDP as an indicator of future stock prices. The assumption being that a slowing GDP would not bode well for stock prices.

Well, as the old saying goes, be careful of what you assume. I have a very short research paper by Dimensional Fund Advisors (DFA) that addresses this question. ( I know, research paper, eyes glaze over, but this is only 2 pages and a very easy read.)Download GDP Growth and Equity Return 2016.pdf

From data going back to 1946, low quarterly GDP periods actually resulted in higher quarterly returns for the S&P 500 than the average of all quarters. (3.2% per quarter during low GDP growth versus 3% per quarter average for all quarters from 1946- 2016)

That’s what I love about DFA. Giving investors useful information backed by research rather than spreading the normal fear and gloom of the financial media.

Robust Research Not Hype

"The investment business comes up with a trick a day......about something new that is just a marketing ploy."
–Eugene Fama, Nobel Laureate


One of the things we really pride ourselves here at Verity Capital is that we construct portfolios that are based on robust research and not Wall Street hype. A lot of this research is based on the work of Nobel Laureate, Eugene Fama.

Fama shares his research exclusively with Dimensional Fund Advisors (DFA). Fama’s work concerning efficient markets and the three factor model was ground breaking and essentially ignored by Wall Street. DFA has been unbelievable in figuring out how to implement Fama’s research in a cost effective way to benefit both institutional and individual investors. For my money, this is the most important partnership in the entire investment industry.

Here’s a short video ( 3 minutes long) where Fama and David Booth, the founder of DFA, discuss this:Robust Research.
I think you’ll enjoy what two of the smartest people in the investment industry have to say.

Why We Diversify

"Diversification is your buddy." –Merton Miller, 1990 Nobel Laureate in Economic Science


These are some of the wisest words you’ll ever receive about investing. Like any friendship, investors sometimes question if diversification really is their friend.

Take the last 5 years for example. Investors might question,why would we own the emerging market asset class? It has been down 4 of the last 5 years and has averaged a negative 4.5% annualized return for that period. Why not just put that asset class all in the large U.S company index, the S&P 500? After all, that asset class has been positive for the last 5 years and has averaged an annual return of 12.6% over that period.

Well, remember the so called “lost decade”. That period from 2000-2009 when the S&P 500 averaged an annual negative return of about 1% and emerging markets returned 10.1% annually.

Like a lot of things, the answer is in the data. Here’s a great video that’s about 4 minutes long. Joel Hefner of DFA explains, more eloquently than I can, why we should continue to diversify.Lession From 2015: Emerging Markets

Hopefully, you’ll see the wisdom of staying the course during periods of negative returns to gain the benefits that come
through diversification.

I Hope I'll Never Witness That

"We don’t advocate for reforming capitalism....we actually advocate for the overthrow of capitalism." –Mimi Soltysik


So who the heck is Mimi Soltysik? Well, he’s actually running for the presidency of our great country. He’s the Socialist Party presidential candidate in the 2016 election.

He appeared last week on CNBC to debate no other than our friend, Mark Matson, on the merits of Socialism vs Capitalism. Here’s the clip from that appearance:Capitalism vs. Socialism on CNBC

It certainly seems like there is currently a war on capitalism. It’s our belief here at Verity Capital that capitalism has done more to raise the quality of life for more people than any economic system. In fact, our whole investment approach is designed to capture the global rates of market returns that are created by capitalism.

Seems like Soltysik and his ilk want to destroy the golden goose of wealth creation. I hope I never have to witness the results
of that.

How Could It Not Be The Right Thing To Do?

"We need a mutual fund industry with both vision and values; a vision of fiduciary duty and shareholder service,
and values rooted in proven principles of long-term investing and of trusteeship that demands integrity in serving
our clients." –John Bogle


Last week the Department Of Labor (DOL) issued its final version on the Fiduciary Rule. As you are aware, Verity Capital already adheres to the “fiduciary standard” so these new regulations will have little impact on our relationships with our clients.

The new regulations should be a big win for investors saving for retirement through employer-sponsored retirement plans or through individual IRA accounts that are currently being managed by stock brokers or insurance companies. Finally, these distribution channels will be governed by the “fiduciary standard” and not the much less stringent “suitability standard”. Note though, this change only effects retirement savings. Investors should still be aware that investments outside of qualified retirement accounts will still fall under the “suitability standard”.

As a quick refresher, the fiduciary standard requires an advisor to always act in a client’s best interest. It’s almost inconceivable that this could be any other way. Well there is and that is the suitability standard that only requires that a product be suitable to meet clients’ goals. Suitable is not always( and usually is not) in a clients’ best interest.

Needless to say, the brokerage and insurance industries fought hard against these new regulations. Seems there are not big fans of full transparency in disclosing all their fees.

It’s too bad this had to come down to government regulations to make this happen. It’s unfortunate that the the investment industry couldn’t have manned up and done the right and moral thing on their own instead of being forced into it. How could not putting your clients interest ahead of your own not be the right thing to do?

Deja Vu Again

"It’s like déjà vu all over again." –Yogi Berra


It certainly seems like that, Yogi, when it comes to active managers being able to beat their respective benchmarks.

The first quarter of 2016 saw low correlation of equity moves and stocks advancing over decliners came roaring back. These are conditions that active managers tout as being very favorable for beating their benchmarks.

So what happened? The title of this article from Bloomberg last week pretty much says it all....
It Was a Stock Picker’s Market In the First Quarter. Too Bad About the Stock Picks

In an index tracked by Goldman Sachs, the 50 stocks that mutual fund managers are least invested in gained 5.3% Unfortunately, the 50 stocks most popular with mutual fund managers lost 3.1%

Bank of America reported that only 19% of mutual funds beat their index in the first quarter of 2016. This is the lowest level
since 1998. It’s scary to think of what might have happened if these active managers did not have the favorable conditions they are so fond of.

What’s really unfortunate in all this is that the vast majority of investors are still falling for the big lie that these high priced and highly advertised active money managers can beat the market. They really don’t know what the market is going to do next....
if they did, do you really think they’d tell you?

The Holy Grail of Investing

"The holy grail is understanding what determines expected returns." –Eugene Fama, 2013 Nobel Laureate


It seems like the whole investment world is searching for the holy grail of investing. In this short video ( less than 2 minutes), Eugene Fama explains his version of the holy grail of investing. His research on this won him a Nobel Prize in Economics and also forms the basis for how we invest money.The Holy Grail of Investing

For Fama, it’s basically all about risk and return and understanding the different dimensions of risk. Through his research with Kenneth French, they identified certain risk factors that have consistently outperformed the broad market averages based on data going back to 1928. From listening to Fama in the video, you get a sense of the robustness of these factors. In order to be considered relevant they had to be replicated in many different ways. These don’t just happen by chance.

You know these factors as the market premium, the value premium, the small cap premium and profitability premium. Based on this research, we tilt all our portfolios towards these factors.

You can download a sheet to show the robustness of these factors and the average outperformance over long periods of time. (stocks outperform bonds 8.15%/yr, small caps over large 3.46%/yr, value over growth 5.10%/yr, profitability outperforms by 3.08%/yr ). As Fama points out this is a risk and return game. These are average outperformance numbers. They don’t appear every year. That’s the essence of risk. They do appear with enough consistency that you’re really putting the odds against you by not tilting your portfolio towards these factors.Download Research_Returns.pdf

It may not be the panacea that most are looking for but in the imperfect world of investing, this is the closest anyone has come to the holy grail.

Don't Be A Low Information Investor

"The ignorance of one voter in a Democracy impairs the security of all." –JFK


What JFK is talking about are low information voters (LIV’s). This is a popular term used to describe people who vote but are poorly informed about politics. Talk show host, Rush Limbaugh, uses the term often and is credited with bringing into our current vernacular. The term was actually coined in 1991 by pollster and political scientist, Samuel Popkin, in his book,
The Reasoning Voter.

You certainly don’t won’t to be a LIV and you definitely don’t want to be a low information investor. Dan Solin had a short blog last week in the Huffington Post showing investors how to avoid this dreadful fate. Take a minute to read and become an evidence based investor.Don’t Be a ‘Low-Information’ Investor

Puts Money Where Mouth Is (Again)

"By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals." –Warren Buffett


Well, I’m not sure I’d call them the know-nothings, Warren. In my book, those investors are the wise ones. The ones who know the truths about investing. In any event, I think we get your point and fully agree.

A few weeks ago, I wrote how Buffett was putting his money where his mouth is by requesting his wealth be put into low-cost index funds when he passes away.

When scanning through the car radio a few days ago, I came across another example of Buffett putting his money where his mouth is. This one involves a $1 million bet.

Seems Buffett and well known hedge fund executive, Ted Seides, have such a bet on who can deliver the highest total return from January 1, 2008 to December 31, 2017. Seides’ vehicle of choice is a combination of hedge funds. Buffet’s choice was a simple index index fund that tracks the S&P 500.

The results through eight years has just been released. Steides’ elaborate hedge fund portfolio has delivered 22% in total return. Buffett’s simple index fund, in comparison has delivered 66% in total return. That’s right, 300% better that Seides’ performance. It’s interesting to note that this competition started in of the worst years in the history of the stock market. The type of period that active managers, like hedge funds, tout the false belief that they can avoid the downside and get the upside.

Here’s the clip from NPR that I think you’ll enjoy. It’s only about 3 1/2 minutes long.
Armed With An Index Fund, Warren Buffett Is On Track To Win Hedge Fund Bet

This bet is all for a good cause. The loser donates the $1 million to a charity of the winner’s choice.

It's Like Watching Paint Dry

"Investing should be like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Vegas." –Paul Samuelson


"Investing should be like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Vegas." –Paul Samuelson

If you view the stock market like gambling then your doing something drastically wrong.

Don’t believe me? Please spend a minute to study the chart below:

Still think investing in the stock market is the same as gambling? I didn’t think so. Notice that the odds of winning any of the most popular games in Vegas never reaches 50%. By comparison, even for rolling one year periods from 1926 –2015, the stock market has been up over 75% of the time. Extend the time frame to rolling 15 year periods and stocks are up 99.8% of the time.The only down periods happened two times during the Great Depression.

Sure, investing in properly diversified, low cost, passive portfolios structured to meet your personal risk tolerance level can be like watching paint dry but it sure beats the alternative.

When The Sage Speaks, Listen

"Most institutional and individual investors will find the best way to own common stock is through an index fund that charges minimal fees. Those following this path are sure to beat the net results delivered by a great majority of investment professionals." –Warren Buffett, 1996 annual letter to Berkshire shareholders


When asked to name the most successful investor they have ever heard of, Warren Buffett tops the list for most people. And for good reason, he has an impeccable track record.

Being the investment geek I am, I look forward every year to reading Buffett’s annual letter to his shareholders. Buffet has long been a proponent of passive index investing but this year he really put his money where his mouth is. He divulged that he has instructions in his will to invest all his wife’s interest in index funds. He doesn’t want his executor to keep the money in Berkshire. Nor does he want the executor to bother with his active manager buddies on Wall Street. No, he has explicit instructions that it is to be invested 100% in low cost passive index funds.

When the Sage of Omaha speaks, it’s probably a good idea for investors to pay attention. He clearly speaks out on page 20 of this year’s annual letter to Berkshire shareholders. For any other investment geeks out there who want to read the letter you can click on the link:Berkshire shareholders letter

Fiduciary Duty and 2016 ADV

"The best security for the fidelity of men is to make interest coincide with duty." –Alexander Hamilton


Alexander Hamilton also went on to say, “No man can serve two masters, human nature dictates the removal of temptation”. Wise man, Hamilton was.

This is precisely why there is a fiduciary standard. Sadly, not all the investment industry is bound under the fiduciary standard that requires advisors to always put their client interests ahead of their own. This would seem like common sense but stockbrokers and insurance agents are not held to this high standard. They are held to a much lower standard called suitability.

This is the reason I changed my mode of business a number of years ago. My firm, Verity Capital Management, LLC is set up as a registered investment advisory firm. As such, by law, it must operate under the fiduciary standard.

I take this fiduciary responsibility very seriously. It seems to me this is the only ethical and moral way to run a business. In light of that, you can download a copy of my ADV 2 for 2016 that I’m required to file annually with the Financial Industry Regulatory Authority. This spells out in detail all the material facts relating to our advisory relationship. Not the most interesting reading out there but I think it’s important for you to know that I’m governed under this higher standard and I will always put your interests ahead of mine. There are no material changes from last year.Download ADV_2016.pdf

A Stock Picker Comes Clean

"The future is for more and more fund managers to take advantage of ETFs. Stock selection is too great a risk." –Robert Bacarella


Not really a great revelation here Bob! We’ve been using ETFs (exchange traded funds) in some of our portfolios as a way to get broad market exposure for cheap. What makes the above quote somewhat remarkable is that Mr. Bacarella is the manager of an active management mutual fund, The Moretta Young Investor Fund. Active funds whole claim to fame is that their managers can pick winning stocks. I guess we should be commending Mr. Bacarella for his honesty. Trying to pick winning stocks is a losers game and has jeopardized many an investors financial security.

Jason Zweig had a interesting article in the WSJ over the weekend, the article also includes some interesting statistics on the superior performance of index funds:When Stock Pickers Stop Picking Stocks
(if you can’t access the article, you should be able to get by the pay wall if you goggle the article)

I know there are a lot of other active fund managers who have thrown in the towel on stock picking and basically run closet index funds but I’ve never seen any actually admit that until now. Maybe the investing industry is getting closer to the truth after all. It’s nice to dream anyways.

Economists' Finally Agree On Something

"If all the economists were laid end to end, they’d never reach a conclusion." –George Bernard Shaw


There are a million economists’ jokes out there. Most seem to focus on economists’ not being able to agree on anything. The quote above and this one by former economist and asst. Secretary of Treasury, Edgar Fielder, pretty much sums up all these jokes....”Ask five economists’ and you’ll get five different answers- six if one went to Harvard”.

There appears to be one exception though. When it comes to investing in the stock market, they agree on a similar course of action. Check out this recent article in Forbes,How To Invest In The Stock Market Like A Brainiac Economist.

The author tracked down half a dozen economists’ with advanced degrees to find out how they invest their own money. Surprisingly enough (or maybe not so given the overwhelming data supporting this method) they all owned a mix of low cost, broadly-diversified mutual funds, which they were committed to hold for the long term with regular rebalancing.

Luckily, recognizing the global markets’ randomness and maintaining discipline doesn’t require an advanced degree in economics because this is exactly how we invest too.

Do Nothing

"Do nothing.....don’t do something, just stand there." –Jack Bogle, Founder of Vanguard


The above was Bogle’s counterintuitive advice when asked on a recent CNBC interview what investors should do amid recent market drop. Note that the question already assumes that the investor has a diversified portfolio. Bogle is one of my heroes and has arguably done more to promote low cost passive indexing than anyone on the planet. While we are not quite doing nothing with all the rebalancing going on, you get the point. Don’t panic out!

I hope you take the time to check out his appearance in this 3 1/2 minute video clip:
Individual investors should stay the course: Bogle

I love Bogle’s comment when asked if active management works better in the current environment. He says passive indexing always works better in up, down or sideways markets. He can comfortably say that because all the academic research proves his case.

By the way, Bogle’s, Common Sense On Mutual Funds is an investing classic and a must read for all serious investors.

Learn To Tolerate The Bear

"The bottom line is that bear markets are necessary to the creation of the large equity risk premiums we have experienced." –Larry Swedroe


Right you are Larry. Unfortunately this is one of the truths of investing that isn’t talked about much. Volatility and the unpleasant outcome of sometimes slipping into a temporary bear market are the reasons why investors get paid a equity premium in the first place. They are getting paid for the risk they are taking.

The alternative is to take no risk at all. That would mean putting your money in the benchmark riskless investment, the one-month T bills. These vehicles are currently earning less that what inflation is growing by. It might feel good emotionally to be in this type of investment when markets are falling but it is really a recipe to go broke slowly. Inflation will eat you alive.

I have written ad nauseam about the impossibility of timing the markets. Oh, wouldn’t it be nice to be able to get put just before the downturn and get back in right before the upturn. It’s seductive to think this way. Unfortunately, nobody in the history of the markets has been able to do this with any consistency.

Where does that leave us? Well, I guess it would help if we just accept the truth and learn to tolerate the bear as a necessary part of the investing process. It also helps to know that your portfolio was made to weather the storms of bad markets. Your portfolio was designed taking into account your personal risk tolerance. Nothing of what’s currently going on should come as a shock to you. If it is, we desperately need to talk. Lastly, the rebalancing being done on your portfolios will pay big dividends when the markets come roaring back....and they will.

Here’s a great article from the WSJ that I came across over the weekend called, Why Investors Need To Embrace Bear Markets. It’s well worth the read.)Why Investors Need to Embrace Bear Markets

Look At The Record

"Let’s look at the record." –Al Smith (Governor of N.Y and Democratic Presidential candidate 1928)


Investors and golfers are a lot alike. They’ll listen to anyone who’s got a tip or offering advice. It doesn’t matter what the persons credentials are....they’ll listen.

Royal Bank of Scotland (RBS) grabbed headlines last week for its dire warning to investors. The warning was the ultimate warning: Sell Everything!

Well let’s follow Al Smith’s advice and look at the record:

1) This is the same RBS that got taken in by Bernie Madoff to the tune of $600,000,000. That’s right....more than 1/2 billion dollars.

2) Had a five year stock performance of –34.6% ( per the Financial Times of London)

3) Had to take a bank bailout in 2008.

Seems like this is a 36 handicapper giving advice to whoever will listen.

In my opinion this is one of the major flaws of the investing industry. Anyone can offer an opinion but nobody is ever held accountable for what they say.

Here’s a short clip from my buddy Mark Matson, who appeared on Fox Business last week. Mark is not afraid to offer his opinion. He’s also not afraid to be held accountable for what he says. When you’re speaking the truth, you can be like that.
Is There Already a Global Bear Market?

The real bottom line is nobody knows what’s going to happen—in the short term. What we do know is historically markets always recover.....100% of the time.

Hang in there. Don’t feel like you have to constantly be plugged into all the doom and gloom talk out there. This too will pass.

Expectation Problem Or Portfolio Problem?

"The most important thing about an investment philosophy is that you have one you can stick with."
–David Booth, Co-Founder of Dimensional Fund Advisors


Hopefully you’re not, but some of you may be questioning your investment philosophy right around now. The last two years have resulted in slightly negative returns and we’re off to a terrible start in 2016. So what gives? Is something wrong with our portfolios?

Actually our portfolios are behaving exactly as they should. They are doing what they are designed to do. It’s not a portfolio problem but an expectation problem. The portfolios are not designed to make money every year. They are designed to weather all market conditions and capture market returns at a risk level you are comfortable with.

I've provided three slides to help you recalibrate how you think about here
I think it would be helpful to print these out to get a good understanding of what I’m talking about here.

The first page ( Graph 2) shows a vortex of expected returns for rolling 1-20 year periods from 1973-2014 for a moderate portfolio ( 50% equity/50% fixed income). The average annualized return for this portfolio is 8.48% (net of 2% fees, which is quite higher than your actual fees). Notice how returns fluctuate significantly in the short term and tend to level out closer to the average over time.

Now go to the 2nd page (Range of Returns). This shows the range of returns much clearer. Expected returns for a one year period range from –11.65% to 28.61%. You can see how over 20 year periods that range closes from 3.51% to 13.46%.

The last page in the attachment shows returns for the different model portfolios from 1973-2014. This graph is before fees. So you can see the average annualized return for the moderate portfolio is 10.49% vs 8.48% shown above because of fees. It’s interesting to note that even though the average is 10.49%, the portfolio fluctuates quite a bit to earn that average and was only in the 10% range in 3 years out of 42. Also note that there were only 6 negative years out of 42 years.

I know there’s a lot of information here. I hope you found it useful and gives you a better perspective of how returns are generated. Our portfolios are built for the long term. We don’t know what’s going to happen. That’s why we diversify and rebalance. Investors have to get through the negative years to get the positive years. We are not betting on some asset class or money manager. We are trusting in the power of capitalism. We are not going to gamble with our financial futures. That’s why we have over 12,000 stocks in 45 different countries in our portfolios.

I used the moderate portfolio as an example. The riskier portfolios have higher returns but also greater volatility (greater ranges of returns) to achieve those higher rates. Let me know if you’d like graphs on those portfolios.

What we have is an expectation problem not a portfolio problem. Hopefully this clears it up.

Crux Of The Matter

"If the data do not prove that indexing wins, well, the data are wrong." –John Bogle


The markets are starting off 2016 just like they finished for 2015.....lousy! That doesn’t deter us investors who understand how the markets really work. We understand that patience and diligence are required in times like these. Successful investing involves a long term commitment to an investment philosophy. Markets will recover. If history is any indication, markets recover 100% of the time. I like those odds. The markets will recover and we’ll be rewarded with the rebalancing that’s being done to your portfolios. We take advantage of times like this to sell off some winners and get some of the equities that are on sale. Rebalancing has been a key part of our successful investmentlt strategy.

Let’s start out 2016 by getting right to the crux of the matter. That being, actively managed funds just simply can’t beat the broad market averages over time. If you don’t believe me, take a minute to peruse this chart I put together. This chart represents the percentage of actively managed mutual funds BEATEN by an appropriate benchmark for the 10 year period ending 2014. Got it, beaten by, not beat, the appropriate broad market index.

SPIVA – US active funds beaten by their benchmarks over 10 years ending 2014

Source: S&P Dow Jones Indices

It’s interesting to note that even in the market segments that a lot of active managers claim they can find mispriced securities
( i.e. emerging markets, small cap stocks and high yield bonds) have around a 90% failure rate to beat the market return.

If this doesn’t tell the story of why we invest the way we do, I’m not sure what does. At the risk of sounding repetitive, I repeat......Successful investing is all about creating globally diverse, low cost, broad based index portfolios that capture the market rates of return at a risk level you’re comfortable with. Why investors continue to believe active managements fairy tale of being able to beat the market is beyond me. If it’s true, show me the proof!

Jedi Investor

"Impossible to see, the future it is." –Yoda


Seems everyone has gone Star Wars crazy. The new release, Star Wars: The Force Awakens, is on track to set all kinds of box office records. My favorite character is Yoda. The Jedi master is known for his legendary wisdom. In fact, he has a lot to teach us on how to become Jedi investors.

The quote above is my favorite and it couldn’t come at a more appropriate time. Everyone and their brother will be coming out with their forecasts for 2016. Impossible to see and Yoda also reminds us... “Always in motion is the future.” That’s why Jedi investors don’t try to predict the future or react emotionally to current events. Instead, they create portfolios that are built to weather all market conditions. They trust in the power of the global markets and know how to harness its power for their benefit.

Here’s some more wisdom from the Jedi master:

“Patience you must have my young Padawan.”
Successful investing is a long term proposition. Markets will be volatile...on the downside and the upside. Volatility is why there is a long term premium for owning equities in the first place.

“Once you start down the dark path, forever will it dominate your destiny, consume you it will.”
From an investing perspective, the dark path is trying to beat the market. Backed up by countless academic studies, accept the fact that this can’t be done. Trying to beat it has dominated many a man and has consumed all his wealth. The good news for investors, though, is that you don’t have to beat the market. Investors can capture the generous long term returns that the global markets offer through diversified, low cost, passive portfolios.

“You must unlearn what you learned.”
Successful investors have learned to not believe it the myths of Wall Street. From a very early age, we’ve all been bombarded with the high budget advertising of the big Wall Street firms. It’s very luring and seductive. Problem is, it does not work. Accept the truths of investing that’s backed up by rigorous academic research from the leading academic institutions around the world. The truth will set you free.

“To be Jedi is to face the truth and choose.”
Stock picking, market timing and active manager selection just don’t work on any consistent long term basis. If you think they do, I have one question for you...Where’s the properly critiqued research proving it?

I Was Skeptical But It Works

"Successful investing is about managing risk, not avoiding it." –Jason Zweig


For my money, Jason Zweig is one of the best financial journalists out there. Based on my view of most financial journalists, you might be thinking, this is not much of an endorsement. Zweig, however, has written many books and articles that help investors learn the truth about investing. He also has a great column every Saturday in the WSJ appropriately called The Intelligent Investor. He’s one of the few financial journalists that really gets it.

He’s written a new book, The Devil’s Financial Dictionary. It’s a long list of witty and very accurate definitions of financial terms. I’ll admit, I was a little skeptical when I first heard about it. After reading it, I can tell you it definitely works. It contains wisdom that comes from his over 20 years of writing about Wall Street. This would be a good gift for any investment geeks out there.

Here’s a short clip from his recent appearance on CNBC discussing the book:The Devil's Financial Dictionary

Here are a couple of short examples to give you an idea of what the book is like:

Day- Trader (n.)

Long Term ( adj.)
On Wall Street, a phrase used to describe a period that begins approximately thirty seconds from now and ends, at most, a few weeks from now.

Market Timing (n.)
The attempt to avoid losing money in bear markets; the most common result, however, is to avoid making money in bull markets.

Second-Hand News

"There’s no need to respond to second-hand news." –Jim Parker, V.P, Dimensional Fund Advisors


That’s good advice Jim because when it comes to investing all news is really second-hand news. The global markets have been called a lot of things by a lot of people. One thing they are for sure are very efficient vehicles for processing information and quickly incorporating news into security prices. These prices reflect the collective views of all market participants.

It’s extremely important to understand this if you want to be a successful investor. Successful investors don’t make emotional decisions based on perceived bad news that’s most likely already priced into the securities in their portfolios.

Here's a link to an article that Jim Parker recently wrote for DFA that’s called ( you guessed it)Second-Hand News.

This is actually good news for investors. We don’t have to worry about trying to predict the news or try to figure out how news will affect the market. It’s already done for us. What we have to do is harness the power of the global markets by building diverse portfolios that are consistent with our personal risk tolerance. Let the markets work for us and capture the returns that are there for the taking. That’s how to become a successful investor.

Be Thankful For That

"I like football. I find it’s an exciting strategic game. It’s a great way to avoid conversation with your family at Thanksgiving." –Craig Ferguson


Before you enjoy your turkey and football this Thanksgiving, I’d like you to contemplate this quote by Charles Ellis when he was overseeing the Yale University Endowment Fund:

“Watch a pro football game and it’s obvious the guys on the field are faster, stronger and more willing to bear and inflict pain than you are. Surely you would say,'I don’t want to play against those guys!’

“Well 90% of stock market volume is done by institutions, and half of that is done by the world’s 50 largest investment firms, deeply committed, vastly well prepared- the smartest sons of bitches in the world working their tails off all day long. You know what? I don’t want to play against those guys either.”

Maybe this Thanksgiving we can give thanks we don’t have to get on the field with either of these groups of pros.

All those smart guys that Ellis is talking about are doing the rest of us a huge favor. They are so smart, they can’t get a leg up on each other. The result is that the market is very efficient. These smart guys snuff out any inefficiencies in a matter of seconds.

In order to benefit from this, investors have to recognize and appreciate that markets are efficient. Don’t get sucked up in the Wall Street myth that you can beat the market. You have about as much chance of beating the market as you do scoring a touchdown this Thanksgiving in an NFL game.

The best news of all is that investors don’t have to beat these guys. They can ride their coattails and design portfolios that capture the generous long term returns that the capital markets offer. The returns are there for the taking. Be thankful for that.

There's No Traditional Portfolio

"Here’s the hardest part of my job...keeping people focused on the next 30 years, instead of the next 30 minutes."
–Mark Matson


Our friend, Mark Matson, appeared on CNBC last week to address the question, Is the 60/40 Portfolio Dead? It’s about 4 minutes long and well worth the time.Is the 60/40 Portfolio Dead?

He was responding to an article in USA Today that argues that the 60% equity/40% fixed income portfolio is indeed dead. Interestingly enough, the article was arguing for a higher level of stock allocation than the traditional 60% mix. The primary reasoning was historic low interest rates and people living dramatically longer. Certainly valid reasons. Here’s a link to the article:The 60/40 stock-and-bond portfolio mix is dead in 2016

Seems to me, though, that there is no traditional portfolio. I agree with Matson that investors should indeed take on the highest level of stock risk they are comfortable with. They should offset this risk with high quality, short term fixed income. As Matson correctly points out, the primary purpose of the fixed income portion of the portfolio is to nullify the risk of the equity portion. It’s not to chase yield and increase overall risk.

Here at Verity Capital, we help each individual investor determine the level of risk they are comfortable taking. The level that they can comfortably sleep with and not panic out when markets inevitably go down. That enables us to do our job of rebalancing to ensure that investors fully participate in market recoveries. Those, too, are inevitable.

Do You Like Those Odds? Part 2

"I don’t like the odds (of active management) when you have about a 1 in 50 chance of outperformance."
–Larry Swedroe


The above quote should look familiar. I sent it out a few weeks ago in an e-mail titled, Do You Like Those Odds?. In the e-mail there was also an attachment for a mini debate with Larry Swedroe of BAM Advisors arguing in favor of passive management versus David Barse of Third Avenue Management arguing in favor of active management.
Here’s the link again if you missed it.Market Strategy: Active vs. Passive Investing

Barse definitely let it be known that Third Avenue has a track record of successfully overcoming the odds against beating the market. In fact, after listening to the arguments, some investors might even consider investing with Third Avenue. At the risk of letting the facts get in the way of a good debate, Swedroe, in a subsequent article, examined the returns of Third Avenue’s funds. Let’s just say his findings were quite different than Barse’s assertions. Here’s the link to Swedroe’s article:
Third Avenue Management Defends Its Pursuit of Alpha

The Third Avenue Small Cap Value Fund (TASCX), according to Morningstar, underperformed all but about 10% of the small-value funds over the last 10 and 15 year period ending 10/13/2015. It doesn’t get any better for Third Avenue Value Fund ( TAVFX). Over the same 10 and 15 year periods, it significantly underperformed comparable passively managed funds from Dimensional Fund Advisors. Surely, this was just a bad period for Third Avenue. Maybe their International Value Fund ( TAVIX) was able to outperform as Barse asserted in the debate. No again. The comparable DFA Fund (DISVX) outperformed by a whopping 4.56% a year over the last 10 years. ( Note: TAVIX didn’t have 15 years of returns)

These Third Avenue Funds are clearly not generating alpha or beating appropriate benchmarks. Good for Larry for taking them to task and showing the real results. It’s too easy for active managers to profess how good they are but are never held accountable. That’s how investors get harmed and sucked into the myth of active management outperformance.

I Rest My Case

"The most important thing about an investment philosophy is that you have one you can stick with."
–David Booth, Chairman and Co-CEO of Dimensional Fund Advisors


Most of the great advancements in finance have come from academic research. Dimensional Fund Advisors (DFA) has been the leader in the investing industry in translating these discoveries into practical investment solutions for investors. This is why we use their funds in the majority of the portfolios we design here at Verity Capital Management.

DFA recently put together a 2 1/2 minute video titled, A Foundation Built On Great Ideas. I encourage you to watch it and you’ll see why I think DFA is the best and smartest mutual fund company in the world.A Foundation Built on Great Ideas

Tough to compete against that brain power. I rest my case.

A Man Worth Listening Too!

"The question is when is active management good? The answer is never."
–Eugene Fama, Nobel Laureate in Economics, 2013


For my money, Eugene Fama is the smartest person in the investment industry. His comprehensive basis of work is the foundation on which we design our portfolios. He’s in high demand and doesn’t make a lot of public appearances. When Fama speaks, I think it’s well worth paying attention to. Here’s a very short article with some of Fama’s wisdom from a talk he gave in Chicago about a year ago.Nobel winner Fama: Active management 'never' good

Fama’s opinion’s are based on the rigors of academic research. They don’t change like the wind on whatever the crisis du jour is. Truly a man investors would be wise listening too.

Do You Like Those Odds?

"Twenty years ago, 20% of active managers were beating the that number, verified in several studies,
is down to about 2% pretax. I don’t like the odds when you have about a 1 in 50 chance of outperformance."
–Larry Swedroe


Neither do I, Larry!  That’s why we use the scientific approach we do when constructing investment portfolios.

Swedroe is another one of the people I really admire in the investment industry. I feel he really gets it and he has dedicated his career to dispelling the myths of Wall Street and sharing the truths about investing. His work has helped many investors.

He recently appeared on Bloomberg TV to argue the merits of passive investing. It’s about 6 minutes long and I hope you take the time to watch it.Market strategy: Active vs. passive investing

When your speaking the truth about investing, your message never changes. It might seem repetitious but it’s an important message and has to be repeated often to combat most of the information investors are getting from the traditional financial media.

Thank You Active Management

"Active fund management is not worth the expense." –Charles Ellis


Charles Ellis is one of my heroes. He has dedicated his life’s work to convincing investors to abandon active investing. In fact, his classic book, Winning The Loser’s Game (currently in its 6th edition), had a profound effect on me. It’s one of the reasons I use the investment method I do.

Here’s a short video about 3 1/2 minutes long from where you can hear from the master himself, Charles Ellis, laying out the truth about active investment management: - Too Many Active Fund Managers for Their Own Good - Show 175

It’s still amazes me that an industry as big and lucrative as active management is, produces only a tiny fraction of funds that can outperform their benchmarks.

I like Ellis’ insight on how a lot of very smart people are keeping the market efficient for the rest of us. As a group they are all competing to determine the price of every single security. They all have access to the same information and can’t get a leg up on their competitors. They do a real good job of getting the prices right and keeping the market efficient. They are doing a great service for us investors.

Problem is the active management fees are way to high. Since the market is efficient and can’t really be beat on any type of consistent basis why should we pay for some perceived benefit we’re not going to get. There is no need to use active management. We can capture the market returns by using passive index funds and cut out the whole layer of active management fees.

That’s the truth of the matter. I guess we all owe these active managers a debt of gratitude for keeping the markets efficient for us. I just don’t want to pay them for it.

Yogi-ism's and Investing

"It’s déjà vu all over again." –Yogi Berra


Everybody has a favorite yogi-ism. The one above is my personal favorite. Legend has it that this quote originated when Yogi witnessed Mickey Mantle and Roger Maris repeatedly hit back-to-back home runs for the Yankees in the early 1960’s.

Yogi Berra is a Hall of Famer and arguably one of the greatest catchers in the history of baseball. Yogi died 9/22/2015, 90 years old and 69 years to the day after his MLB debut. Yogi’s memory will live a long time through his paradoxical quotes, affectionately known as yogi-ism’s. Many have powerful messages that offer not just humor but wisdom. In typical Berra fashion, while simultaneously denying and confirming his reputation he quipped, “I really didn’t say everything I said”.

Back in 2014, to commemorate Yogi’s 89th birthday, Vanguard had a two part series, The Game of Investing, According To Yogi Berra. Hope you enjoy these two articles and see how some yogi-ism’s apply to investing.
The game of investing, according to Yogi Berra

It’s déjà vu all over again: The game of investing according to Yogi Berra

Is Capitalism Moral?

"Capitalism has worked very well. Anyone who wants to move to North Korea is welcome." –Bill Gates


Seems like everyone from Hollywood to the Pope are taking shots at capitalism. It’s made out to be a system that helps the rich and hurts the poor. Is free market capitalism immoral?

Renowned economist Walter Williams of George Mason University thinks not. In fact, he believes that capitalism is morally superior to any other system in organizing economic behavior. Here’s a 5 minute video titled Is Capitalism Moral? where he presents his case.Is Capitalism Moral?

Great job Walter. Indeed, capitalism has done more to elevate the quality of life for people than any government policy. Our whole investment philosophy is based on the belief that free markets and that capitalism is the greatest wealth creation tool known
to man.

Harness Their Power

"I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information." –Eugene Fama, 2013 Nobel Prize winner in Economics


The above quote is precisely what earned Fama the Nobel Prize in 2013. For all its simplicity, Fama proved his theory with complex mathematical equations that are sure to make even the most proficient at math amongst us shudder. I’ve had the opportunity to spend time with Fama and the man is truly a genius.

We’re lucky to have him on our side. He’s been affiliated with Dimensional Fund Advisors ( the funds that we use in most of our portfolios) for many years.

I’ve written about the efficient market hypothesis on numerous occasions. It’s really the cornerstone behind our entire investment philosophy. DFA has put together a great 3 minute video that shows how the efficient market works. It’s well done and makes it very easy to understand how this Nobel Prize winning theory works in the real world:Market Equilibrium

The market truly is a very efficient information processing machine. All available and knowable information is already priced into securities. Only new and unknowable information will move prices in the future. Since nobody can consistently and accurately predict the future, nobody can accurately and consistently time the market or pick winning stocks any better than sheer random luck. Accept that markets are efficient. You can’t beat them. Instead, learn how to harness their power to work for you.

Can You Ignore Them?

"The data indicates a bumpy ride is the norm, not the exception. If you watch the financial media, you will be encouraged to do something, based on its lame explanations of what amounts to nothing more than normal market behavior." –Dan Solin


I’m a big fan of Dan Solin. I like his straight forward approach with trying to get the truth about investing out to investors. I totally agree with him about the financial at your own expense. Know it’s more about entertainment and selling advertising than it is about telling the truth. The financial media, for the most part, are experts in misinforming investors. This is even more true in periods of extreme volatility. Like I said, watch at your own risk. Better yet, don’t watch at all.

Solin recently had two articles in the Huffington Post, very short and easy to read. I can’t encourage you enough to take a few minutes and read. It will be good for your mental health.
What CNBC Won't Tell You
What CNBC Won't Tell You (Part 2)

As Solin points out, the S&P 500 average annual return from 1926-2014 was 12%. In order to get that average return, investors had to endure 6 years in which the index lost more than 20% and 18 additional years in which the index was negative. There were also 33 years where it returned more than 20%.

Bottom line message is ignore the financial media, stay disciplined and focus on the long term.

I also second Solin’s book recommendation. John Bogle’s book, The Little Book Of Common Sense Investing, will change the way you invest.

Is It Time To Panic?

"It’s like being in an airplane and feeling a little turbulence and you panic and jump out of the plane. Absolutely, the wrong thing to do. Investing is a long term function." –Mark Matson


Mark Matson made an appearance on Fox Business last week with Neil Cavuto. Cavuto is an on air personality who “gets it” and offers sound advice for investors.

Is it time to panic? Check out Mark and Neil as they answer this question in a lively discussion. It’s only about 3 1/2 minutes long and well worth a look. Is It Time To Panic?

Investing is a long term proposition and unless you know your date of death, virtually every investor is a long term investor. As Cavuto points out, the trend is your friend when investing because the long term trend line is always up.

Accept It and Expect It

"The average long-term experience in investing is never surprising, but the short-term experience is always surprising." –Charles Ellis, author of The Loser’s Game.


Markets go up, markets go down. In fact, historically investors can expect a down market about 25% of the time.....1 every 4 years. For the 89 year period from 1926-2014, the market was up 67 years(75%) and down for 22 years(25%). This was gathered from looking at the CRSP 1-10 for that period. This is an index that measures the total US stock market(all stocks on NYSE, AMEX and NASDAQ). For hanging in there through these ups and downs, investors were rewarded with an 11.86% average annual return.

What about the last 25 years? For that period, the market was up 19 years(76%) and down for 6 years(24%). The average annual return for that period was 11.58%. Not bad and pretty consistent long-term results.

Imagine if you were stranded on a desert island last week. When you were rescued and got home, you noticed that the stock averages were somewhere around where they were before you got stranded. In fact the Dow was up about 1% for the week. No big deal. Nice quiet week in the markets. In fact, as we know, it was anything but a quiet week. In fact, if you took all the ups and downs for the Dow over the course of the week it moved over 10,000 points. I’m starting to see what you mean Mr. Ellis. Short-term is not only surprising but can be downright scary.

There is no escaping the fact that risk and return are related. The key is learning to control this risk. This is what we do here at Verity Capital Management to help control risk:

1) Invest in low cost asset class index funds

2) Diversify globally

3) Determine level of risk that’s right for you

4) Stay the course through both up and down markets

Markets go up, markets go down. Accept it, expect it and don’t worry about it.

Not If But When

"The four most dangerous words in investing, it’s different this time." –Sir John Templeton, Legendary Investor


Good words for us to keep in mind today, Sir John. Sure, the events are always different (China, housing bubble, tech bubble etc, etc.) but the end result is always the same. Markets always recover! Nobody can accurately and consistently predict the future. What we do know for a fact is that historically markets have always recovered....100% of the time.

As my friend Mark Matson is fond of saying..... “We don’t know in which direction the next 10% or 20% move will be but we do know which direction the next 100% move will be. It will always be up.” Another good thought to remember when going through days like these.

Unfortunately, there is no market that only goes up. Market corrections are a necessary evil. The superior returns the equity markets deliver over time are due to the inherent volatility attached to them. Investors are compensated for the volatility and risk they take. Volatility is the price investors must pay for long term success. In contrast, investors who want risk free investments have to settle for treasury bill type returns that don’t even keep pace with inflation. That’s a surefire way to go broke slowly.

Our portfolios are built to weather all storms. We knew there were going to be days like these. We take advantage of periods like this by rebalancing portfolios. We sell of some of our winners and buy what’s on sale. We saw the positive results of this strategy in 2009 when markets started roaring back. We were well positioned to take advantage of it.

I know times like this are not easy for investors. I also know that panicking out has never served investors well either. There is absolutely no way to predict when to get in and out of the market. None! Trying to do so is a recipe for disaster. It might feel good emotionally for a period of time but it’s at the expense of your financial well being.

Take comfort in knowing that your portfolios are designed to weather this and that it’s not a question of if the market will recover but when.

Here's an article that Jason Zweig wrote in the WSJ last Friday. Good advice and a real quick read.
5 Things Investors Shouldn’t Do Now

Hubris or Insanity?

"Insanity: doing the same thing over and over again and expecting different results." –Albert Einstein


If I use Einstein’s definition of insanity then the vast majority of investors must be insane. Trying to beat the market using actively managed funds is a loser’s game. The evidence is overwhelming that actively managed funds are highly likely to underperform their benchmarks.

So one of the most perplexing questions to me in all of investing is...why? Why do the vast majority of investors continue down this path when all the evidence shows it to be wrong? Are they insane?

Well, I came across two interesting studies over the weekend that attempt to answer this question. The first was by John Haslem, a finance professor from University of Maryland. In the Spring issue of Journal Of Index Investing he wrote an article called:Mutual Funds Win Investors Lose
The second was from a 2007 study by Sebastian Muller and Martin Weber called:Financial Literacy and Mutual Fund Investments: Who Buys Actively Managed Funds?

Both studies pretty much have the same conclusions.

So according to this research, why do investors continue to purchase actively managed funds that are likely to underperform their benchmarks?

Firstly, lack of financial sophistication provides a partial answer. There was definitely a positive correlation between financial literacy and the likelihood to use passive index investing.

Secondly, and the main reason is the all too human overconfidence in our abilities. You know this type. They’re always better than average. Even though it’s proven it can’t be done, they still think they can? Hubris or insanity? I’m not quite sure. All I know for sure is that I want all the evidence on my side when it comes to my financial future and not somebody’s overconfidence on their ability to do something that can’t be done.

Beat "The Donald" At Investing

"Compound interest is the eighth wonder of the world. He who understands it, earns it....he who doesn’t, pays it." –Albert Einstein


An advisor buddy of mine from Atlanta, Fred Taylor, wrote a great article last week that I’d like to share with you. No matter what your feelings are about Donald Trump, most people would agree he’s a very successful and very rich investor. In this short article, Fred shows you how to beat The Donald by letting the market do the work for you and trusting in the power of compound interest. Here’s Fred’s article:

Can You be Better and Smarter Than "The Donald" At Investing

Right off the bat, let me state that what I am about to write has absolutely nothing to do with politics nor am I rendering any opinion, pro or con, related to Donald Trump's candidacy!

Here's the point of this Commentary: assume that back in 1982, you and The Donald started out, which one of you would have been the winner on the investment front? Now I understand that we're looking back retrospectively, but there's an important point for all investors to keep in mind looking forward.

The Donald currently claims a net worth of $10 billion. There is some dispute about that, with Forbes Magazine putting his value at closer to $4 billion (a billion here, a billion there...!), which places him at number 133 among the richest folk in the U.S. There are even some who claim that his worth is less than a billion. However, let's use his number for the sake of this discussion: $10 billion.

As you remember from above, I used the starting year of 1982. The Donald is hardly a self made man -- having, as the vernacular puts it, started out on third base. Nevertheless, he did make something out of the pile that he started with, so this is not a put down of his investment acumen nor his skills as a businessman. Forbes, back in 1982 had him on their 400 list at an estimated $200 million but he claimed that he had $500 million.

OK, so let's accept his claims of $500 million in 1982 and $10 billion currently. Lets further assume that rather than engaging in any number of somewhat questionable as well as highly successful real estate deals from that point forward, unlike him, you simply took that $500 million and invested it in a simple S&P 500 index fund. How would the two of you have done?

From 1982 through the end of 2014, the S&P index had an annualized return of 11.86%. If you compound that rate of growth, over that time period, the initial investment grows to $20 billion -- twice what Trump claims to be worth now. Maybe The Donald should have not have wasted all of that energy and simply let the market do the work for him? It's oft been said that the greatest wealth creation tool known to man are common stocks in growing companies. Moreover, two of the greatest minds known to have tread upon this planet have claimed that the eighth wonder of the world is "compound interest!" I recognize that Trump, no doubt, had some pretty hefty divorce settlements along the way, but hardly $10 billion worth!

The takeaway from this little exercise, is that you don't have to be paying off greedy politicians (as Trump claims to have been doing during last night's debate) nor do you have to be expending enormous amounts of energy creating or even attempting to save failing ventures (per his admitted four bankruptcies), you could simply have placed your money in a simple S&P 500 index fund and watched that magical compound interest grow your nest egg over the years.

This is not as totally outrageous as it sounds. Over about the last 100 years, the stock market has averaged around 8% - 10% p/year growth -- not every year -- but averaged. We do know this for a fact and we do know what the rate of growth since 1982 has been. Obviously, what we don't know is the future and as one can easily find prominently displayed on all investment products: "PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS!" But, neither can the future results of real estate or any other asset class be extrapolated into the future. Nevertheless, there are lessons to be learned from history -- and this has been just one of them. The historical lesson is that you wouldn't have had to be smarter than The Donald to do better than him as an investor -- and you could also have saved a lot of wasted energy along the way!

Good stuff Fred! What Fred fails to mention, though, is a properly diversified global portfolio would have had even better results for significantly less risk.

The Loch Ness Monster and Active Management

"The deeper one delves, the worse things look for actively managed funds." –William Bernstein, Ph.D, The Intelligent Asset Allocator


There are a lot of myths out there about active investment management. Probably the most damaging myth of all is that it works. Check out this video by where they show there is as much proof that the Loch Ness Monster exists as there is that active managers can consistently beat the market. - Unicorns, Bigfoot and Active Investment Manager Myths - Show 165

It’s amazing how this myth just continues to gather up steam when there is such overwhelming against it. That’s why we stick with an academic approach backed up by the science of investing three legged stool- efficient market hypothesis, modern portfolio theory and factor investing.

I’d much rather have these on my side than believing in the fairy tale of active investing.

Financial Crisis Du Jour

"This too shall pass." –Medieval proverb dating back to around 1200 A.D.


What’s the financial crisis du jour? Is it Greece, China, Iran, interest rate concern? Seems like there is always something to worry about and the market certainly does climb a wall of worry.

So how should investors behave in the midst of all this?

I think Weston Wellington of Dimensional Fund Advisors presents some real solid advice in this short 3 minute video:
The Financial Crisis in Greece

An important point Weston makes is that even if you accurately predict the crisis du jour, this doesn’t mean the market will react in the way you think.

So follow his advice and adopt and maintain a broadly diversified strategy that will capture the rates of return that the global capital markets have to offer. This is precisely why our portfolios have over 12,000 unique holdings covering 19 distinct asset categories in 46 different countries. Also, understanding the wise medieval proverb above helps.

Become A Scratch Investor

"To find a man’s true character, play golf with him." –P.G. Wodehouse


So true, so true. Hopefully, you had a chance to see some great character on display in the British Open that finished up today.

If you play golf, you know what a difficult and challenging game it is. Oh, did I forget to mention frustrating?

Thankfully, it’s much easier to be a successful investor than a successful golfer. The mark of a very accomplished golfer is the ability to make a par on every hole. When you reach this level of expertise, you are considered a scratch golfer. Very few people who have ever played golf can call themselves scratch golfers. In fact, according to the United States Golf Association only .68% of male golfers are scratch or better and it’s .08% for female golfers.

So how can you become a scratch investor? By accepting market rates of return. The way I see it, market rates of returns are the equivalent of par. Unlike the top golf professionals, professional money managers find it very difficult to shoot par. We see in study after study that the vast majority of professional money managers consistently underperform the market.

By accepting passive investing and structuring a low cost global portfolio to capture market returns you can become a scratch investor. Not unlike successful golfers, you’ll also need patience and discipline to reach your goals.

Investor Serenity Prayer

"God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference." –Reinhold Niebuhr, American Theologian (1892-1971)


I’m sure most of you recognize the above as the Serenity Prayer. It’s been very successfully adopted by Alcoholics Anonymous and other recovery programs.

Ok, I know what you’re thinking. What does this have to do with investing? Well actually, maybe quite a bit more than what you might think.

It has been my experience that most successful investors know a simple truth about investing. That truth is that global markets are extremely efficient and that investors stack the odds in their favor by accepting the market prices for stocks and bonds.

You can’t control the price of a stock or bond. You also can’t predict what direction it will go. Accept that. Academic studies show over and over again that nobody can.

The best news of all is that you don’t have to be able to do any of this. The global free markets are a very powerful force. They are also the greatest wealth creation tool known to mankind. Successful investors learn how to harness the power of the global free markets and capture the generous returns that are there for the taking.

Our friends at put together a great two minute video called, Accept The Price, that I think you’ll enjoy and find very - The First Step in Successful Investing: Accept the Price - Show 161

Maybe a serenity prayer for investors could go something like this:
God, grant me the serenity to accept market prices, the courage to not get caught up in the media hype, and the wisdom to capture global market returns.

Is It Greek To You?

"It was Greek to me." –William Shakespeare, The Tragedy of Julius Caesar (1599)


It’s hard to believe that a country with the equivalent GDP of Connecticut could be causing such a turmoil in the global markets. If it’s Greek to you, here’s a good overview from an article from NPR on the Greek situation:
If The Mess In Greece Is All Greek To You, Then Read This

A question that has come up a few times from investors over the last few days is how much Greek debt do we have in our portfolios? The answer is: NONE!

That being said, our portfolios do have exposure to the global markets which will tend to fluctuate in times like these.

With all the media buzz, it’s easy to forget some important basics about investing:

* Nobody knows what will happen next. Avoid the noise. The media’s job is to entertain you with controversy. They also have   dismal history of predicting the future.

* Your portfolios are built to weather the storm. Don’t let short-term uncertainty derail your long-term strategy.

* Our strategy does not require us to get the short-term outlook about the market right in order to deliver generous market   returns over time.

* Volatility can create opportunity through rebalancing.

* This too shall pass. How many “crisis” situations have we seen over the years? Most of them we have forgotten. Focus on   things that are far more important in life.

Habits of Successful Retirees

"If you want to be successful, find someone who has achieved the results you want and copy what they do and you’ll achieve the same results." –Tony Robbins


I have to admit...I’m not a big Tony Robbins fan but I think he’s onto something here.

Blackrock Investment Management did some research on identifying successful retirees and the steps they took to achieve
this success.

They have identified seven essential habits that successful retirees practiced throughout their working career. Here’s the link to what they are:The 7 Essential Habits of Highly Confident Retirees

Nothing earth shattering here. They are easy to understand and most importantly, they easy to emulate. The key seems to be that the successful confident retirees not only knew the steps but by being consistent and diligent made them into habits.

Questions That Need Answers

"I am unaware of any academic, peer-reviewed evidence supporting the ability of anyone to consistently make accurate stock predictions." –Dan Solin


There’s a good reason for that Dan....none exists! If you enjoy Solin’s insights, as I do, I think you’ll enjoy his short blog in last week’s Huffington Post titled:Questions That Need Answers.

Solin raises some really good questions here. His answers are even more revealing. Too bad we can’t rely on the financial media to give us the truth like this.

Behind The Curtain Of DFA

"Dimensional Fund Advisors has forged a strong and distinctive culture that has served investors well."
–Alex Bryan, Morningstar equity analyst


Dimensional Fund Advisors (DFA) recently received an stewardship grade of A from Morningstar. The stewardship grade
helps investors identify fund companies that are doing a good job-or a bad job-of aligning their interests with those of fund shareholders. It essentially tries to capture some of the important intangibles associated with making good investment decisions.

Corporate culture is one of the most important things considered in the stewardship grade. Here’s a great article written by Morningstar that talks in depth about DFA’s corporate culture.DFA's Disciplined Approach Earns It a Top Mark.

It’s interesting to note that DFA has grown to a top 10 mutual fund in the world. It’s even more interesting that they have done this while spending no money on advertising. The growth comes from educated investors who believe in the DFA approach and have been rewarded with attractive returns over many different market cycles and time periods.

Hopefully you take the time to read the article. It’s not often that the curtain gets pulled back to see what’s really going on. You might even begin to see why I think DFA is the best mutual fund company in the world.

Become A "Par" Investor

"For me, par is the market rate of return. And unlike golf professionals, professional money managers find it very difficult to shoot par. Fortunately, you as an investor, can easily shoot par."
–Dan Wheeler, Director of Financial Advisor Services at Dimensional Fund Advisors(DFA), 1989-2010


I owe Dan Wheeler a big debt of gratitude. He was the one that opened up DFA to advisors. Prior to Dan’s involvement with DFA, they were set up to only work with large institutional clients. Through Dan’s persistence and hard work, he convinced the powers to be at DFA to offer their highly successful funds to the advisor channel. And not just to any advisor. No, advisors that want to offer DFA funds have to go through a rigorous screening and education process to be approved to get access to their funds. Speaking personally, it was one of the best decisions I ever made.

Like myself, Dan is also an avid golfer. I hope you like one of his blogs titledShooting Par.

I believe that by using DFA Funds to create a passively managed, low cost, globally diversified portfolio is indeed the best way to capture market returns and not have any bogies on your investment scorecard.

Don't Confuse Skill With Luck

"99% of fund managers demonstrate no evidence of skill whatsoever."
–William Bernstein, Ph.D, M.D. from The Intelligent Asset Allocator


Wow, that sounds a little harsh there Dr. Bernstein. However, he does back up this claim with plenty of empirical evidence in his great book, The Intelligent Asset Allocator. Bernstein is a pretty interesting character. He gave up a successful career as a neurologist after he discovered the whole scientific approach to investing that’s based on rigorous academic research rather than opinions. He’s written a number of books for investors to get the truth out there on how to invest. I highly recommend
them all.

One of the most common errors that investors make is confusing skill with risk and luck. Most outperformance is actually the result of taking more risk than investors are aware off or just flat out luck. IFA has a recent video, Don’t Assume Outperformance Is Skill, that I think you’ll enjoy. It’s only about 3 minutes long and I believe it’s well worth your time.
Don't Assume Outperformance is Skill - Show 156

Mutual Fund Industry's Dirty Little Secret

"We see the winners and try to learn from them, while forgetting the huge number of losers."
–Nassim Nicholas Taleb, Fooled by Randomness


What Taleb is talking about in the above quote is survivorship bias. It's one of the dirty little secrets in the mutual
fund industry.

This definition from the Nasdaq website is a good explanation of what survivorship bias is: Usually pertaining to fund manager performance. Suppose we examine the performance over the last 10 years of a group of managers that exist today. This performance is biased upwards because we are only considering those that survived for 10 years. That is, some dropped out because of poor performance. Hence, in evaluating performance, one has to be careful to include both the current and the managers that dropped out of the sample due to poor performance.

I know it's hard to believe, but yes the mutual fund companies do kill and bury their weak. Bury is the right word, too. Once funds are killed off virtually all evidence of their existence disappears. The main data bases that track mutual fund performance, such as Morningstar, remove all trace of the killed off funds from their data bases. You can see how mutual fund firms can and do use this to their advantage to "beef up" their past performance numbers. It also makes it almost impossible for investors to get accurate information about a mutual fund company's past performance.

Dan Solin had a good article last week in the Huffington Post. He talks about odds that doom your returns. He says
that the initial hurdle is not identifying outperforming funds but in finding funds that will simply survive over a long time period.

For example, during the 15 year period ending 12/31/2014, only 42% of stock funds managed to survive the entire period. Fixed income funds were about the same. Here's a link to Solin's article:Stunning Odds Doom Your Returns

What's an investor to do? I say follow Solin's advice and use only low cost index funds ( where there is no survivorship bias) as part of a globally diversified portfolio in a suitable asset allocation for you.

House's Savvy and Common Sense

"Seventy-six trombones led the big parade." –signature song from the musical, The Music Man


Apparently there are 76 trombones in the parade and according to Paul Simon, there are 50 ways to leave your lover. Most importantly though, according to Morgan House, an excellent financial writer, there are 77 reasons why people are awful at managing money.

Here’s his list of 77 from a recent article he wrote for The Motley Fool.77 Reasons You're Awful at Managing Money

House is a writer known for his savvy and common sense. This is important stuff. Hopefully, you take the time to read it and share with your kids. For those of a certain age, make sure you share with your grandkids too.

I particularly like #’s 7, 18, 33, 39, 43, 44 and 69.

Don't Be A Dalbar Investor

"The investor’s chief problem, and even his worst enemy, is likely to be himself." –Benjamin Graham


The above quote is from Benjamin Graham’s acclaimed classic book on investing, The Intelligent Investor, that was first published in 1949. This book has had a huge impact on how many investors invest with probably the most notable being Warren Buffet.

Unfortunately, it appears that investors have done very little in the last 66 years to correct this problem. The Dalbar 2015 Quantitative Analysis of Investor Behavior (QAIB) recently released its current report. Don’t get scared away from the fancy title. You’ve heard me talk about this before and I refer to it simply as The Dalbar Report. This is the 21st annual addition of a report that examines the returns that investors actually realize and the behaviors that produce those returns.

The whole idea behind the report is to improve investor performance by offering guidance on how and where investor behavior can be improved.

The current results, sadly, are consistent with prior years. The results consistently show that the average investor earns less (much less) that mutual fund reports would suggest.

Here’s a summary of the 2015 Report. The average equity investor earned 3.79% annualized return over the last 30 years when the S&P 500 earned 11.06%. That means in monetary terms, the average equity investor who started with $100,000 on January 1, 1985 would have $305,257 at the end of 2014. The same $100,000 would have grown to $2,326,645 in the S&P 500 during that same period. To take this a step further, if the $100,000 were invested in a globally diversified equity portfolio during the same time frame, it would have grown to over $3.3 million. Yikes!

The results are even worse on the bond side. During the same 30 year period above, the Barclays Aggregate Bond Index earned 5.9% annually while the average bond fund investor earned 1.16%. That’s five times more for the benchmark index over what the average bond fund investor earned. Double Yikes!!

Why this drastic underperformance? According to Dalbar, the reason has been the same for every year the report has been published. Investors sell in panic after market downturns and buy after blissful market surges. I think this is called buying high and selling low. This is the exact opposite of what investors do who apply proper investing discipline and rebalance their portfolios by buying low and selling high.

Wise Words From The Left Coast

"When it comes to investing a little passivity is a good thing." –Terrance Odean


Terrance Odean is a Professor of Finance at the University of California, Berkeley. He’s considered one of the world’s most renowned experts in the field of behavioral finance. He’s one of the guys who’s trying to figure out why people make irrational financial decisions.

He recently gave a presentation at a Matson Money advisor event that was very well received. Here’s a 3 minute video of Odean talking about the biggest mistakes in investing: Ranking the biggest mistakes investors (keep) making

Investors would be wise to heed his savvy advice:

1) Save enough

2) Don’t be under diversified

3) Stick with your plan ( whether market is soaring or tanking)

Nuff Said!

–Stan Lee, comic book writer


I came across an interesting article last week in the NY Times. It was written by Gary Popper and the title was Wall Street Banks’ Mutual Funds Can Lag On Returns. Buried deep within the article was a very interesting quote. In a report distributed by Morgan Stanley to its financial advisors last year, they said that “aggregate long-term performance and fees both favor passive over active management”.

Not exactly earth shattering news ( especially for regular readers of these e-mails) but this quote is from one of the largest and well known active money managers in the industry. Their whole livelihood depends on convincing (fooling) investors that they can exploit market inefficiencies and beat the market through active management. How long do you think it will be before they share the truth with the general public or their customers, rather than just their advisors? I’m going to go out on the limb here but my guess is probably never.

Yes, that quote pretty much says it all. “Nuff” said! I rest my case.

That's A Lot Of "Vig

"The miracle of compounding returns is overwhelmed by the tyranny of compounding costs." –John Bogle


Every time an investor buys or sells securities they incur a transaction cost. These costs can add up over time and are one of the key determinants of your net return. In fact, many academics estimate that they cost investors about 1% per year in an active portfolio. That’s a lot of “vig” to give up to the house every year.

One thing we probably don’t spend enough time talking about is how Dimensional Fund Advisors (DFA) minimizes these transaction cost and gets a pricing advantage through its patient and flexible trading approach. Here’s a short 3 1/2 minute video where Dave Twardowski, PhD, of DFA explains their approach in very non technical terms.
Dimensional's Flexible Trading Approach

You can see how DFA pays less and sells for more in both their equity and bond trades. On the equity side they are picking up about .10% per trade in large US stocks and up to .42% in emerging markets On the bond side the savings are about .30%. I’d much rather put this “vig” into my pocket than give it up to the Wall Street bookies.


"Brevity is the soul of wit." –Shakespeare


Award winning financial columnist, Brett Arends, in his farewell column for the WSJ Sunday Edition, shows how brevity is good for financial planning as well. In just 833 words, Arends shares his vast wisdom in what he has learned over the years. It’s a wonderful example of profound simplicity. You can read it all in just a few minutes.
Simple, Bedrock Rules On Personal Finance

I’m a big fan of the KISS principle and as Arends points out....”Smart money moves aren’t more complicated than you think. They’re simpler.”

40 Seconds Of Wisdom

"Equities are the greatest wealth creation tool known on the planet." –Mark Matson


Check out Mark Matson’s appearance last week on CNBC. They wanted him to talk about the Federal Reserve and the state of the economy. Listen as he tells it like it is in this 40 second video.Own Equities Until You Can’t Fog A Mirror

These shows are always trying to make the guests make some type of prediction about the future. Matson’s advice is to forget about fed....stop trying to predict the future and think about this:

1. Long term, equities are the greatest wealth creation known on the planet.

2. Buy equities, own them until you can’t fog a mirror anymore.

3. Rebalance with short term fixed income.

4. Stop trying to predict the next 10% move, it’s dangerous.

That’s a lot of wisdom to dispense in 40 seconds. Wise investors are listening.

Matson Montage

“Building a global diversified portfolio is the game, not selling people what’s sexy or what’s popular." –Mark Matson


Check out this short video ( less than 3 minutes) of Mark Matson’s recent national media appearances.
An Extremely Powerful Three Minutes!

Matson is the CEO of Matson Money, who are co-advisors with us on our Matson Money portfolios.

Mark does a great job of trying to get the truth about investing out to investors. This is particularly hard in the financial media, who are looking for the latest sexy investment du jour. Mark’s message is consistent and on point. It’s based on the truth and doesn’t waiver over time. As an advisor and an investor, it’s very reassuring to me to have an investment philosophy that has stood the test of time.

And Then There Were None

....and then there were none. –Agatha Christie


I came across an interesting article in the NYT over the weekend. The title of the article tells it all,How Many Mutual Funds Routinely Rout the Market? Zero

In an S&P Dow Jones Indices study of 2862 actively managed mutual funds that began in March 2009 (the start of the bull market), how many are likely to remain in the top quartile in each of the five succeeding 12 month periods through March 2015? Well, I guess the title gives that answer away. That’s right, none. Through March 2014 there were two funds. These two funds are lagging badly this year. So, with only 2 weeks left until the end of the next 12 month period it looks like....and then there were none.

Study after study and all with the same results. Investors have to stop believing in fairy tales and stop trying to beat the market. Instead of beating it, own it. Own it through a globally diversified, low cost passive portfolio that’s appropriate for your specific needs. Give up on the fairy tale of active management.

Nice to see the main street media starting to report on this more and more. Hopefully, investors are paying attention.

Fiduciary Resposibilty and 2015 ADV

fi-du-ci-ar-y n. from the Latin fiducia, meaning “trust”
1.) An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.


In last week’s e-mail, I talked about the investment industry’s dirty little secret. You remember....the one in which stock brokers and insurance agents are not required to act under a fiduciary standard requiring them to put their clients interests above their own profits. No wonder why the whole industry is plagued by conflicts and lack
of transparency!

The best way to combat this problem is to deal with advisors who are registered investment advisors ( RIA’s).
RIA’s are required to work under the fiduciary standard and always put clients interests ahead of their own.

My firm, Verity Capital Management, LLC is set up as a registered investment advisory firm. I take my fiduciary responsibility very seriously. In light of that, here is a copy of my ADV 2 for 2015.Download ADV_2015.pdf
This has to be filed annually with the Financial Industry Regulatory Authority (FINRA). I’m also required to give all of you a copy every year. It spells out in detail all material facts relating to our advisory relationship. There are no material changes from last year.

The President and I Finally Agree

“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns.”
– President Obama


The above is a quote by the President from a speech last week at AARP. It will become the official policy of the White House to push for new rules to require all financial advisors to put all clients interests above their own. Say what? Don’t financial advisors always put their clients interests above their own? Well sadly, the answer is no! Obama is exposing a dirty little secret of the investment industry that most people are totally unaware of.

Believe it or not, stock brokers and insurance agents are not required to act under a “fiduciary” or trust standard that requires them to put their clients interest above their own profits. Can you believe the investment industry would allow this to go on? This is one of the main reasons why a few years ago I changed my entire business model. I broke all ties with the brokerage world. I work as a registered investment advisor and all my dealings with clients are governed by the fiduciary standard. For me, that’s the proper and ethical way of conducting business. I’m glad the President and I finally agree on something.

Hopefully, you can see the significance of this issue and agree with me that all investors should be protected with a fiduciary standard of care.

Check out this one minute video, Are Your Retirement Savings At Risk, that was on the White House website in conjunction with the President’s speech.Are your retirement savings at risk?

Is Cramer Starting To Get It?

“The market is smarter than we are and no matter how smart we get, the market will always be smarter than we are.” – Kenneth French


I guess Jim Cramer missed the class when Professor French talked about efficient markets. In efficient markets, all knowable information is already reflected in current prices. The market is indeed smarter than we are and that’s why it’s impossible to beat it with any consistency.

Seems Cramer has made a living trying to convince investors that he can indeed beat the market and with a minimal amount of “homework” they can too. Check this report from Pundit Tracker for why I’m so cynical of this claim. Seems Cramer got a F grade for his stock picking prowess.Jim Cramer's Mad Money Picks: 2011 and 2012 Recap

Is there any hope for Cramer? There just might be as evidenced from this recent article from CNBC.
Beware these costly ETF & mutual fund mistakes

Here’s a quote by Cramer from the article....."At the end of the day, I think a cheap S&P 500 index fund is the least bad way to passively manage your money- better than the vast bulk of actively managed funds.”

Maybe not a flat out ringing endorsement and granted Cramer still thinks investors can beat the index by picking stocks themselves, but maybe, just maybe, this is a slight ding in the armor that will lead Cramer to the truth and start saving investors from his not so stellar advice.

Of course, Cramer is just hitting the tip of the iceberg. The S&P 500 is just one asset class that investors need to have a globally diversified portfolio. Exposure to small cap and value indexes around the world and a proper allocation to fixed income to control overall risk are essential to have a successful long term investment experience.

Clements on Financial Happiness

“If you want to notch decent returns, put your ego aside and put your money in broadly diversified index funds with rock-bottom annual expenses.” – Jonathan Clements


Jonathan Clements is a highly respected financial writer. He has spent most of his career as the personal finance columnist for the WSJ. I have always found his advice to be spot on. I like his straight forward common sense approach.

Last week his column was titled How To Live A Happier Financial Life. It’s a quick read and I think you’ll enjoy it. You might even want to share this with family and friends who could benefit from his sage advice.
How to Live a Happier Financial Life

No Sizzle, Just Meat

“Dimensional is a firm dedicated to implementing the great ideas of finance. That’s what we’re all about.”
– David Booth, Founder and Co-CEO of Dimensional Fund Advisors


Dimensional Fund Advisors(DFA) is probably the most successful mutual fund company that most people have never heard of. There’s a reason for that....they don’t advertise. They don’t have to. They have a loyal group of advisors, who have to pass rigorous criteria to be approved to offer DFA Funds, that help spread their story. As a matter of fact, they attracted the third-most money last year after Vanguard and JP Morgan Chase using this approach.

You’ve heard me say before that I think they are the smartest firm in the investment industry. They use a scientific approach that is rooted in academia. There’s no forecasts or opinions of what they think might happen. Everything they do is founded on finance science. Check out this 4 minute video that DFA put together that gives a rare glimpse into the origins of DFA. Hopefully, you’ll see why I believe they are the best and brightest in the industry.
Dimensional Fund Advisors

It’s definitely a firm with not a lot of sizzle but a lot of meat!

Still Need To Diversify Globally

“To be a successful long term investor, you have to force yourself to do the things other people aren’t willing to do.”
– Mark Matson


Isn’t that true of almost anything in life. To be successful, you have to be willing to do what other’s aren’t.

Check out this short video from Matson’s appearance last week on CNBC, where he talks about why it’s important to remain globally diversified and not to chase last years hot asset classes.Don’t Chase The S&P 500

The best part about telling the truth is that your message never varies. Keep getting the message out there Mark.

Thank You Active Managers

“There are many talented clever, hardworking money managers out there, all flipping through the thousands of pages of corporate reports and information. All that competition serves to drive prices quickly enough to their fair value that it eliminates the easy opportunities for anybody, smart or otherwise to gain an advantage.”
– Weston Wellington, Dimensional Fund Advisors


Wow.....that’s a mouthful Weston. Read the above quote over again. Weston is pointing out a very important investment truth. You know how I feel about using active management in our portfolios. It’s a giant waste of money. However, the active managers do provide a valuable service to the investment industry. They essentially keep the markets efficient.

We all know that the big Wall Street firms hire the best and the brightest from the best universities around the world. They all have access to all the same information. The best and brightest are scouring through mountains of information daily trying to figure proper security prices. This is precisely why the markets are efficient. They are all so bright, nobody can get a leg up over the other. This is why it’s impossible to beat the market! Isn’t it ironic how all their work to uncover inefficiencies, is what actually makes the markets efficient.

So, we as investors benefit greatly from the efforts of these active managers. Best of all, by playing the passive investment game, we benefit without having to pay the exuberant active management fees.

Here’s a video Weston Wellington recently did for that I think you’ll enjoy. It’s about 4 minutes long and he talks about why we should have the utmost respect for active managers while at the same time avoiding them in our portfolios.The markets need active managers - just far fewer of them.

Evidence Based Investing

“Odds are you don’t know what the odds are.”
– Gary Belisky and Thomas Gilovich from Why Smart People Make Big Money Mistakes


I want you to review this chartCallan Periodic Table of Investment Returns   and help me ascertain any patterns that are reoccurring here. I’m trying to set up the proper asset allocation for my 2015 investment portfolios and I want to make sure I capture the asset classes that will have the highest returns in 2015. So, take a minute and review this chart for me. This Callan Chart shows the different asset class return ( from highest to lowest) for the years
1995 – 2014.

Ok time is up. What are the leading asset classes going to be in 2015? Obviously, I’m being facetious. Clearly, there are no patterns in this chart. This shows the pure randomness of stock market returns. Believe it or not, some people get paid big money trying to find patterns in this data that simply don’t exist.

The chart is a perfect visual for why we rely so heavily on diversification to do the heavy lifting in our portfolios. The truth of the matter is that nobody knows how the different asset classes are going to perform year to year.

Now for a dose of reality. Contrary to popular belief, a properly diversified portfolio didn’t perform so well last year. Seems all we heard about during 2014 was the Dow or the S&P 500 hitting all times high. In fact, the S&P 500 was up almost 14% for the year while a properly diversified portfolio was closer to break even. So what gives?

As a recent article from Fox Business suggested, if you’re portfolio did in fact have a good year in 2014, instead of raising the champagne glass you might want to consider firing your advisor. The article goes on to point out that if you’re money was managed properly, using non-correlated assets to properly diversify your portfolio, then it was mathematically impossible to generate good returns last year. The only way to have gotten decent returns was by guessing. Essentially, gambling and speculating on which asset classes would be hot.

Well, we don’t play the guessing game. We’re all about evidence based investing. This is based on the science of investing, not guessing what we think might happen. We have decades of research to show us the way. What we do is invest, not speculate. Our portfolios have a higher exposure to the risk factors(value, small and profitability) that give you the highest probability of getting paid for the risk you are taking. From studying market data as far back as 1926, the evidence shows that exposure to these risk factors rewards investors with a premium of 3%-5% per year over broad market averages. The research also shows that this phenomenon occurs in the vast majority of time. This is what evidence based investing is all about....putting the law of averages on your side and giving you the best chance of a successful investment experience.

Well, a quick look at the Callan Chart will show that 2015 didn’t work out like most time periods. Large cap stocks outperformed small caps and growth stocks outperformed value stocks. Such is the nature of risk! If the exposure to these risk factors occurred all the time, there would be no risk. Since risk is the source and economic reason for return, no risk equals no return. It also didn’t help that international equities were the worst performing asset class. They make up on average over 40% of our globally diversified portfolios.

Our portfolios are built to protect your downside as well as maximize your upside. We will stick to the discipline and structure that has rewarded us so generously in the past. We will continue to base our portfolios on the science of investing, not gambling and speculating.

Get Your Fair Share

“Why would you want to invest?” –Dan Wheeler


Chances are you’ve never heard of Dan Wheeler, but he’s a rock star in my world. Dan was the Director of Financial Services at Dimensional Fund Advisors(DFA). He retired in 2010 and is still a sought after speaker on investment topics around the world. He’s also a real nice guy. Dan was the one who convinced DFA to offer their funds to approved advisors who truly believed in the DFA philosophy. Prior to that, DFA only worked with large institutional clients. So I guess, we all owe Dan a debt of gratitude for giving us access to the best mutual funds on the planet.

Dan asks an interesting question in the above quote. He attempts to answer that question in this 3 minute video that he calls Capitalism 101. In this short video, Dan explains how true wealth is created.Wheeler: Capitalism 101

So what’s the key take away for investors? I think it’s an understanding that the global economies create wealth. It’s not created by Wall Street. It’s not created by advisors.

Most investors don’t get their fair share of this wealth because they’re too busy trying to outsmart it by playing the stock picking and market timing game. My job is to structure an investment solution to make sure you are getting your fair share of this increase in wealth that you’re entitled to for providing financial capital to the whole system.

It’s actually a pretty simple concept but one that’s unfortunately lost on many investors. It’s a message that Wall Street spends billions on hoping you don’t get.

Is This The Holy Grail Of Investing?

“Markets are efficient, but there are different dimensions of risk and those lead to different dimensions of expected return. That’s what people should be concerned with in their investment decisions and not whether they can pick stocks...” –Eugene Fama


What the heck is Fama talking about? Dimensions of risk that investors should be concerned with? Well, in my opinion, what he’s talking about is about as close as we’re going to get to any type of holy grail when it comes to investing. Take a look at this chart from Dimensional Fund Advisors as the best way to explain what Fama is talking about.


The following are 10-year annualized percentage returns for the S&P 500 Index, U.S. Large Cap Value, U.S. Small Cap and U.S. Small Cap Value. Returns are in %s.

Asset Class:










S&P 500  Index










Large-Cap Value




















Small-Cap Value 










First of all, there’s 80 years worth of data in this chart. That’s a pretty decent sample size to draw accurate information from. Notice also how the leading and lagging asset classes change from year to year. A good lesson on why the need to diversify. Also, notice how the market is up most of the time. In 32 ten year periods, only four were negative.

Now, look at the last column on the right. The one that shows the average return for the different asset classes for the period 1930 –2013. This is what Fama is talking about. This is what investors should be focused on and not picking stocks. This chart shows perfectly what Fama discovered many years ago in his research....the value factor and the small cap factor. These factors have significant outperformance over the broad market index, S&P 500. This outperformance doesn’t happen every year but it happens in the vast majority of time. This phenomenon holds true for the international and emerging markets as well. It’s amazing how investor’s are sorting through the miniature trying to pick winning stocks and beat the market when these truths are starring them right in the face. This is why we tilt all our portfolios towards value and small cap stocks.

Interesting enough, 2014 was one of those years when the broad market index, S&P 500, significantly outperformed the value and small cap asset classes in the U.S, international, and emerging markets. This will happen from time to time. It’s impossible to know which asset classes will outperform in any year. We won’t make any drastic changes. We’ll keep on letting the law of averages work for us rather than against us.

What Is It About Money?

“Never let the truth get in the way of a good story.” –Mark Twain


Did you happen to catch the story last week of the 17 year old New York high school student who made $72 million trading stocks on his lunch break? It was a story that ran in the New York Magazine and was picked up by all the major media outlets. Here’s a copy of it in case you missed it.12. Because a Stuyvesant Senior Made Millions Picking Stocks. His Hedge Fund Opens As Soon As He Turns 18.

Sound too good to be true? It was. The kid was a complete hoax. You didn’t have to be a Mensa member to figure this out. A little common sense would have been enough.

Let’s start with some basic math. Let’s assume he started with $1,000 at age 10. To accumulate $72 million, he would have had to average over 500% annualized returns over the last 7 years. This would make him the greatest trader in history. Ever! By far! No such person has ever existed and God knows, it’s not for lack of trying. Hedge funds, who employ the elite of the elite, as a group can’t beat the market but this kid was getting these type of returns on his lunch break?

I don’t know what it is about money that makes people so stupid and gullible. A lot of people want to believe in the myths of stock picking and market timing in spite of all evidence to the contrary.

The old adage, if it sounds too good to be true, it probably is, isn’t a bad principle to follow when it comes to investing.

Academic Research or Asparagus?

“It is absurd to think that the general public can ever make money out of market forecasts.” –Benjamin Graham


As a primer to get you ready for the “silly season” of stock market predictions, I came across this short video that might help put things in perspective.British Woman Predicts The Future Via Asparagus

Pretty convincing, don’t you think? Hopefully, you appreciate the tongue-in-cheek attempt of getting my point across. This is totally insane! Nobody believes that this lady can predict the future by using asparagus. There is absolutely no data or research to back this up.

Funny then how many investors still rely on stock market predictions with their financial futures. There is absolutely no data or credible evidence that supports that anyone can accurately predict the future of the stock market. None. Throwing up stalks of asparagus would be as accurate as relying on these self proclaimed “expert” predictions.

This is a hard concept for many investors to accept. They want to believe that Santa Claus does exist. With all the smart people in the financial industry, certainly somebody can figure this all out. Sorry to burst your bubble but no such person has ever existed.

The simple truth is that all knowable and predictable information about a stock price is already reflected in the stock price today. Only random and unpredictable information going forward is going to change stock prices. This simple premise is what earned Eugene Fama a Nobel Prize in Economics in 2013.

Seems to me it makes more sense to invest based on good solid academic research rather than asparagus.

Academic Research or Wall Street Whimsy

Research is creating new knowledge. –Neil Armstrong


The year 2002 seems like an eternity ago. Remember the stock market downturn (i.e crash) back then. You remember, the internet bubble burst. I sure do! That was a painful period for me and the markets handed me my head on a silver platter. I totally bought into this “new paradigm”of investing. This was a new and dynamic time where the “old “ rules of investing were no longer going to work. Get on board before it’s to late. Problem was, I was already deep on board. I had been for a few years with great success. Actually, I was making so much money, I contemplated leaving my job and just trade for a few hours a day and play golf every afternoon. I had it all figured out. A perfect plan until it wasn’t. No, 2002 had to come around and ruin my party and wipe me out. Like I said, painful.

After licking my wounds for a few years, I wanted to give it one more shot. Was there a proper way to invest that involved more than just gambling and speculating? I spent a few years on this quest. I went to seminars and conferences all around the country searching for the truth. Most of it was just a giant waste of time. Finally, I stumbled on this whole academic approach to investing. The idea of investing based on rigorous peer reviewed academic research from leading institutions around the world immediately appealed to me. Seems these academics were looking for the same thing I was.....the truth.

When I delved more deeply into the research, it blew me away. The logic was unshakable and the compelling evidence was overwhelming. It was a true epiphany. I felt as if I had finally discovered the truth and it would change the way I would invest forever. And it has! has a great new video out, Two Key Lessons You Can Learn From Academic Research and Investing. It’s less than 4 minutes long and really well done. I hope you can take the time to watch it. Two key lessons you can learn from academic research on investing

Hopefully, you agree that it makes a lot more sense to have an investment portfolio based on the wisdom of academic research than one on the whimsy of Wall Street.

An Unwavering Belief

Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. –Paul Samuelson ( 1st American to win Nobel Prize in Economics in 1970)


Some of you might feel a slight tinge of anxiety at the mention of Paul Samuelson’s name. For those “lucky” enough to have taken an Economics course in college, you most likely used Samuelson’s textbook, Economics: An Introductory Analysis. It’s the largest selling economics textbook of all time. Speaking from personal experience, I know it gave me a few sleepless nights.

Samuelson, who died in 1990, was a brilliant man and it’s well worth taking his advice in the quote above. With today’s instant access to portfolio valuations, many investor’s are doing totally opposite of what Samuelson recommends. Constantly hawking your portfolio can lead to a state of anxiety and doubt for investors. This can lead to making bad decisions that are emotionally based and can raise havoc on your personal peace of mind and your financial future.

Our friends across the pond,, have a great piece called Portfolio Valuations in Perspective. It’s a great guide of some do’s and don’ts when looking at at your portfolio. I would suggest printing this out and keeping as a reference guide.Portfolio Valuations in Perspective

I personally think that the 3rd “do” is most important- have patience and remain disciplined. Nobody can control the markets. Having patience and remaining disciplined requires doing what’s right, not what feels right. Of course, this isn’t possible unless you have an unwavering belief in your strategy. Hopefully, our very structured academic based approach to investing gives you this unwavering belief.

The Cat Is Out Of The Bag!

Active management has never been in worse repute. This is the darkest of days.
–John Rekenthaler, V.P. of Research at Morningstar


Halleluiah! Investors are finally catching on to one of the biggest lies perpetuated by the investment industry. This is a lie that big institutional advisors have known for a long time. Active management does not work! Smart institutional investors determined a long time ago that active management didn’t justify the higher fees and have pledged their allegiance to lower cost indexing.

Investors have yanked over $70 billion year to date from actively managed stock funds in favor of passively managed alternatives.

Why this mass migration from active to passive? The proof is in the pudding. In the past five years, 87% of large cap U.S stock funds have failed to beat their benchmark S&P 500 index. Other asset classes weren’t much better. The cat is out of the management has failed in both bullish and bearish markets.

So the big lie is starting to get exposed. Who’s going to pay for active management when the managers consistently underperform their benchmark indexes?

There was a great article in the WSJ last week that talks about this issue in more detail. There’s also a short 2 1/2 minute video with the author. Hope you take the time to watch and read.Investors Flee Active Stock Managers

The Power Of Compounding

Compound interest is the eighth wonder of the world. He who understands it, earns it......he who doesn’t, pays it. –Albert Einstein


There was recently an article on Marketwatch that caught my attention. It was written by Paul Merriman and the title of the article was Make Your Kids Rich For $1 A Day. This article really shows the power of compound interest.

If you put away $365 a year for 18 years for your child ( or grandchild, niece or nephew etc.), then the child puts a one time $5,500 contribution into a Roth IRA at age 19 ( from the money you put away for them) and doesn’t do anything else but let the money sit there until age 66, the tiny sums grows to over $4.1 million. That’s not a grows to over $4.1 million. The author assumes the money is invested totally in small cap value stocks ( such as the Vanguard Russell 2000 Value Index) and grows at 12% a year. This isn’t ridiculous since that’s about the long term average rate for that asset class. Check out the article. The numbers get even crazier if the money stays invested in that asset class after age 66. Check out what annual distributions could be in retirement and what’s left for the heirs.Make your kid rich for $1 a day

Of course, in reality the real numbers could be quite different. Merriman assumes a straight 12% earnings per year on a risky asset class with a high standard deviation. As this account grew in value it would not have been prudent to keep it all invested in a single asset class. Nonetheless, you’d still have a tidy sum for a very minimal total investment. You’ve got to love the power of compounding and staying in the game long term.

If You Had A Million Dollars....

If I had a million dollars
If I had a million dollars
I’d be rich! –Barenaked Ladies lyrics


If you had a million dollars would you be rich? More importantly, could you retire on a million dollars?

USA Today had an interesting article last week, Investing: Can you retire on $1 million?, that I think you’ll find interesting and enlightening.“Investing: Can you retire on $1 million?”

So what do you think? Can you make it on $1 million? Of course, this all depends on what your spending requirements will be in retirement. The key takeaway for me was showing how important it is to have a properly diversified portfolio with a significant portion allocated to equities to combat the effects of inflation. If you started with a $1 million balanced portfolio(60% equity/40% bonds) and withdrew 5% per year, or $50,000 per year, over the last 10 years you’d currently have $1.134 million. Don’t forget, this includes the worst period since the Great Depression. By contrast, the portfolio invested in money market funds would be worth only $640,000. So much for what many investors would consider safe investing. Sounds more like a recipe to go broke slowly.

Same Old, Same Old

“One thing about telling the truth is you never have to change your message.” –Mark Matson


So true true. I’ve been accused of sounding like a broken record. When your investing based on the truths of rigorous academic research, the message never changes. Think about what rigorous peer reviewed academic research is all about. It’s all about finding the truth, whatever that might be. It’s not Wall Street type research that’s all slanted towards what they want you to buy.

So when your portfolios are based on over 30 years of this stringent academic research( some even have won Nobel Prizes telling investors how to invest) that’s been tested in the real world of investing to work, it’s easy to have the same message

I’ve got a bit of a homework assignment for you this week. Mark Matson did a presentation over the summer to a group of investors called“Gearing Up For Next Crash”   I say homework assignment because it’s about an hour long. Actually, most of the important stuff is covered in the first 48 minutes. It’s a presentation that I think will help you put things into perspective. If you can’t carve out an hour maybe you could do 15 minutes or so over the next few days. Anyways, I hope you enjoy it..

What Am I Doing?

“Impossible to see, the future is.” –Yoda


“What are you doing to protect your clients portfolios?”, a friend innocently asked at dinner the other night.

Probably a fair question given the volatility in the markets last week. Well here’s my answer and I’m going to use a quote from Warren Buffett.... “Inactivity strikes me as intelligent behavior.”

What? How can you sit back and do nothing with all this madness going on? Well, when you have the science of investing, backed up by decades of rigorous academic research, on your side it’s actually quite easy because you know it’s the right thing to do. Reacting to current events is nothing more than gambling and speculating. It takes an understanding of how the markets really work and unceasing discipline to be a great investor.

You see, my clients have already gone through the process of identifying their personal risk tolerance. They know historically how their portfolios have performed over a long term basis.... the good and bad, warts and all. They also realize that downside volatility is an expected part of the process. In fact, this is where equity premiums come from. Without it, the markets would have no risk and investors would get treasury bill rates of return. Hard to meet your financial goals with those type of returns.

Hopefully, they also realize that their highly diversified global portfolios are built to weather all market conditions. They know that we are sitting in the wings to rebalance their portfolios as necessary. This maintains a clients appropriate risk level and insures clients will achieve maximum benefit as market conditions improve.

The biggest part of the whole equation is up to the investor though. Investors must be willing to also “do nothing” in order for all this to work properly. It’s not easy. It takes tremendous discipline and unwavering believe in our investment philosophy to “stay in your seats” and get the rewards that come with doing the right thing. Trust me, you’ll be glad you did.

The Million Dollar Question

“There’s one thing I always wanted to do before I quit......retire!” –Groucho Marx


Here comes the million dollar question.....How much income do you need in retirement? Well, I guess first, you need to determine the type of lifestyle you want in retirement. Then you have to determine what percentage of pre-retirement income you’ll need to fund that lifestyle.

Marlena Lee, PhD, V.P Dimensional Fund Advisors helps us address this important question in this insightful 3 1/2 minute video:“How much retirement income is enough?”.

Inside The Mind Of Investors

“The best course of action for the vast majority of individual investors is to buy low cost, well diversified mutual funds. Index or other passive investing tends to outperform active investing.”
–Terrance Odean, Professor of Finance, Haas School of Business, University of Ca. Berkeley


Terrance Odean is the newest member of the Matson Money Board of Advisors. He’s known worldwide for his groundbreaking research in the area of Behavioral Finance.

He was a speaker at a recent Matson Money conference. Listen in on this short 3 minute video where he gets inside the mind of the American investor and weighs in with some solid advice for investors.“Inside The Mind Of The American Investor”.

Diversify The Hell Out Of It

“You pick your risk exposure and then you diversify the hell out of it.”
–Eugene Fama, winner 2013 Nobel Prize in Economics


I guess I never really heard it explained that way but that’s exactly what we do here at Verity Capital Management. We help investors determine the risk level they are comfortable with, then we diversify the hell out of it.

How to we do that? By building portfolios that are made up of over 13,000 unique stock and bond holdings in 19 distinct asset classes in 44 different countries. Do you think that qualifies as diversifying the hell out of it?

Here’s an article about Fama’s keynote address to a Morningstar Conference. It’s very short and has some great little tidbits of wisdom from Fama.“Indexing Trumps Luck or Skill, Fama Tells Morningstar Conference”.

It’s amazing how consistent Fama’s message has been throughout the years. This is something very rare in the investment industry where most people are busy changing their story more often than they change their underwear. I guess when your message is based on the truth of rigorous academic research, it should be consistent. Some people might even say boring.
I’ll take that boring consistent strategy all day long. The proof is in the pudding that it works better than any other
investment strategy.

Join The Mainstream

“Your single biggest investment mistake is owning any actively managed funds.” –Dan Solin


For my money, Dan Solin is one of the most articulate people in the investment industry. He’s also the author of The Smartest series of books which are good quick reads where he dispenses much of his wisdom.

Even though I gave it away in the above quote, check out his recent article,“This Is Your Single Biggest
Investment Mistake.”

Unlike the active investment world that wants you to believe in fairy tales, this article is based on hard core independent research. In other words, the truth.

Interesting to see that Morningstar now considers passive investing the mainstream approach and active management is the periphery. Maybe there is hope for investors after all.

Join the mainstream and become an evidence-based investor using low cost passively managed investments.

Clements' Beliefs

“If I’m doing my job, nothing in my columns should confuse you. It isn’t because I’m dumbing down the subject. It’s because I’m taking on Wall Street mumbo-jumbo and putting it in plain English.” –Jonathan Clements


Jonathan Clements is one of my favorite personal finance writers. After a six year hiatus, he’s back writing for The Wall
Street Journal.

Here’s his column from a couple of weeks ago where he shares his 13 firmly held financial beliefs.“Don’t create a budget — and 12 other financial tips to live by”.

Some good common sense advice here that I hope you find useful.

Wise Words From A Wise Man

“Wise men speak because they have something to say; fools because they have to say something.” –Plato


I guess the hard part is separating the wise man from the fool. Well, one of the wise men in the investment industry, Burton Malkiel, spoke last week in this op-ed piece in the WSJ.“Are Stock Prices Headed for a Fall?”.

Malkiel is a Professor of Economics at Princeton University but is better known as the author of the investing classic, A Random Walk Down Wall Street. This book is a must in all investors libraries and is currently in its 10th edition with the 11th edition coming out later this year.

Malkiel’s op-ed piece deals with an issue that’s on many investors minds.... Are Stock Prices Headed For A Fall? He does acknowledge that we might be in a low rate environment for some time and stocks and bonds are likely to generate lower returns than the long term averages. So what’s an investor to do? I’m going to quote Malkiel and pardon me if you’ve heard this before. After all, wise advice is wise advice.

Malkiel says, ..... “don’t think you can time the market and sell your stocks now, hoping to get back in later after there is a correction. No one can consistently time the market and you are more likely to get it wrong than right.”

Here’s the key..... “Stay broadly diversified with a portfolio that is consistent with your age, financial obligations and
risk tolerance.”

Sound familiar? I hope so. It’s not sexy and exotic. It is the truth and it’s what works.

Don't Be A Dalbar Investor

“Be fearful when others are greedy and greedy when others are fearful.” –Warren Buffet


Studies show that humans are motivated to make decisions mainly out of fear and greed. While these emotions are valuable assets for survival, they can absolutely destroy our financial life. Humans are simply not hard wired to be good investors.

Our friends over at have put together a really good video (2.5 minutes long) talking about this. I think you’ll enjoy it.
“ - Fear, Greed and Your Brain - Show 134”

To show how fear and greed can trump logic and derail our financial life, one has to look no further than the most recent Dalbar Report referenced in the video. Dalbar is a Boston based research company that studies how investment behavior effects investment returns. For the 30 year period ending 12/31/2013, the S&P 500 averaged an 11.11% annual return while the average equity investor earned 3.9%. Ouch! What does this translate into actual dollars assuming a starting base of $100,000?.....the S&P grew to over $2.3 million while the average equity investor would have $296,500. Double Ouch!!

Dalbar goes on to say that the bulk of this shortfall is due to psychological factors, namely fear and greed.

That’s where I like to think I come in to help. My job is to keep you disciplined over your investing lifetime, so you can achieve the highest expected return for your given level of risk. Be disciplined and not another Dalbar statistic.

The "AHA" Moment

“DFA will challenge some of your fundamental beliefs on how you think the world works.” –Weston Wellington


Today I’m attaching a short video where Weston Wellington talks about the Dimensional Fund Advisors (DFA) philosophy. It’s less than 4 minutes long and I think you’ll enjoy it.
“Weston Wellington on Dimensional Fund Advisors”

DFA are the funds we use primarily in the portfolios we design here at Verity Capital Management.

This whole philosophy really rocked my world and changed the way I’ll invest and manage money forever. The principles are so sound and backed up by decades of rigorous academic research that work in the real world of investing. I hope you also experience the “AHA” moment that Weston alludes to. There’s a tremendous relief knowing that you’re investing the right way and not playing the Wall Street game. Once you “get it”, it also explains why you were so fearful and frustrated investing the traditional way.

Thank you DFA for giving me and so many other investors peace of mind knowing we are investing in the best possible way.

Get The Most Bang For Your Buck

“What’s significant about Modern Portfolio Theory is what it provides: a mathematically-based approach for managing and mitigating risk.” –Dr. Harry Markowitz


Last week we started to take a peek at the science behind how we build our portfolios here at Verity Capital Management. Last weeks e-mail talked about the first leg of our three legged investment process, The Efficient Market Theory. This week, I want to talk briefly about the second leg, Modern Portfolio Theory (MPT).

Dr. Markowitz won a Nobel Prize in Economics in 1990 for MPT. There is a way to construct and measure a portfolio that will deliver the highest expected return for any given level of risk. MPT shows investors how to properly diversify their portfolios through uncorrelated asset classes. Prudent diversification is much more than just owning a “bunch” of stuff. Thanks to Dr. Markowitz’s research, investors can be assured of getting the highest expected returns for the individual risk level they’re comfortable with.

Check out this 4 minute video where Markowitz talks about MPT in this interview with BNY Mellon.
“Dr. Harry Markowitz and The Birth Of Modern Portfolio Theory”

I feel comfortable relying on Nobel Prize winning research to construct portfolios rather than just “hoping” that things will work out. Make sure you’re getting the most bang for your buck by having the science of investing behind you.

Don't Play The Loser's Game

“In an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.” –Eugene F. Fama


That quote in a nutshell is what Eugene Fama won a Nobel Prize in Economics for last year. It’s beautiful in its simplicity. It means that stock picking doesn’t work. The market is extremely efficient at pricing in all knowable information into the price of securities. The only thing that will change prices is new information. Since nobody can predict the future, any attempt to do it is just guessing.

Fama’s work, called the efficient market theory(EMT) has given rise to the whole passive indexing approach to investing. Here’s a 3 minute video that explains the EMT. The first minute is the master himself, Fama, explaining what it’s all about.
“Efficient Markets Theory”

The first time I heard the EMT explained I new in my gut it was something special. Something just resonated with me that told me this was true. After delving into the research, it just reinforced my gut reaction. The evidence is overwhelming in support of EMT.

EMT along with modern portfolio theory and factor investing are the 3 legs of the investing stool that we rely on to build our portfolios. I’d much rather have the science of investing on my side that the opinion of some overpaid Wall Street stock picker.

You don’t have to play the “losers game” of stock picking when you have Nobel Prize winning economic theories on your side.

Fiduciary vs Suitability Is A Big Deal

“The best security for the fidelity of men is to make interest coincide with duty.” –Alexander Hamilton


I have a real simple question for you this week.....Do you want the highest standard of care regarding your investments? Unfortunately, this isn’t a rhetorical question.

Believe it or not, when it comes to your investments you actually have a choice. You can get the highest standard of care or you can get a suitable standard of care. This isn’t just a matter of semantics either. This is a big deal and most investors have no glue what level of care they are getting.

If you work with a stockbroker or insurance salesmen you’re dealing with the suitability standard. As long as a product is suitable for a client, that’s fine. For example, it doesn’t matter if a broker sells you high cost funds when cheaper fund shares are available, as long as the fund is suitable for you. The broker and his firms interest overrides those of the client.

If you’re dealing with a registered investment advisor(which I am), you’re working under the fiduciary standard. Under this standard, a clients interest must always come first. In the above example, the cheaper fund shares would have to be offered under the fiduciary standard.

No wonder there is such distrust in the investment industry. The brokerage and insurance industry won’t put your interest ahead of theirs. Now you can see why this is a big deal..

The Wall Street Journal, Money Beat, has a good video this week talking about this issue. It’s less than 3 minutes long and I think you’ll enjoy it.“Jaffe: Brokerages Don't Want to Put Your Interests First”.

How's Your 401K Measure Up?

“The primary purpose of your 401K plan seems to be to enrich everyone but you.” –Dan Solin


Ain’t that the truth Dan. In fact, most 401K vendors often bundle the administrative fees and investment fees together making it nearly impossible for plan participants to decipher how much they’re actually paying.

I get a chance to review a lot of 401K plans in my line of work. I’ve found that most offer primarily high cost active funds. If truth be told, I have yet to see a plan where participants could build a truly diversified portfolio using low cost passive index funds.

Here’s a shocker that most people don’t know. Many mutual fund companies pay kickbacks ( i.e. called revenue sharing in the industry) to have their funds included as an investment option.

As most of you are aware, 401K plans are now the main retirement vehicle for most people. Gone are the days where you get a guaranteed monthly pension every month in retirement. The burden to fund retirement has shifted entirely to the employee.

Dan Solin, in a recent article for U.S News & World Report, offers 5 practical ways for participants in 401K plans to make the best of a bad situation.“5 Ways to Maximize Your Rigged 401(k) Plan”.

This is an issue that’s near and dear to my heart. It makes me sick to see how people are getting ripped off and not having a proper plan to fund their retirement. Let me know if you’d like an analysis done on your plan to see how it stacks up.

The Next 100% Move Is Up

“I’m thinking of the next 200% move in the markets, not the next 20%.” –Mark Matson


Check out my buddy Mark Matson’s appearance last week on Fox Business.
“How To Try To Get The Highest Returns From Your Portfolio Regardless
Of What The Market Is Doing”

Mark is trying to get the truth out about investing and it’s a difficult proposition. These shows want short term solutions to long term problems. Mark does a great job of sticking to his guns and not getting caught up in
the rhetoric.

So how do investors get the highest returns from their portfolios regardless of what the market is doing? The answer is always the same.....globally diversify using all asset classes and have a prudent rebalancing strategy.
Not the sexy answer the financial media is looking for but it’s what works. As Mark is so fond of saying....
“I can’t tell you what the next 10% move will be but the next 100% move is always up”. Wise words and a wise strategy to follow.

Ignore The News

“....whether news is good or bad is totally irrelevant to stock prices.” –Larry Swedroe


Has Swedroe totally lost his mind?

No, actually he’s offering some very sage advice to investors. Global stock markets are very efficient at pricing in all publically available information into stock prices.

What matters is whether the news is better or worse than what was already expected. Check out Swedroe’s recent blog on where he gives examples of bad news being good for stock prices and visa versa.
“Why good things sometimes happen after bad news”

He backs this up with some concrete examples of so called “expert” advice not backed up by any evidence.

It’s only new news that will be a major determinant of future stock prices. By definition, this is unpredictable.

So what’s an investor to do? I suggest following Swedroe’s advice.....ignore the news altogether because acting on it is likely to prove counterproductive.

Show Me The Evidence

“There are two kinds of investors, be they large or small: those who don’t know where the market is headed and those who don’t know they don’t know.” –William Bernstein


There is certainly no lack of opinions in the investment industry. The financial media channels are parading people out all day expressing their opinions of what’s going to happen. Everyone is a self proclaimed expert. I guess that’s ok from an entertainment point of view if that’s all you’re using it for. Sadly, many investors take this advice as gospel. My big bugaboo with all this is that nobody is held accountable for what they say. Nobody’s
feet are held to the fire. Nobody seems to lose creditability for constantly being wrong. It’s a better gig than
being a weatherman.

Dan Solin had a good article recently in US News and World Report where he suggests a mantra for investors that might very well change the way you invest....Show me the evidence.
“This Mantra Will Change How You Invest”

He backs this up with some concrete examples of so called “expert” advice not backed up by any evidence.

That’s why we rely on portfolios that are steeped in rigorous academic research from the leading institutions around the world. The key concepts we rely on to build portfolios have even won Nobel Prizes telling investors how to invest. Sadly, many investors would rather rely on “hot tips” from their brother-in –law or follow the lead of the “expert” prognosticators with their financial well being. Investors could save themselves a lot of aggravation by simply me the evidence.

Sure Way To Go Broke Slowly

“You can fail at what you don’t might as well take a chance doing what you love.”
–Jim Carrey, Commencement speech to Maharishi University of Management, Class of 2014


Ya that Jim Carrey. He gave a very inspiring speech on how his late father inspired him to follow his dreams. It’s only one minute long and I think you’ll really enjoy it.
“Jim Carrey on how his late father inspired him to follow his dreams”

Sadly, many investors also act like Carrey’s late father. They act out of fear disguised as practicality. They let the financial media scare them out of what they should do. They are petrified of investing in stocks so they take the safe route...they leave their money in the bank. However, in reality, this is a recipe that not only might not work, it’s guaranteed to fail. Inflation will ravage an investors nest egg in a way that will insure they go broke slowly.

Equities are the greatest wealth creation tool known to man. Make sure you really understand how the markets work so you can take part in this wealth creation. The key is to construct a portfolio that has a risk level you’re comfortable with. This is what we specialize in at Verity Capital Management. We build portfolios that weather market volatility that each individual investor can live with.

Be A Disciplined Long Term Investor

“Always invest for the long term.” –Warren Buffett


When the stock market is experiencing turbulent times, the worst thing investors can do is panic and get out. Many investors, who lacked proper understanding of how the markets work, got scared out of the markets during the last crash and have never gotten back in. I want to share with you some interesting facts to help you stay disciplined when the markets start misbehaving again.....and they will at some point. In fact, it’s because of this market volatility that there is an equity premium at all. If there was no volatility, there would be no risk and investors would have to settle for treasury bill rates of return. Pretty tough to reach your financial goals when you’re just barely keeping up with inflation.

The last crash was a doozy. Worst crash since the Great Depression. Hopefully we’ll never experience anything like that again in our lifetimes. From the top to the bottom (11/2007 – 3/2009) the S&P 500 was down 50.95%. Ouch! However from the bottom (3/09) to the present the S&P 500 is up over 180% or 23% on an annualized basis. From pre-crash (11/07) to present the S&P 500 is up about 38% or about 5.25% on an annualized basis. The point always recover....100% of the time.

For the 88 year period from 1926-2013, the S&P 500 has had an annualized return of 10.08%. In order to have gotten that return, you would have had to endure 24 down years that averaged –13.61% annualized losses. For 64 out of the 88 years you would have been rewarded with a 21.67% annualized return.

The financial services research company, Dalbar, studies the actual returns that real investors get. For the period 1984-2013, the average equity investor earned 3.69% annually. During this same period, the S&P 500 earned 11.10%. Why the huge discrepancy? Bad investor disciplined investment approach. Basically, investors getting in and out of the markets based on their emotions. This is a sad commentary that gets repeated over and over again. So the average equity investor is getting treasury bill rates of return and is taking equity level risk. No wonder so many investors are frustrated and anxious about the stock market.

Sorry for all the facts and figures this week but I think it’s important to help keep things in perspective and prepare for when things get dicey again. Corrections and crashes happen and nobody can predict them. The key is to develop a portfolio you can truly live with no matter what happens. Our portfolios are designed to weather the storms so that investors don’t panic out and reap the rewards of being a disciplined long term investor.

Learning To Let Go

“Knowledge is learning something every day. Wisdom is letting go of something every day.” –Zen Proverb


At the risk of sounding a little “new wavy”, I want to share with you a way of thinking that will help your investment results. This was a lesson I had a tough time accepting when I first got into the investment business. It’s all about learning when and how to let go.

Being a CPA in my prior life, I was trained for intense activity and constant monitoring of results. The busier I was and the more tinkering I did seemed to be the formula for success in that world.

Not so much in the investment world though. The busyness of stock picking, market timing and chasing returns based on past performance leads to disaster. Constantly monitoring and changing portfolios based on market forecasts is both fruitless and costly.

Investors have to learn to direct their attention toward areas that they can control and away from areas they can’t. Nobody can control the movements of the market. We can, however, control how much risk we take, how diversified we are and the fees we pay. Probably most importantly, we can exercise discipline when our emotional impulses threaten to throw us off-course.

These seem like simple rules and they really are. Many people get fooled by the financial media that’s geared towards constant activity( i.e. trading) and narrowly focused short term results. This constant busyness is a sure fire way to not get the results you truly deserve.

It’s only by letting go and learning to harness the power of the market that investors will be successful and get the returns they need to reach their financial goals.

Bond Duration

“A time measure of a bond’s interest-rate sensitivity, based on the weighted average of the time periods over which a bond’s cash flows accrue to the bondholder.” –Morningstar’s definition of bond duration


I probably lost you already with that definition but I hope to explain why bond duration is important and how it impacts our portfolios.

With the Fed curtailing its efforts to hold interest rates down, most people think there’s a decent chance that we’ll see rates rise. In fact, it’s one of the most common questions I get will rising interest rates effect
my portfolio?

The average bond duration of a portfolio will help us determine how much you’ll lose or gain for every 1% move in interest rates. The general rule is that for every 1% move in rates, you multiply 1% times bond duration. In our case, the average duration of our bond portfolios is less than two years. So the bond portion of our portfolios would lose about 2% for every 1% rise in rates ( or increase by 2% in the case of falling rates).

We have a very conservative philosophy on bond investing based primarily on the academic research of Eugene Fama and Kenneth French. We stick to very low duration high quality bonds in our portfolios. We don’t chase yield. We look at the bond portion of the portfolios primarily as a volatility nullifier for the equity portion. This philosophy has served us very well over the years.

Obviously, nobody knows for sure what interest rates are going to do. The experts that try to predict this stuff fare no better than their counterparts on the equity side. They both have abysmal records. The only thing we know for sure is that our portfolios are structured to weather whatever comes our way.

Outcome or Process?

“We should work on our processes, not the outcome of our processes.” –W. Edwards Deming


Are you a process or outcome oriented person. Seems like an odd question but the answer could very likely determine how successful of an investor you are.

I’ve played golf for about 50 years now. I did something this winter I’ve never done in my life....I took some golf lessons. As bad as my swing was, I learned how to manipulate it over the years to score fairly well. Every time I played it was all about the result....what did I shoot. Well taking lessons has changed all that. Basically everything I thought I knew about golf was least according to my teacher. I’ve had to learn to be much more processed oriented and not worry about the results. In fact, my teacher has told me to be prepared to spend at least a year just learning to trust this new swing. Don’t worry about the results (i.e. score), just stick to the process and the results will eventually happen. Hard to do, especially when I keep forking over money every weekend to my buddies because the results part hasn’t quite kicked in yet.

Ok, but what does this have to do with investing, you ask. Outcome is the result that doesn’t take into consideration the process used to achieve it. Many times, the outcome is just a function of random luck. It’s not controllable. Process on the other hand is a defined methodology. It is repeatable and can be controlled. Gamblers and speculators tend to be outcome oriented. Airline pilots, professional sports coaches and long-term investors are process oriented people.

Process oriented investing is a long term approach that involves owning a globally diversified, passively managed asset class portfolio that gets rebalanced when needed. Good processes deliver more desirable and reliable results. Focusing on your investment process and not the outcome should, therefore, be your goal.

Here’s a good article that was in The Washington Post a couple of months ago that got me thinking about process or outcome in the first place. Hope you enjoy it.
“Barry Ritholtz: Outcome or process — what investment focus succeeds over time?”

Are These People Insane?

“Insanity: doing the same thing over and over again and expecting different results.” –Albert Einstein


I think most of us have probably heard this definition of insanity by Einstein. It seems many investors are still searching for the market guru who can accurately forecast the stock market. I think after you read this short article by Rick Ferri in Forbes that you’ll probably agree that these people are indeed insane.
“Gurus Achieve An Astounding 47.4% Accuracy!”

From 2005-2012, the CXO Advisory Group has collected more than 6,500 market forecasts from 68 “experts”.
What were the results?....drum roll please....the expert market gurus had an incredible 47.4% success rate. That’s’d have better odds by simply flipping a coin for your market forecast predictions than relying on
the “experts”.

When you have a properly diversified passive portfolio that captures global market returns at a risk level appropriate for you, investors don’t have to play the insane market forecast game. These investors have learned how to harness the power of the markets to help them achieve their financial goals and most importantly....peace of mind.

That's What We Do

“All this linking of news events to very short-term stock price movements can lead us to think that if we study the news closely enough we can work out which way the market will move....but the jamming of often unconnected events into a story can lead us to mix up causes and effects and focus on all the wrong things.” –Jim Parker, V.P, Dimensional Fund Advisors


I wish I had a nickel for every time someone has asked me why the market went up or down on a particular day. In our innate human condition, it seems like we need to create order out of chaos. This often leads to imagining connections between events where none really exists. So if truth be told, most often, nobody really knows why the markets went up or down.

Trying to bundle everything into a nice neat package might be a way we seek to make sense out of our highly complex world but is a dangerous way to approach investing.

Here is an article by Jim Parker from DFA where he gives a much saner approach to investing that doesn’t involve having to be constantly plugged into the financial media. It’s all about building highly diversified portfolios tilted towards the factors that have proven to outperform the broad markets on a persistent basis and to capture these return dimensions on a cost effective basis. That’s exactly what we do here at Verity Capital Mgt.
“Connecting the Dots”

Don't Play This Game...You Will Loose

“Market timing is a wicked idea. Don’t try it.....ever.” –Charles Ellis, Winning the Loser’s Game


With the market going kind of topsy turfy over the last few weeks, investors are starting to get a bit skittish again. This can be a dangerous time for investors, as many let their emotions get the best of them. They usually do this by trying to implement some form of market timing.....even though they don’t view it as such. I’ll typically get calls like this.....I know market timing doesn’t work BUT don’t you think we should put some money on the sidelines for awhile. You know last year was so good and things look real shaky right now. We’ll go back in when the coast
is clear.

Well, I hate to burst you’re bubble but things always look shaky....the coast is never really all that clear. This is precisely why we invest the way we do. We built portfolios that are made to sustain the volatility of the global markets. Nobody has ever successfully been able to accurately time the market on a consistent long term basis....nobody. However, investors consistently hurt themselves both emotionally and financially playing this loser’s game. Don’t play this will loose. has another good short video called Bad Timing that shows how almost all big stock market gains and drops are concentrated in a few trading days each year. It’s interesting to note that in over 5,000 trading days from 1/1/1994 – 12/31/2013, the S&P 500 averaged a little over 9% per year. However, if you missed just 40 of the best days during this 20 year period you would have actually lost money.“ - Bad Timing - Show 118”.

It’s good to know that when you have a properly diversified portfolio suited to your personal risk level, you don’t have to play the market timing game. You can sit back and get on with your life knowing that the market is going to do what it does. It’s going to go’s going to go down but over the long term it’s the best wealth accumulation vehicle you have to help you reach your financial goals.

Is The Market Rigged?

“The United States stock market, the most iconic market in global capitalism is rigged.” –Michael Lewis


Unless you’ve been hiding under a rock for the past week, you’ve probably heard about Lewis’ new book, Flash Boys, or saw the Sixty Minutes interview last week. Now I’m a big fan of Lewis. He can tell a good story better than anyone, but really Michael, is it necessary to get everyone in a panic to help promote your book? Talk about much ado about nothing. Maybe if you are a big institutional trader you’d have reason for concern. Maybe these “high frequency traders” could be picking off fractions of pennies on your trades. This has nothing to do with you being an investor. This issue is about trading not investing.

Don’t let all this hype take your eye off the ball. Prudently investing in global markets is still the best way to accumulate wealth to achieve your financial goals. Stay focused on your goals not Wall Street’s.

This is the real story. In an interview with CNBC, Lewis was asked to describe how he invests....."I own index funds and I don’t time the market. I put it away and I don’t look at it very much. It doesn’t follow from the book that you should flee the market”.

It’s too bad that this quote wasn’t given the same ink as the market is rigged quote.

In case you missed the Sixty Minute piece last week, here it is:“Is the U.S. stock market rigged?”.

Luck Is Not A Repeatable Skill

“Wall Street’s favorite scam is pretending luck is skill.” –Ron Ross, Ph.D. Economist


Our friends over at have put together a great little video (2 minutes long) called Rolling the Dice. It deals with this whole concept of luck versus skill when it comes to investing.
“ - Rolling the Dice - Show 117”

Wow...check out that study referenced in the video....that really says it all. Over a 32 year period (1975-2006), the performance of 2076 fund managers was reviewed and 99.4% were found to have no genuine stock picking ability. Say what?....99.4%! The .6% is deemed to be statistically indistinguishable from zero. This is the most comprehensible study of this sort that I’m aware of and the results are absolutely mind blowing. This is precisely why I don’t believe in active management and refuse to use it in the portfolios I manage.

He's A One Trick Pony

“If only we could pick really big winning stocks, you wouldn’t want to do anything else.” –Weston Wellington


Wow...that would really make this investing process a lot easier. If only we had that ability to consistently pick winning stocks.... oh, wouldn’t that make life so much easier. Just think of all the possibilities. Ok...enough of that. Now back to reality.

Check out this recent video by Weston Wellington called The Challenge Of Stock Selection where he brings us back to earth and shows how difficult it is to predict the future.
“ - The Challenge of Stock Selection - Show 114 ”

Weston is a sought after speaker all over the world sharing this type of investment information. He’s the proverbial one trick pony. This has been his schtick for many years. In fact when you see him live, he won’t allow anyone to tape his presentations. This is all he’s got and he’s been doing it for a long time. When you’re sharing the truth, you can afford to be a one trick pony. This video is about 9 minutes long. Check it out and see why he’s in
such demand.

On a personal note, I spent the weekend in Connecticut at the NCAA Women’s Division 1 Frozen 4 Hockey Championship. What a great weekend. The team my son coaches at, Clarkson University, slayed the beast. They beat powerhouse and two time defending champions, Minnesota, in the final game to win the national championship. Pretty good stuff for a small school up in the middle of nowhere in northern New York. Clarkson had two of their girls named as 1st team All Americans and one of the girls won the Patty Kazmaier Trophy, which is presented to the best female college hockey player in the country. Now, it’s off to a visit to the White House.
My son recruits primarily Canadian girls. In fact, I think he’ll be the only U.S citizen representing the school on
that trip.

Why Does Capitalism Get Such A Bad Rap?

“Doing well is the result of doing good. That’s what capitalism is all about.” –Ralph Waldo Emerson


You’ve heard me say this before..... Capitalism is the greatest wealth creation tool known to mankind. It has done more to elevate our quality of life than anything I can think of. So why does capitalism get such a bad rap? Seems a lot of people confuse crony capitalism with real capitalism. Crony capitalism is not based on the free markets and is all about greed and selfishness. Capitalism based on free markets, by its very nature, has to be altruistic.

Check out this video, done by Prager University, on“Why Capitalism Works”. It’s less than 4 minutes long and I think you’ll enjoy it.

Our portfolios are based primarily on capitalism. We are essentially investing in global capitalism. This is a much more powerful force than the forecasts and opinions of the Wall Street prognosticators.

Folksy Wisdom From Buffett

“If you enjoy Saturday and Sunday without looking at stock prices, give it a try on weekdays.” –Warren Buffett


Warren Buffett is considered by many to be one of the most successful investors of all time. His folksy wisdom would serve most investors very well.

The Huffington Post had a good article last week called“Warren Buffett Says What Wall Street Doesn't Want You To Hear”  It’s a very short piece and I think you’ll enjoy it.

Don’t try to outsmart the market, use low cost index funds, stop listening to the so called “experts”....Buffett’s been distilling this sound advice for years....seems, though, people just aren’t listening.

Don't Chase The Dream

“The active investing industry is a giant scam and there is a huge amount of money invested in keeping
you ignorant.” –Dan Solin


Jeez Dan, don’t hold back....why don’t you tell us how you really feel! I’ve been a big fan of Solin for a long time. He wears his heart on his sleeve and has been an outspoken critic of the investing industry for a long time. His feelings about the investment industry and his investment philosophy line up pretty closely with mine. I’d like to think of myself as not quite as curmudgeonly as him though.

He had a great blog recently in the Huffington Post which I feel is worth a read.
“Solving the Mystery of Passive Asset Class Investing”

We use this passive asset class approach that he talks about and I also believe it is a step up from straight
index investing.

Solin and I concur....if you pay attention to the science of investing, there’s no conclusion to draw other than investors should invest in low-cost broadly diversified passive asset classes, rather than chasing the dream of beating the market.

In Search Of The Truth

“The ultimate goal is to learn something from the data....something that is in fact true.”
–Eugene Fama, Nobel Laureate 2013


Eugene Fama changed the face of investing forever. When I first heard his groundbreaking research, I knew
I found what I was looking for. It was certainly an “ah-ha” moment for me and has changed the way I will
invest forever.

His research also gave rise to the whole indexing approach to investing. Most importantly, it led to the founding of Dimensional Fund Advisors (DFA), a firm he has been affiliated with for over 30 years.

It was nice to see Fama finally get rewarded for his research when he was awarded a Nobel Prize in Economics in 2013. DFA has put together a nice video on Fama. It’s only about 3 minutes long and you’ll get to hear from the master himself.
“Eugene Fama Awarded Nobel Prize In Economics October 2013”

Fama has had a huge influence on the investing industry, but more importantly he has had a positive effect on
the lives of many investors who would rather rely on his rigorous research in search for the truth than Wall
Street rhetoric.

Lessons From Hondo

“Over the years, I’ve had hundreds of shots blocked. You’ve got to go in and take chances.” –John Havlicek


Havlicek was one of my favorite athletes growing up. He wasn’t a natural and I always admired how he got the most out of his ability through sheer determination and hustle. He also had an uncanny ability to be in the right spot at the right time.

It’s nice to see that he also got it right in his investing life as this short article from Forbes attests to:
“John Havlicek: To Retire Well, Invest From Day One2”

Hondo’s secret to investing success: invest from day one and don’t panic out when the market goes down. Sound advice from the classy Hondo.

Smart Index Funds

“I recoil when people think that what we do is being passive, because it has nothing to do with being passive.....we are trying to beat the market without forecasting in the usual sense.” –David Booth, Co-Founder, Chairman and co-CEO of Dimensional Fund Advisors.


My friends over at Index Fund Advisors have put together a nice video explaining Dimensional Fund Advisors (DFA) unique approach to investing. The video is about 8 1/2 minutes long and supplements an e-mail I sent out
a few weeks ago about DFA. As you probably know, I consider DFA to be the best mutual fund company in the business.“ - DFA Funds: A Unique Approach to Indexing - Show 112”

Sometimes people get the wrong impression of what passive investing is all about. Passive is a weak word. It conjures up the image of not doing much. I can assure you this impression is not at all what DFA is all about. It’s not even really accurate to call DFA funds index funds. DFA does not follow an index. They play by there own very structured and disciplined rules. They enhance market returns by tilting their portfolios to factors that have proven outperformance over broad market indexes and by their efficient and sophisticated trading strategies.

The DFA model is not based on speculation but rather on the science of the capital markets. This science has paid off handsomely to investors who have adhered to it.

The people at DFA don’t like to be referred to as an index shop. I have heard some people refer to them as the next generation of index funds or smart index funds. No matter what you call them, I believe investors will be rewarded favorably by implementing them in their portfolios.

It Just Works

“The only value of stock forecasters is to make fortune-tellers look good.” –Warren Buffett


Here’s Part 2 of Weston Wellington talking about market timing. This video is 16 minutes long. I hope you can set aside some time to watch it. Good information on how markets really work that you won’t get from the traditional financial media.“The Problem with Market Timing: Pt. 2 - Show 110”

The premise of market timing is very appealing. We’d all like to have a guru who could consistently sell high and buy low. There is no evidence that anyone has been successful doing this. Sure, a few might get 1/2 of it right. There are some that might even get lucky and get out at the right time and then get back in at the right time. However, there is nobody that has been able to do it over and over again. I repeat....nobody.

So what’s an investor to do? The only proven method of accumulating wealth that I’m aware of is to accept market rates of return and build proper portfolios with proper risk exposure and stay the course. It’s not’s not glamorous. It just works.

Fiduciary Standard and ADV 2

“Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace.”
–Judge Benjamin Cardozo in rendering his opinion in Meinhard v Salmon in 1928.


As most of you know, I changed my whole business model starting in 2011 to act as a Registered Investment Advisor. I broke all ties with my broker-dealer. The main reason I did this was because I felt it was a much more honest way to do business. It holds me to a much higher standard, the fiduciary standard. This standard has become the essential code of conduct for those who are entrusted to care for other people’s property. The fiduciary standard demands higher standards than normal market transactions.

In real world terms, this means I must place my interests below that of the client. I must always act in the best interest of the client. Investment brokers, on the other hand, are only held to a suitability standard. They do not have to place their interest below that of the client. Investment brokers loyalty is with the broker-dealer firm they work with and not the client. Pretty significant difference that most investors are totally unaware of.

As part of acting as a fiduciary, I have to file an ADV 2 ( also called The Brochure) annually with the Financial Industry Regulatory (FINRA). I am also required to give client’s a copy.Download ADV 2 2014.pdf.
It spells out in detail all material facts relating to our advisory relationship. There are no material changes from last year.

An Exercise In Futility

“I can’t recall ever once having seen the name of a market timer on Forbe’s annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.” –Peter Lynch.


What makes the above quote so powerful is that it’s from Peter Lynch. Yes, the same Peter Lynch who’s considered one of the most successful investment managers of all time. A guy who made his living trying to pick winning stocks and predict market direction. Seems he’s found religion and is telling it as it is.

Another guy who tells it like it is, is Weston Wellington of Dimensional Fund Advisors. I want to share with you a 13 minute video that Weston recently did on the challenge and appeal of market timing. Weston is a sought after speaker and has a nice easy folksy approach. I think you’ll really enjoy this. These are the facts that you just won’t get from the traditional financial media. I encourage you to take a few minutes to enjoy and learn from Weston.“The Problem with Market Timing: Pt. 1 - Show 109”

There is certainly a seductive appeal to market timing. This will never go away. We’re all emotionally hardwired to fear fear. We also know that our emotions can get us into big trouble when it comes to investing. The nature of the stock markets around the world are volatile and unpredictable. That’s the nature of risk and the reason that stocks have the generous long term returns they do. Successful investors learn to accept this and reap the reward of long term wealth accumulation. Trying to out guess all the short term market noise certainly is an exercise
in frustration.

Smartest Mutual Company In The World

“Where people get killed is getting in and out of investments. They get halfway into something, lose confidence and then they try something else. It’s important to have a philosophy.” –David Booth, co-founder, chairman and co-CEO of Dimensional Fund Advisors.


You have heard me say before that I think the smartest people in the investment business are at Dimensional Fund Advisors(DFA). They are the mutual funds of choice in most of our portfolios.

You don’t hear a lot about DFA. They are very rarely in the press. They don’t advertise. In fact, only advisors who have undergone rigorous screening and training have access to their funds. In spite of this they have over $300 billion in assets and are the 8th largest mutual fund family in the world.

The firm is built on Eugene Fama’s theory of efficient markets. Fama won a Nobel Prize last year for this research. The basic premise is that it’s hard to beat the market and impossible to do it consistently by trying to pick stocks.

DFA, however, does in fact consistently beat the market. Over the last 5 years, 80% of its funds have beaten their respective benchmarks ( 75% over last 15 years).

How does DFA do it? It has a simple and repeatable process. They exploit various factors( size,value and profitability) that have proven to outperform the broad markets over time. They also employ very sophisticated trading strategies, keep things very tax efficient and keep expenses low.

Here is a rare article about DFA that was in Barrons’ last week:Barron's- A Different Dimension.
I hope you take the time to read it. It gives a good look at what goes on behind the scenes and I think you’ll have more appreciation for the smartest mutual fund company in the world.

Povery and The Pope

“The inherent vice of capitalism is the unequal sharing of blessings, the inherent virtue of socialism is the equal sharing of miseries.” –Winston Churchill


Some people say it’s the greatest achievement in human history, yet you never hear about it. Based on the research of two economists from Columbia University, 80% of the world’s worst poverty has been eradicated in less than 40 years. How did this happen? Listen to this one minute video where Arthur Brooks, President of the American Enterprise Institute, explains the reasons:“Arthur Brooks: Helping those in need”

Yup, that nasty old C word again, Capitalism. Brooks describes Free Enterprise- American Style as our gift to the world. It’s the best anti-poverty measure ever invented.

In Brooks’ book, Who Really Cares, he shows how Americans are the most generous people on the face of the earth. In fact when you look at generosity around the world, virtually all of it is in countries that are closer to the free market end of the spectrum than the socialist or communist end.

So with all due respect to Pope Francis, maybe he should stop demonizing capitalism and look at all the good it’s done. The Pope is not an economist and is considered infallible only when speaking of matters of faith. As a practicing Catholic, I believe I have the right and an obligation to question him on this.

Ignore “Silly Season” Predictions

“Never make predictions, especially about the future.” –Casey Stengel


It’s that “silly season” time of year again. You know that time when just about everyone from your mailman to former Federal Reserve chiefs have a prediction about the economy and where the markets are heading in 2014.

You’ll be doing your mental health and financial well being a huge favor by ignoring all these procrastinators. As smart investors, you already know that all current expectations and uncertainties are already priced into the market. What moves the markets is new news. Investing is all about what is going to happen next. Nobody knows this. That’s the primary reason why we prudently diversify our portfolios.

One has to look no further than this past year to get a sense of all the doom and gloom and predictions that we’re going to hell in a handbasket.....government shutdown, fiscal cliff threats, fed threatening tapering, Eurozone crisis, inflation fears, massive deficits, Obamacare, high unemployment. The list could go on and on. In spite of this, the markets soared to new highs. Sadly, many investors got scared out of their portfolios and a chance to realize their dreams.

One last point to think about. If these financial gurus who regularly appear on TV and in the newspapers really had a crystal ball that could predict the future do you really think they’d be sharing that with us? Methinks not.

Why Is This Debate Still Going On?

“Most Investors would be better off in an index fund.” –Peter Lynch


Check out this video that was on Yahoo!Finance last week. It deals with what’s investing or indexing?“Have Index Funds Become Too Popular?”

It absolutely blows my mind that this debate is still going on. The research and evidence all point towards an indexing approach. Indexing outperforms the vast majority of active managers year in and year out. And the problem for active managers is that the ones that do outperform their benchmarks are even less likely to do so the following year. I’m not aware of even one research paper that can support the argument that active is a better investment approach than a passive index approach.....not one.

Now granted, there are years when active management beats indexing. The problem is though, those years are impossible to predict in advance. Given the fact that on average around 75% of active managers can’t beat the indexes in any given year, doesn’t it make more sense to stack the odds in your favor and take an indexing approach?

Seems like a no brainer to me. I guess for many investors, the seduction of the fairytale of active management is too much of a lore over the boring truth of indexing.

It’s interesting in the video that the once high flying internet research analyst from Morgan Stanley, Henry Blodget, who’s been defrocked by the way, argues the strongest in favor of indexing. Funny how when your livelihood doesn’t depend on it, it’s much easier to see through the myths and lies of Wall Street.

A Bitcoin For You

“With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secured and transactions effortless.” –Satoshi Nakamoto, the developer of Bitcoin


Have you heard about the new kind of money called bitcoins? If not, chances are you will soon. Seems like the bitcoin is making its way into main stream society. Consumers are using bitcoins at coffee shops, hotels and on-line stores. Everyday more and more firms are deciding to use and accept this virtual currency. I heard on CNBC today that a car dealership in Ca. accepted bitcoins as payment for a new Tesla electric car. University of Cyprus accepts tuition payments in bitcoins. A few weeks ago there was even a Congressional hearing held to better understand this new virtual currency.

Bitcoin was created in 2009. It’s an internet technology standard that runs across a wide number of servers around the world that regulate the creation and trading of bitcoins. It’s not controlled by any nation, governing body or business.

I guess I’m not sure what to make of this new currency. I do know, however, that the retail and commercial marketplace use is miniscule compared to the large use by speculators. One bitcoin worth about $13 a year ago is currently valued at over $800. What are they speculating on? Simply that a bitcoin will be worth more tomorrow than it is today. There is no underlying value to a bitcoin. It’s not like a company that has assets and produces good as services that produce profits. It’s sheer speculation in its rarest form that causes the value of a bitcoin to sky rocket like that. Sounds like tulip mania all over again.

Here’s a video from the Bitcoin website that explains in more detail what a bitcoin is.“Bitcoin is an innovative payment network and a new kind of money.”

When You Know The Right Stuff, You Don't Need To Know Everything

“Simplicity is the ultimate sophistication.” –Leonardo da Vinci

“Life is really simple, but we insist on making it complicated.” –Confucius


Simplicity and investing may seem counterintuitive to many people. This is a lesson I personally had to learn the hard way. When I first started investing, I was lured by what seemed to be the most sophisticated and complicated investing strategies. After all, these were being promoted by very successful people who worked hard to be at the top of their profession. Only problem was most of this stuff just didn’t work. But I was stubborn. I just kept on searching harder ( and losing more money) to find the holy grail of investing. The more I lost, the more sophisticated I thought I had to get. You name it and I can pretty much guarantee I’ve tried it in my search for the holy grail.

Little did I know it was right in front of me all the time. This market I was so desperately trying to beat was essentially unbeatable. The good news, however, was that it didn’t have to be beat. The market generates generous rates of return that are their for the taking. Instead of trying to beat this market, all I had to do was harness its power to work for me. Once I understood that 1) markets are efficient and impossible to consistently beat 2) diversification truly is an investors best friend and 3) you can add value by tilting your portfolio to known market premiums (i.e.. the value, size and quality factors), I knew this was as close as I could ever hope to get to any holy grail of investing.

Yes, Leonardo, simplicity truly is the ultimate sophistication. When you know the right stuff, you don’t need to know everything.

Here is a good article by Jim Parker of Dimensional Fund Advisors titled“Simplicity_Sophistication”  that I think you’ll enjoy.

Yes, It Really Is That Simple

“Our favorite holding period is forever.” –Warren Buffett


Warren Buffet is not called the ‘Sage of Omaha’ for nothing. He’s one of the smartest people in the investment business. It’s always comforting to hear him give the same investment message over and over again – stay disciplined, diversify with passive funds and keep costs low.

Sadly, no matter how many times people hear this message, most people still don’t get it. Is it really this simple? Buffet, academic research and empirical evidence say, YES.

Check out this article that was in USA Today a few weeks ago. Warren Buffett:“Top 3 Investing Mistakes
To Avoid”

Thank You

“This will remain the land of the free only so long as it is the home of the brave.” –Elmer Davis


Happy Veteran’s Day to all who serve and served us so bravely. Their choices make it possible for us to continue to live in the land of the free. Words aren’t enough but thank you.

Check out this video. I think it encapsulates the greatness of America and those that serve.“A Soldier's Pledge”

Remind Me Again Why...

“and the beat goes on, beat goes on.....” –Sonny & Cher, Circa 1960’s


The beat does in fact go on. It seems like the research just continues to pile up on passive (index) investing being a better choice over active investing for investors. It never ceases to amaze me that most investors choose to ignore this fact.

Check out this recent video that Morningstar did with Rick Ferri. Ferri did a comprehensive study on passive portfolios versus active portfolios. His findings will totally blow you away.“Small Bases Not Holding Back These Medalist Funds”

The video can get a little technical. I apologize for that but this study is just too important to ignore. My good friends at Efficient Advisors put together a one page summary of the results of this study.
"Smart Investing Simplified"

I’ll give you the Readers Digest version.....for 10 fund portfolios ( all of our portfolios have at least 10 funds) the odds of an actively managed portfolio underperforming an index portfolio over a 5 year, 10 year and 20 year period are 91%, 94% and 99% respectively. Go back and read that line again. Another way of saying this is based on Ferri’s study, a diversified index portfolio will outperform a diversified actively managed portfolio over 90% of the time over any time period five years or longer. Remember also that this was a very comprehensive study. It included 20,000 randomly selected actively managed funds.

Remind me again why most investors continue to believe in the myth of active management! Do you want to take the chance of being one of the lucky 1% after 20 years of investing?

The Power of Collective Knowledge

“None of us is as smart as all of us.” –Old Japanese Proverb


What do we mean we talk about “the market”? The market is actually made up the millions of participants who are buyers and sellers....people like you and me. The collective knowledge of all the participants is powerful. Together, we know more then we know alone.

When investors try to predict the market, they are competing against the collective knowledge of millions of buyers and sellers. Doesn’t it make more sense to use this collective knowledge? When investors learn to work with and harness the power of the markets, then they will have a successful investment experience. More importantly, once investors understand how the markets really work, then they can truly have peace of mind over their financial futures

Dimensional Fund Advisors just released a short 3 minute video called How Markets Work. I think you’ll
enjoy it.“Market Equilibrium”.

There’s a great book that was written a few years ago by James Surowiecki, The Wisdom of Crowds, that goes into this phenomenon of collective wisdom in great detail. I highly recommend it if you’re interested in such things.

Stay Calm

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
–Benjamin Graham, legendary investor and Warren Buffet’s teacher and mentor


Today I’m going to share with you part 3 of the video series on the stock market history. Today’s lesson talks about staying calm. This is a key lesson investors must learn if they hope to have a successful investing experience.“Stock Market History: A Crash Course for Investors, Part 3”.

Inevitably, the markets will turn volatile. When investing, volatility comes with the territory. In fact, volatility is the primary reason why stocks have such a substantial long term premium over bonds. Without volatility and risk, stocks would earn the same return as treasury bills and investors would be hard pressed to meet their long term financial goals.

The capital markets provide investors with a return that’s their for the taking. Many investors don’t get this return because they bail out when it feels right which is exactly the wrong time. As hard as it feels, investors must learn to ride out any volatility. Remember, markets always recover.....100% of the time.

Fama Finally Famous

Question: “When is the market likely to be inefficient or to misprice securities?”
Eugene Fama’s Answer: “When it’s closed.” –from a 2006 interview with Eugene Fama


I had the pleasure of personally meeting Eugene Fama and I’ve heard him speak numerous times. He is a brilliant man and more importantly a true gentleman. I was glad to see that he was just awarded the 2013 Nobel Prize in Economics for his work on the Efficient Market Hypothesis. This theory, which gets proven every year with actual market returns, states that all available information is already priced into the market, therefore, making it impossible to beat the market.

His research has helped to guide our investment strategy for many years now. In fact, he founded 2 of the 3 major concepts we use to build our portfolios..... the efficient market theory and the three- factor model. For those keeping score at home, the 3rd concept is from another Nobel Laureate, Harry Markowitz. His ground breaking work, Modern Portfolio Theory, is the 3rd leg of our 3 legged stool on how we invest. It’s safe to say that every fund in our portfolios is based on these Nobel Prize winning principles. Seems like a pretty firm foundation to me.

As a side note, Fama was originally from the Boston area and is in the Malden Catholic Athletic Hall of Fame. Here’s a short article about Fama getting the 2013 Nobel Prize.“Nobel Prize Winner Eugene Fama”.

What's The Greatest Wealth Creation System?

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” –Winston Churchill


Churchill certainly had a way with words, didn’t he. The above quote could almost be a mantra for the way we invest. Capitalism has certainly proven to be the greatest wealth creation system known to man. It’s the foundation on which our portfolios are built. We tap into this wealth creation system by constructing portfolios that invest in global capitalism. The market return that I so often talk about is this global rate of return on capitalism. We’re not relying on the whim of high price Wall Street money managers for our returns. We are tapping into a vein much more powerful and predictable than that.

Check out this short video clip ( 5 1/2 minutes long) in which Reagan schools Obama on Socialism. It’s very funny and also very poignant. I think you’ll enjoy it.“Reagan Schools Obama on Socialism...and It's Amazing”.

Are Investors Finally Starting To Get It?

“The best way to own common stocks is through index funds.” –Warren Buffet

“Most investors would be better off in an index fund.” –Peter Lynch


When you ask people to name the most successful investors they know, usually Buffet and Lynch are on top of the list. Smart men indeed as evidenced by the sage advice given in the above quotes.

Another smart man is Dan Solin. Check out his article called“5 Reasons to Add Index Funds to Your Portfolio”.
It’s a nice overview on the positive influence index funds have had on the investment industry.

As you know by now, I think indexing type investing is the best and most efficient ways to design diversified portfolios to capture market returns. In fact, the evidence is so overwhelming that, in my mind, it would be unethical to invest any other way.

It’s nice to see that investors are finally starting to take notice of this data. It’s estimated that 34% of stock mutual fund dollars in the US are now indexed based. That’s are pretty significant jump from an estimate of about 20% a few years ago. Maybe there is hope for investors after all.

Be Realistic

“An investment in knowledge pays the best interest.” –Benjamin Franklin


The above quote is certainly true when it comes to investing. That is my whole goal with these short blogs. I want to educate investors in the truth about investing. It seems to me that is something sorely lacking in the financial
media today.

For my money, the best investment related videos are being done by They are informative and entertaining but more important they tell the truth about investing..,,,warts and all. They believe in the same approach I use for myself and my clients, a passively managed approach that based on over 50 years of rigorous academic research. An approach that’s steeped in the truths about investing and not Wall Street hype. Here’s part 2 of their 8 part series called Stock Market History:“A Crash Course For Investors”.

This segment is only 4 minutes long and it talks about being realistic in the type of returns you can expect from the stock market. I hope you enjoy it. I’ll be showing the whole 8 parts periodically over the next few months.

It's Time In The Market, Not Timing The Market

“The only way you get that fat off is to eat less and exercise more.” –Jack LaLanne


So true, Jack, so true! Such a simple formula. Want to loose weight? Then eat less and move more. It can’t get any simpler. In spite of all the fad diets out there, scientific research always comes back to this simple formula. Then why is it so hard for people to loose weight then? That nasty D word again....discipline! Most people just don’t have the discipline to stay the course.

Kind of sounds like investing. The formula is simple. Build globally diversified portfolios using low cost, passively managed funds at a risk level appropriate for you. All the academic research supports this is the way to achieve investing success. Then why do most people not have successful investment experiences? You got it...that nasty D word. Most people don’t have the discipline to stay the course. Remember, it’s time in the market, not timing the market that leads to investment success.

Larry Swedroe had a good column last week, Dieting and Investing: Simple, But Not Easy. I think you’ll enjoy this short article. “Dieting and investing: Simple, but not easy”.

From Tulips To Tech

“I can calculate the movement of the stars but not the madness of men.” –Sir Isaac Newton


Sir Isaac Newton uttered these words after his personal fortune of over $3 million, in todays dollars, got wiped out in the Tulip Mania bubble in Holland in the mid 1600’s. This was the first recorded speculative stock market crash.
Goes to show you that even very smart people can get caught up in crazy speculation that’s based primarily on human greed.

Sensible is doing a great 8 part series called Sock Market History: A Crash Course For Investors. Each video is only 5-6 minutes long and I think you’ll enjoy it. I’ll show each segment periodically over the next few months. Here’s part 1: “Stock Market History: A Crash Course for Investors, Part 1”.

The first part talks about this tulip mania craze in Holland. One tulip bulb was selling for the price of a house or 10x’s the annual income of a skilled craftsman. Sounds almost as crazy as the tech bubble in this Country in the late 1990’s, where internet stocks with no viable business model were selling for 2000x’s earnings.

Market crashes will occur. The key to surviving these is to be an investor and not a speculator. Properly constructed diversified portfolios are designed to weather all market conditions. Markets have always had crashes but have always recovered and the long term trend has always been up.

Is Experience Overrated?

“Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes.
The one-third of that may outperform the passive index in one period are generally not the same as in the
next period.” –Burton Malkiel


I’m going to share with you today an important lesson about investing that took me a long time to figure out but changed the way I will invest forever once I got it.

What am I talking about? Experience. Yes, Albert Einstein called experience the source of all knowledge. We all want the person who has the most experience, whether it be the mechanic who works on our car or the doctor who is going to perform that delicate operation. Experience really is the best teacher except for....?

Except for when it comes to investing! Yes, I said it. What works so well in almost every aspect of our lives does not apply to investing.

Check out Dan Solin’s recent blog on the Huffington Post where he talks about how experience counts, except when selecting mutual funds. Seems that in a recent study spanning over 80 years, mutual fund managers with 10 or more years of experience are likely to have significantly poorer performance the longer they manage. So much for experience being the best teacher. “Experience Counts: Except When Selecting Mutual Funds”.

Does this make any sense? This is where the investment lesson comes in. The markets are random and highly efficient. This makes them almost mathematically impossible to beat over the long run. This is one of the main reasons why I believe in a passive index approach to investing. There is a generous capital market rate of return that is there for the taking. Doesn’t it make more sense to design a portfolio to capture this global market rate of return than to hope you get lucky with some active manager? It took me many years of experience to figure out these simple truths. Hopefully, I can save you the aggravation I went through before I learned the truth.

The Dreaded D Word

“It’s not always brain power that separates good investors from bad; often, it’s discipline.”
–Peter Lynch


I spend a lot of time on this blog talking about efficient markets, diversification, passive investing etc., etc., etc. Don’t get me wrong, these are very important concepts to understand to truly have a successful investment experience. However, there is one think that trumps everything when it comes to having a successful investment experience.
Yes, it’s the dreaded D word...discipline.

Here’s the last of a 3 part series by my buddy, Weston Wellington, where he talks about why discipline is so difficult in investing. “ - Discipline is Difficult - Show 93”.

Most investors fail to get the capital market rates of return that are there for the taking. Why? They try to outwit the market by making or listening to economic predictions. They don’t have a broadly diversified portfolio and a consistent investment strategy that is designed to withstand any economic environment. Worse still is the fact that in their endeavor to predict the financial future, they have totally sacrificed their own peace of mind. Sad, but that is the state of most investors. Even more sad is the fact that most investors don’t even realize it doesn’t have to be
that way.

Rock Star Preaches Capitalism

“Capitalism takes more people out of poverty than aid.”


Check that quote! That couldn’t have been said by Bono of the legendary rock group U2. Is this the same Bono who was a major proponent of greatly expanded U.S foreign aid and other government programs to alleviate poverty? Yes it is!

Check out this 1 minute video of his recent speech at Georgetown University where he altered his economic and political views and declared that only capitalism can end poverty. “U2's Bono Speaks at GU Global Social Enterprise Event”.

You’ve heard me say before that capitalism is the greatest wealth creation system known to man. Capitalism is the engine that has helped elevate the standard of living for more people than anything else. It’s also the foundation on which our portfolios are built. We essentially design portfolios that capture the global market rates of capitalism. Why fight the greatest wealth creation system we have? Instead of fearing the markets, learn to harness their power to achieve your goals.

If Bono can see the light there’s hope for everyone to see the truth.

Be The Casino Not The Gambler

“The only thing we know for certain about investing is that diversification is your buddy.”
–Merton Miller, Nobel Laureate


Merton Miller was a brilliant economist who shared a Nobel Prize in Economics in 1990 with Harry Markowitz and William Sharpe for their work on Modern Portfolio Theory. Modern Portfolio Theory teaches investors how to maximize returns and minimize risk by properly diversifying their portfolios. It’s one of the cornerstones on which we build our portfolios.The above quote from Miller came after a long successful career studying the financial markets. Certainly a wise man worth listening too.

Diversification is much more than owning a bunch of stuff. I can’t tell you how many portfolios I’ve analyzed over the years that owned a lot of stuff. Sometimes the investment statements were over 50 pages long. But guess what....they weren’t properly diversified. They exposed unsuspecting investors to much more risk than they needed to take. There’s a whole science behind structuring a properly diversified portfolio that’s based on correlation of many different asset classes.

Here’s another Weston Wellington video where he talks about the power of diversification and the mistake of putting all your eggs in one basket. It’s 11 minutes long. “ - Diversification is Your Friend - Show 92”.

Be a smart investor and do as Wellington the casino, not the gambler.

The Awesome Power Of Capitalism

“Any government that robs Peter to pay Paul can always depend on the support of Paul.” –George Bernard Shaw


Dinesh D’Souza was the keynote speaker at an investment conference I attended a few months ago. Dinesh is a distinguished writer and scholar. He’s considered one America’s most influential conservative thinkers. You might recall his film that came out last year, 2016: Obama’s America. It has risen to 4th on the bestselling list of all documentaries. He’s also an impressive speaker. Here’s the video of his speech from the conference called The Awesome Power Of Capitalism. It’s 38 minutes long. I know, I know....too long. Please save for a time you can watch. It’s well worth it. “The Awesome Power of Capitalism”.

If you want a great short read I strongly suggest D’Souza’s book, What’s So Great About America. He also has a new film coming out next 4th of July called America. Should be a good one. It’s going to be about the ideas that build America and defends the spirit of what makes America great. As Dinesh reminds us, despite signs to the contrary, the American spirit is still very much alive.

Prices Are Fair

“Broadly diversified, low cost portfolios are likely to be the most appealing investment solution for the overwhelming majority of investors.” –Weston Wellington


Weston Wellington is a V.P at Dimensional Fund Advisors and is a highly sought after speaker for his knowledge on how markets truly work and how investors should invest.

Here’s a video of Wellington telling it how it is. It’s about 18 minutes long. I hope you can take the time to listen. I think it’s well worth it. In this video Weston explains how security prices are fair. I believe this is a huge concept for investors to get their heads around. Once investors realize that prices are fair and the markets are efficient, they can stop believing in fairy tales about how to beat the market. Here’s the video:“ - Prices are Fair - Show 90”.

Once investors realize that the markets are unbeatable, then they can accept Weston’s ( and my) advice to invest in low cost, broadly diversified portfolios that are designed to capture the generous long term returns that are there for the taking in the capital markets. That truly is the way investors can attain peace of mind in their financial lives.

Costanza on Investing

“...every decision I’ve ever made, in my entire life, has been wrong. Every instinct I have, in every day of life, be it something to wear, something to’s all been wrong.” –George Costanza


Seinfeld was a great show. I think my favorite episode was The Opposite, from which the above quote comes from. You remember...George realizes how bad his instincts are and starts doing the opposite of what they are telling him....and his luck start changing for the better. Funny stuff but what does this have to do with investing? Actually quite a bit. Seems like most investors would do a heck of a lot better by doing the exact opposite of what their instincts are telling them.

Larry Swedroe had a great article last week called What George Costanza Can Teach Us About Investing. It’s a very short article but real insightful. I think you’ll enjoy it.“What George Costanza can teach us about investing”.

It's Insane

“If the data do not prove that indexing (passive investing) wins, well, then the data are wrong.” –John Bogle


I love these sketches by Carl Richards.Weight of Evidence.  It’s a nice easy way of explaining complex ideas.
The debate over which is the correct way to invest, passive or active, may never end but the evidence is certainly skewed in one direction. Below the sketch is a partial list of the academic studies that support the passive approach. Interestingly enough, there are no academic studies, that I’m aware of, that support the active approach...

It’s amazing to me that the vast majority of investors still use the active approach. What’s the old saying about doing something over and over the same way and expecting different results. I think it’s called insanity.

Forecasting = Gambling

“It is absurd to think that the general public can ever make money out of market forecasts.” –Benjamin Graham


Here’s one simple rule of investing that will save you a lot of aggravation....if your investment plan is based on a forecast, it’s already flawed. This seems contrary to what most people think the investment industry is all about.
Most investors think it’s all about being able to predict what the market is going to do and what stocks are going up. This is all a huge illusion created by Wall Street. I don’t want to burst anybody’s bubble but this can’t possibly be done on any type of consistent basis. Playing the forecast game is tantamount to gambling and speculating with your portfolio.

The good news, however, is that you don’t need a forecast. When you invest in the capital markets there’s a capital market rate of return that’s there for the taking. That’s what we do here at Verity Capital Management. We design portfolios to capture this global market rate of return. Our portfolios are also based on over 70 years of rigorous academic research, not someone’s opinion or forecast of what they think might happen.

Carl Richards had a really good column last week called Investment Plans and Forecasts Don’t Mix. I hope you’ll take a minute to check it out.“Investment Plans and Forecasts Don’t Mix”.

Are You Your Worst Enemy?

“The investor’s chief problem and even his worst enemy is likely to be himself.” –Benjamin Graham


The above quote is what Graham wrote in his 1949 classic book, The Intelligent Investor. Seems like investor’s haven’t learned much in the last 64 years. This quote is as relevant today as it was back then. By the way, Benjamin Graham is considered the father of value investing and also Warren Buffet’s mentor when Buffet attended Columbia Business School. In fact Buffet has said that Graham was the second most influential person in his life after his father.

Jason Zweig has a column in the WSJ that’s also called The Intelligent Investor. Last week Zweig won the most prestigious award in business journalism, the Gerald Loeb Award. I’m usually not a big fan of the traditional financial media but Zweig is definitely in a different category. He doesn’t play the Wall Street game. He tells it as it is and he actually helps people. Here’s his column from last week.
“The Intelligent Investor: Saving Investors From Themselves”

I consider this one of the most important financial columns I have read all year. I think it could benefit all who would take a few minutes to read it. Here are examples of a few things Zweig points out.....good advice rarely changes, while markets change constantly.....and, 99% of the time , the single most important thing investors should do is absolutely nothing ....and lastly, this time is never different.

Great article. Hope you enjoy. Don’t be your worst enemy.

The Power of Capitalism

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing miseries.” –Winston Churchill


You’ve heard me say this before....capitalism is the greatest wealth creation system known to mankind. Nothing has done more to increase the quality of life for so many people. Our portfolios here at Verity Capital Management, LLC are structured to capture this global market rate of return that the free markets generate.

Check out this chart and video from The Economist that shows the positive impact that the free markets have on the world. When a country’s overall wealth grows, even when not distributed evenly among social classes, everyone benefits.“The One Chart That Proves Capitalism Works”.

What You Don't Know May Help You

“Follow the basic rule I follow: Don’t peek. The attitude is to try and have an investment portfolio that you don’t need to worry about.” –Jack Bogle


That’s great advice Jack. Unfortunately, for most people it’s easier said than done. My main goal with all my clients is to give them peace of mind over their investments. I believe the only way to achieve this is to have a proper understanding of how the markets really work....not what Wall Street wants you to believe. Once you see the truth, then you know the only way to invest for your long term future is by having a low cost, globally diversified portfolio that captures market returns at a risk level you’re comfortable. It really is that simple.

Carl Richards had a great blog on the NYT website last week called What You Don’t Know About Your Portfolio May Help You. It’s a good piece that I think you’ll enjoy.“What You Don’t Know About Your Portfolio May Help You”.

Doing nothing and not peeking seems contradictory to the type of behavior that most people associate with success. Remember....the markets are smarter than all of us. No matter how much analysis and insight you think you have, it’s essentially worthless. The markets are random wealth creating machines that investors must learn to harness to achieve their long term goals....harness not outsmart.

Warren Buffet carries this to an extreme. When asked to comment on his success, his answered..."Benign neglect, bordering on sloth, remains the hallmark of our investment process".

Booyah Cramer!

“It would be impossible to write a “Bad Advice” column about investing without discussing Jim Cramer.”
–Henry Blodget


I have thought for a long time that Jim Cramer is a big phony and one of the most dangerous people in the investment industry. He plays on peoples emotions of fear and greed and espouses everything that’s wrong about the industry and investing. One thing I’ll give him....he’s one of the hardest working people in the “entertainment” business. It seems like he’s on CNBC 24/7.....and that’s not a good thing. I actually know people that wait with bated breath for his next recommendation. Based on his track record and foolish antics, I have never quite gotten this attraction.

I know his track record is bad but this is ridiculous. Alan Roth of CBS Money Watch had a recent column on a few of Cramer’s strong sell recommendations. It seems Cramer has achieved a near impossible mathematical feat of recommending strong sells on four stocks within the last nine months that since that time are the top four top performing stocks of the 749 stocks that make up the Wilshire US Large Cap Index. I guess Roth is more of a numbers geek than me....he actually calculated the probability of being this wrong. Any guesses? The odds of winning Powerball are 1 in 175 million. Well your odds of winning Powerball are 75 times more likely than duplicating Cramer’s probability of being that wrong. The odds were 1 in 13.1 billion. Here’s a link to Roth’s article:“A statistical look at Jim Cramer's skill level”.

Seems like Cramer is about as good a judge of character as he is recommending buying and selling stocks. Check out this short video where Cramer calls former major league baseball player Lenny Dykstra, who got in the investment business after baseball, as “one of the best in the business”. Dykstra is a convicted felony currently serving a prison sentence for a variety of crimes...bankruptcy fraud, grand theft auto, drug procession.
“Crooks and”

I guess this is pick on Cramer day but I think people like this have to be called out. He’s the antithesis of what truthful investing is all about and a threat to the peace of mind of all investors.

The Art Of Letting Go

“Speaking words of wisdom, let it be, let it be.” –The Beatles


Speaking words of wisdom is exactly what Jim Parker of Dimensional Fund Advisors is doing in his recent article:The Art of Letting Go.

In took me a long time (and a lot of money) to learn the art of letting go when it came to investing. I was brought up to work hard and constantly be doing something to best control the outcomes I wanted. This seemed to serve me quite well in most areas of my life. When I got into the investment business, I continued with this discipline. I would wake up in the middle of the night to check on the Asian Markets so I could be prepared for the morning. I would diligently research stocks trying to pick the next big winners. I studied technical analysis to be able to predict what the markets were going to do. After all, I managed money for a living and this is what people were paying me to do. Funny thing seemed the harder I worked at trying to figure this all out and “control” the markets to behave in the way I thought they should, the worse I did. Wow looking back now...what a stressful waste of time that was.

I guess everything does happen for a reason though. All this frustration and less than desirable outcomes lead me to search for a better way. That’s when I discovered the truth about investing. There was in fact a whole academic approach to investing that was based on rigorous independent research on how the markets really work. This was a true epiphany moment for and has changed the way I’ll invest forever.

If I had to boil it all down, I guess the biggest thing I learned is that nobody can consistently beat the market....and there’s no need to. The key is to develop low cost portfolios that capture this global market rate of return that’s there for the taking. It’s also key to control risk and invest at a risk level each individual is comfortable with so they can ride out the inevitable market corrections that are all part of the game.

As Jim points out in the article, the art of letting go really comes down to knowing what we can and can’t control. We can’t control the markets or the news that moves them. We can, however, control how much risk we take, the diversification of our portfolios and the costs we pay. Probably the biggest thing we can control is our emotions. We can choose to shut off all the “noise” out there knowing that our portfolios are designed properly to allow us
to achieve our long term financial goals. That makes it a lot easier to let go and have peace of mind over
your investments.

Stay In Your Seat

“The key to making money in stocks is not to get scared out of them.” –Peter Lynch


It seems like two contradictory events can really spook investors....when markets go way down and when markets go way up. We are in one of those periods right now when thankfully the markets are going up. It seems like many investors are a little spooked and keep asking...Maybe it’s time to sell and take some of those profits off the table. What do you think?

I totally get this concern. Seems like all the self proclaimed guru’s in the financial media are cautioning that these high stock market prices can’t possibly be sustained much longer. Certainly we are due for a major correction.

This fear mongering does nothing but play on investors emotions and leads to one of the classic investor timing. Study after study has proven that over the long term, market timing systems generate significantly inferior results when measured against sound academically developed passive strategies. Unfortunately, most investors don’t hear that story. It’s not sexy enough and it doesn’t “play well” in the financial media.

The famous Dalbar Report was recently released for the 20 year period ending 12/31/2012. The average equity investor during that period averaged an annual return of 4.25% which is almost half of what the S&P performance of 8.21% was for the same period. The biggest reason for this timing.

I called Dimensional Fund Advisors(DFA) this morning to shed some additional light on this. My question to them....Do you have any research that shows how markets react after hitting new highs? As you are probably aware, I consider DFA to be the smartest investment company on the planet. Their unbiased academic approach to research is like no other in the industry.

Just as I had expected, DFA did indeed have a research paper addressing my question. In December 2012, they released a report that examined what had actually occurred subsequent to each time the S&P 500 index reached a new high. They rigorously examined data going back to 1962 when the S&P 500 data first become available.

The results are pretty startling. Specifically here are the findings:
One month after a new high, the index was higher 59.3% of the time.
Three months after a new high, the index was higher 63.6% of the time.
Six months after a new high, the index was higher 71% of the time.
And twelve months after a new high, the market index was higher 72.6% of the time.

So what does all this mean? It seems pretty clear that the odds are in your favor, if you just stay in your seat. Actually the biggest take-away should be that if you have a well designed, academically developed portfolio that captures global market rates of return at a risk level you’re comfortable with you can always stay in your seat. Shut out all the noise out there and enjoy the fact that your invested properly for the long term no matter what happens.

Are You Happy?

“Everything is amazing and nobody’s happy.” –Louis CK, comedian


Ain’t that the truth! Everything is pretty darn good and it seems like most people just aren’t that happy. We are living in the best time in the history of the world measured by all different kinds of metrics....highest per capita income, lowest poverty levels, lowest infant mortality rates etc., etc. etc.

Watch this funny, yet thought provoking bit that Louie CK recently did on the Conan O’Brien Show recently:“Everything is Amazing and Nodoby's Happy”.

Maybe it’s time we all sit back and reflect on the fact that we are living in the best country in the world at the best point in human history and stop dwelling on everything that’s wrong.

I’ll get off my soap box now. That’s my two cents for today.

Rule of 72

“Compound interest is the eighth wonder of the world. He who understands it, earns it.....he who doesn’t,
pays it.” –Albert Einstein


As I mentioned in a previous e-mail, I like the KISS principle. I’m somewhat of a math geek and love learning tricks that simplify otherwise complex calculations.

Are you familiar with “the rule of 72”? It’s an easy and also very accurate way to estimate how long it will take to double you’re money. In fact, it’s so easy that even a 3rd grader could do it.

Here’s the formula: 72 divided by a given annualized average return equals the estimated number of years to double your money. For example, if you expect to earn 8%, you’d double your money in 9 years (72/8=9). If the expected return was 10%, you’d expect to double you’re money in 7.2 years (72/10=7.2).

The discovery of the rule of 72 is credited to a Franciscan friar mathematician named Luca Pacioli who was also a mentor to Leonardo da Vinci. Pacioli died in 1517, so obviously this little trick has been around for a long time.

Hope you find this little tidbit helpful.

Dirty Secrets Exposed

“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest but not so fully that you run out of money.” –Jonathan Clements


A client gave me a “heads up” on a Frontline documentary that aired this past week on PBS titled
“The Retirement Gamble”. Here’s a link to it. It’s about 53 minutes long but I would highly recommend watching when you get a chance.“The Retirement Gamble Facing Us All”.

Defined pension plans that paid out monthly retirement for the life of retired employees have essentially gone the way of the dinosaur. Under these type of plans the company took all the risk. Employees didn’t have to worry how the money was invested. All they knew is that they were going to get a check every month for life once they retired. Oh...the good old days.

Now that’s all changed. The risk of saving and investing for retirement has shifted to the employee. No more guaranteed checks every month. The most common vehicle used now to fund employees retirment are 401K plans.

I review a lot of different company 401K plans over the course of a year. In a word, most of these plans are lousy! The vast majority of the plans I see lack proper diversification options, the fees are outrageous ( and mostly undisclosed) and the employees are left on their own to structure the portfolios needed to meet retirement goals.

No wonder most plan participants are frustrated and confused.

There is a better way. If you’re looking for a low cost index based approach that offers managed portfolios to meet each participants individual goals in your 401K plan let me know. I’ve got a great platform for this type of service. Unlike the brokerage companies and insurance companies who will not act as a fiduciary on your plan, we will. We can also help with plan design to make sure the plan is structured to maximize the benefits you want.

Hopefully there will be more of these types of Frontline documentaries done on the investment industry.
God knows there are plenty of other dirty little secrets that need to be exposed.

Keep It Simple Stupid

“Simplicity is the ultimate sophistication.” –Leonardo da Vinci


I’m a big fan of keeping things simple. I often joke that my life is based on the KISS principle. A couple of weeks ago the WSJ published a piece titled, When Simplicity Is The Solution. I think it’s a great article and it discusses the many benefits of simplifying the choices we make in our lives. Here’s the link to the article:From tax forms to medicine bottles to store shelves, we are facing a crisis of complexity. But there's a way out.

Even science embraces simplicity. The highly regarded scientific principle of Occam’s Razor says the simplest available theory is the best.

When I first discovered this whole academic based approach to investing, I think I was drawn in by the simplicity of the whole investment philosophy. The fact that the markets are unbeatable and the investors are best served by investing in a low cost, passively structured, diversified portfolio that delivers global market rates of return at a risk level they can tolerate was both simple and liberating. I knew this was the simple truth that I wanted to share
with investors.

As Confucius said.....“life is really simple but we insist on making it complicated”.

Hopefully you’ve also embraced this investment philosophy and it has at least made the investing part of your
life easier.

Happy Tax Day

“The income tax has made more liars out of the American people than golf has.” –Will Rogers


Ouch! I just mailed off the balance due on my 2012 taxes along with the first quarterly estimated payments due for 2013 taxes. I repeat....ouch!

As Ralph Waldo Emerson pointed out so accurately of all the debts men have, they are least willing to pay taxes. Most people just don’t trust the government to spend their money wisely.

That being said, most taxpayers have big misconceptions about how their tax dollars are actually being spent. In a 2011 Pew Research Center survey, for instance, only about 1/3 of Americans knew that the government spent more on Medicare than on scientific research, education or interest on the national debt. About 40% of those surveyed incorrectly guessed that the interest on federal debt was the biggest government expense.

In 2011, the White House set up a taxpayer receipt system that lets taxpayers enter how much they paid in social security, Medicare and income taxes and it will give you a “tax receipt” showing how your money was spent. Here’s the link if you want to check it out.Your Federal Taxpayer Receipt.

So, Happy Tax Day. I’m going to close with a quote from Thomas Sowell....“Elections should be held on 4/16th,
the day after we pay our income taxes. That is one of the few things that might discourage politicians from being big spenders.”

Well said, Thomas...well said!

Wisdom From A Master

“Don’t do something, just stand there.” –John Bogle, founder of Vanguard


John Bogle is considered a rock star in my world. He championed low cost index investing for millions of investors. In 1999, Fortune Magazine named him one of the four “investment giants” of the 20th century. Certainly somebody worth listening to.

Here’s a short video interview in which Bogle shares a few of his 10 investment rules from his most current book, The Clash of Cultures. Forget the needle, buy the haystack.

I would argue that there’s more words of wisdom in this 4 1/2 minute video than you would get from watching CNBC or any other “investment pornography” for a year.

Science or Art?

“We build portfolios based on the science of capital markets. Decades of research guide the way.”
–Dimensional Fund Advisors


Is investing based on science or is it an art form?

Check out Dan Solin’s short article where he discusses this issue.The New York Times Is Wrong:
Investing Is Science, Not Art

Seeing that I use Dimensional Fund Advisors in the majority of my client’s portfolios, you can guess what side of the argument I’m on. Advisors who use an art form approach to managing portfolios are simply gambling and speculating with investors money. The art form consists of stock picking, market timing and track record investing. As Solin accurately points out in his article, there is absolutely no peer-reviewed data anywhere that shows that these techniques work.

Don’t trust your future on the whims of the “art” of an advisor. Rather, structure your portfolio on the science of investing supported by over 60 years of rigorous peer-reviewed academic data.

By the way, check out the white paper link on the Science of Investing prepared by Dimensional Fund Advisors mentioned in Solin’s article. I would suggest printing this out and giving it a good read when you have time. It does a great job of explaining the science behind proper investing.

Why I Do What I Do!

“There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” –Soren Kierkegaard (1813-1855)


Please take 90 seconds to watch this video:Almost a Millionaire: A Stock-Market Tale.

Sadly, there are a lot of William Flynn’s around. Chances are you may even know one. Seems like Mr. Flynn is living proof of the above quote from Kierkegaard. Flynn was led to believe he could get rich playing the stock picking game. Unfortunately, he learned the hard way, you can’t. His experience led him to refuse to believe what is true.....that equities are the best wealth creation vehicle known to man.

William Flynn’s story is why I do what I do. My goal is to educate investor’s on the truth about investing. I like to think I teach investor’s how to invest and not to gamble and speculate with their money.

To quote the late economist and Nobel Laureate, Paul Samuelson...."Investing should be more like watching paint dry or watching grass grow. If you want excitement take $800 and go to Las Vegas".

Research Wall Street Doesn't Want You To Know!

“To reduce risk it’s necessary to avoid a portfolio whose securities are highly correlated with each other. One hundred securities whose returns rise and fall in near unison afford little protection than the uncertain return of a single security.” –Harry Markowitz, Nobel Laureate in Economics


Here’s the final installment from Sensible on passive investing. The last part is on portfolio theory. This gets more into the nitty gritty and science behind how our portfolios are constructed.Passive Investing Theory, part 4: Portfolio Theory.

Harry Markowitz made a huge contribution to the investment world by telling investors how to invest with his ground breaking Nobel winning research called modern portfolio theory. Most investors pretty much get the whole diversification story. Unfortunately, most investors don’t know how to properly diversify their portfolios. Markowitz told us how to optimize investment returns by measuring the risk of various securities and how to combine into a portfolio to get the maximum return for a given level of risk. In the investment world this is done through the Markowitz Efficient Frontier. Our portfolios are all structured to maximize returns and minimize risk by using this efficient frontier that Markowitz won his Nobel Prize for.

Interesting side note on Markowitz. He received his doctorate degree from University of Chicago in 1952. His doctorial thesis was on this topic of modern portfolio theory. Legend has it that he was able to prove the logic of this theory in just 6 pages. Most doctorial thesis papers are hundreds of pages long. A few of the professors in charge of accepting his thesis could see the logic of it but felt he had not put enough work into this paper. They obviously eventually consented and this is the same body of work that he eventually received the Nobel Prize for in 1990.

You’ll also see the work of Fama and French’s three factor model mentioned in the video. This, along with Markowitz’s work, really form the science behind our portfolios. It’s a shame more investor’s don’t know about this research. It’s not something that the big Wall Street firms really want you to know.

Is Efficient Market Theory Funny?

“At any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already incurred and events which the market expects to take place in the future. In other words, the actual price of a security will be a good estimate of its intrinsic value.” –Eugene Fama, describing his Efficient Market Hypothesis(EMH)


Part 3 of the Sensible series on passive investing theory focuses on the efficiency of the markets. These short snippets are all around 4 minutes long and I think they are very well done.Passive Investing Theory, part three: Market Efficiency.

Fama’s efficient market hypothesis is the cornerstone on which our portfolios are built. This academic theory has proven over and over to work in the real world. This is the whole basis on why we use a passive index approach to investing. Investing in a broadly diversified index portfolio that captures market returns is how we apply this theory in the real world. It doesn’t matter if you believe in a weak, strong or somewhere in between efficient market hypothesis, the fact of the matter is the vast majority of active money managers cannot beat their appropriate market index. Why?....because all the information these self proclaimed experts have is already priced in. It’s really a fool’s game to try to beat the markets.

Here’s a short joke where economists try to explain the efficient market hypothesis: Two investors are walking down the street. They came upon a $100 bill lying on the ground. One of them reached down to pick it up, the other remarks, “don’t bother....if it was a genuine $100 bill, someone would have already picked it up”.

Alright....maybe you won’t use this at your next cocktail party but this is the best I can come up with for economist type humor.

Random Walking

Random walk theory, the theory that future movement of stock prices does not reflect past movements and therefore will not follow a discernible pattern. –Collins English Dictionary


Here’s part 2 of the Sensible series on passive investing theory. Part 2 talks about the random walk theory.Passive Investing Theory, part 2: The Random Walk .

The random walk theory had a huge impact on me personally. When I first got into the investment advisory business, I thought my main job was to be able to predict future stock prices. After a few very frustrating years I realized this was impossible. The random walk theory convinced me how foolish and faulty my premise was. Stocks take a random and unpredictable path. It short....IT’S IMPOSSIBLE TO PREDICT STOCK PRICES!

Research bears this out year after year. Unfortunately, most investors would rather believe in fairy tales than the truth and keep searching for the holy grail.

Are You Investing or Speculating?

“The speculator’s primary interest is anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.” –Benjamin Graham


Sensible investing. tv out of England has put together a great 4 part series on the foundations of passive investing and the men who have brought it to global significance. Today, I want to share with you part 1, which explores the key fundamental difference between passive and active investing. That difference is no less than the difference between investing and speculating.Passive Investing Theory, Part 1: Investing v. Speculating .

Each part is only about 4 minutes long and I think you’ll enjoy them over the next few weeks.

When Will They Ever Learn?

“When will they ever learn? When will they ever learn?” –Pete Seeger's lyrics from Where have all the
flowers gone?


Seeger’s lyrics could be used to describe the vast majority of investors who still rely on the market forecasts of so called “investment guru’s” for their investing advice.

Check out Larry Swedroe’s recent article on CBS Money Watch, where he comments on research firm CXO Advisory Group’s study of over 6600 of these forecasts from 2005 to 2012.Who are the most (least) accurate
stock gurus?

Seems the accuracy of all the forecasts was 47%. That’s less than the 50% one could expect from just dumb random luck. As Swedroe so accurately states, the only value of these guru’s is to make the weathermen look good.

Ignore the forecasts! Stick to a sensible passive investing approach where you own the whole global diversified market at a low cost and at a risk level appropriate for you. This is how people that really understand how the markets work invest.

Why is it so hard to beat the market?

“Now fully understand that telling an investor that you can’t beat the market is like telling a 6 year old that Santa Claus doesn’t exist.” –Burton Malkiel


Our whole investment approach is designed to capture global market rates of return using low cost passive index funds. We know through all the research out there that trying to beat the market is a real suckers game and can’t be done on any consistent basis.

Watch this short video where Burton Malkiel, Princeton Professor and author of the investing classic "A Random Walk Down Wall Street", explains why it is so hard to beat the market.Burton Malkiel: why is it so hard to beat the market?.

Get What You Don't Pay For

“The deeper one delves, the worse things look for actively managed funds.” –William Bernstein


It’s logical to assume that the more you pay for something, you expect a better product. This just isn’t so in the investing world. It seems that the vast majority of investors still favor the higher priced actively managed funds over their cheaper ( usually way cheaper) passively managed counterparts. I guess most investors don’t mind paying for the consistent underperformance of these actively managed funds.

There are some really good videos coming out of England from Sensible Investing.TV. Take a look at this one titled,With investing, you get what you don't pay for.

Morningstar recently did a study that showed that lower expense funds outperform higher expense funds and that expenses are the best predictor of future returns.....even better than their own star rating system.

It always amazes me how difficult it is to convince people about these simple investing truths, even when showing them overwhelming evidence.

Reminds me of a quote by Leo Tolstoy...." I know that most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truths if it would oblige them to admit the falsity of conclusions with which they have delighted in explaining to colleagues, proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives".

Nobody Knows Nothing!

“In investing, rely on the ordinary virtues that intelligent, balanced human beings have relied on for centuries: common sense, thrift, realistic expectations, patience and perseverance.” –John Bogle


John Bogle in my estimation is one of the smartest people in the investment industry. He has been giving sage advice to investors for over 40 years. He’s written numerous books on investing and his 1999 best seller, Common Sense on Mutual Funds, is considered by many to be a classic

Check out this video where he shares what every investor needs to know about investing in three words.
John Bogle: all you need to know about investing in three words

I love Bogle’s straight forward no nonsense approach. Investors would do well to take these words to heart. It took me many years to figure this truth out. It cost me a lot of time and money before I discovered the truth and realized the con game that Wall Street was playing.

Nobel Laureate's Golden Rules of Investing

“It is the part of a wise man not to venture all his eggs in one basket.” –Miguel de Cervantes,
Spanish novelist and poet


As you know, I use an investment approach that’s based on over sixty years of rigorous academic research. Research whose sole purpose is to find the truth about investing. Some of this research has even led to Nobel Prizes for showing investors how to invest. William Sharpe of Stanford University is one such Nobel Laureate on whose research we rely to structure our portfolios.

Watch this video, where in less than one minute, Sharpe gives his “golden rules of investing”.
William Sharpe: What are the golden rules of investing?

Simple rules..... Diversify, keep costs low and use broadly diversified, low cost index funds. It’s a shame so many investors complicate this process and get caught up in the fairy tales of Wall Street.

Taxes, Taxes and More Taxes

“The hardest thing to understand in the world is the income tax.” –Albert Einstein


Today I’m going to dust off my old CPA hat and try to highlight for you some of the more noticeable tax changes that went into effect as of 1/1/2013. Let me see If I can prove Einstein wrong and present these changes in an easy to understand format.


Tax brackets remain the same ( after adjusting for 2.57% annual inflation) with one big exception: There is a new 39.6% tax bracket for people with taxable income over $400,000 ( $450,000 for married filing jointly).


Same as 2012 after adjusting for inflation-


For taxpayers with adjusted gross income(AGI) over $250,000 ( $300,000 for married filing jointly) personal exemptions will be reduced by 2% of the amount their AGI exceeds these amounts.
Itemized deductions will be reduced by 3% of the amount AGI exceeds these same thresholds.
Also note that itemized deductions cannot be reduced by more than 80%.


The new law makes the 2012 estate tax exemption of $5,120,000 permanent and indexes it to inflation. In addition, the estate of a deceased person can know make an election to allow that person’s surviving spouse to use any portion of the exemption that was not used by the deceased spouse. Bottom line, with exemptions above $5 million for single taxpayers and $10 million for married taxpayers, very few people will need to be concerned with estate taxes going forward.


The new law retroactively sets the AMT for 2012 at $50,600 for single taxpayers and $78,750 for married taxpayers filing jointly. This amount is now permanently indexed to inflation.


The new law did not extend the 2% reduction in payroll taxes. Employees social security taxes will increase from 4.2% to 6.2% and self employment taxes increase from 13.3% to 15.3%.


Qualified dividends and LTCG that fall in the 15% tax bracket or less will not be taxed.
Qualified dividends and LTCG that fall in 25-35% tax brackets will be taxed at 15% rate.
Qualified dividends and LTCG that fall in the new 39.6% bracket ( taxable income above $400,000 for single taxpayers and $450,000 if married filing jointly) will be taxed at 20%.


This new 3.8% tax applies to the lessor of: Your net investment income or The amount by which your modified adjusted gross income(MAGI) exceeds $200,000 for single taxpayers and $250,000 if married filing jointly.
Bottom line...if your MAGI is below $200,000 and single or $250,000 if married, this tax won’t apply to you. That wasn’t too painful, was it? Probably not the most interesting topic for many people but nonetheless an area that’s very important to our financial well being.

Predictions & Resolutions

“Never make predictions, especially about the future.” –Casey Stengel


It’s that crazy time of year again when everyone seems to be either making predictions or resolutions. I don’t want to be left out of the fun, so I’m going to give you one financial prediction and one financial resolution for 2013 that you’ll hopefully find helpful.

First, my prediction:

Predictions will mislead investors. Let’s face it, prognosticators get in wrong far more often than they get it right. Those that get it wrong will have no accountability and next year they will be back in the prognostication game. As evidenced by the massive outflows of money from the stock markets in 2012, many investors listened to these pundits and fled to the safe havens of cash instruments and were rewarded with virtually no growth. Contrary to the modern day fortune teller warnings, the global equity markets had a very good year. ( U.S Stocks up 16.4%, Foreign Developed Markets up 17.3% and Emerging Markets up 18.2%)

Here’s my New Year’s financial resolution for all investors:

I will ignore all financial prognosticators and their predictions. Turn off the financial shows and radio programs that claim to know what the market will do today, tomorrow or this year. This tantalizing infotainment will only raise your heart rate and create unnecessary anxiety on your path to lifelong prudent investing. Your portfolio decisions should be based on the prudence of Modern Portfolio Theory and asset allocation, not the crystal ball of some Wall Street guru.

Merry Christmas and Happy New Year

“Christmas is not a season but a state of mind. To cherish peace and goodwill is to have the real spirit of Christmas.” –Calvin Coolidge


This will be my last e-mail for the year. There’s so much negativism and skepticism out there that I want to leave you with something real upbeat.

Check out this article from The Spectator that makes the case that 2012 has been the greatest year in the history of the world.Why 2012 was the best year ever

Sometimes we forget how good we really have it. Never in the history of the world has there been less hunger, less disease and more prosperity than what we are experiencing right now.

The last line of this article says it all....“as we celebrate the arrival of Light into the world, it’s worth remembering that in spite of all our problems, the forces of peace, progress and prosperity are prevailing”.

Have a great holiday season and a happy and prosperous New Year!

Just the Facts Ma’am

–Sgt Joe Friday, Dragnet


I’m going to share with you today a few facts that you’ll hopefully find interesting and useful.

The biggest fear about the “fiscal cliff” is that if it’s not resolved we’re heading into a recession. Recessions are usually defined as periods with negative GDP growth. So the conventional wisdom says that if we’re headed into a recession we should get out of the market, right? Well let’s look at the facts.

From 1900 through 2010, this country has experienced 21 different years of negative GDP growth. The average annual negative GDP for those 21 years was –4.37%. If you had a crystal ball, those would probably have been good years to be out of the market, right? Well not really. The equity markets average return per year for these negative growth years was 11.27%. That’s right...11.27%. The average annual GDP growth for all 110 years was 3.31% with an average annual equity return of 8.07%. That’s right....the recessionary periods outperformed by over 3% a year on average. (look at the attached slides What If You Could Perfectly Predict Recessions and Equity Returns During Recession Years for the research on these facts)

So even if you had known in advance what the recessionary periods were going to be and you got out of the market, you would have been wrong. This is why you can’t time the market....nobody knows how the market is going to react to the events of the day. High GDP has been linked with a better overall quality of life but not higher stock returns.

Another big concern out there now is the more Socialistic path this Country is going down. Surely increased government involvement in the markets and increased regulation of businesses will have a negative impact on the markets, right? Well, let’s look at the facts again. The Heritage Foundation ranks countries from most free to least free. (see attached Heritage Foundation 2010 Index of Economic Freedom) Obviously, the most free countries will have the highest equity returns, correct? Again, it’s interesting when you study the data. From 1995 –2010 the least free countries had higher equity returns than the most free countries. ( Look at the attached charts on growth of $1 for developed and emerging markets)

Again, I’m not passing any type of political opinion here. I’m just trying to look at the facts. Believe me, I was as astonished as you probably are.

One more interesting fact. Let’s look at stock market returns from 1926 through 2011 for GOP Whitehouse vs. Dem Whitehouse. The years are actually split fairly evenly between GOP and Dem control over these years. Conventional wisdom would probably think that the markets would perform better under GOP business friendly leadership. Again the facts show differently. Actually, there is quite a large difference in favor of a Dem Whitehouse.....13.99% average yearly equity return versus 5.09% under GOP Whitehouse. Wow...almost 9% a year average better under liberal presidents. What If You Could Perfectly Predict Recessions?

What’s the bottom line? Well, first of all conventional wisdom can be very far from the truth. Even if you knew the news in advance, there’s a good chance you’d have made the wrong decision on which way the market would react. The markets are random and can’t be forecast with any degree of accuracy. Also, don’t forget that markets are very efficient....expectations about the future are in today’s price. Markets can provide positive returns even during periods of poor economic performance.

Hope you found these facts interesting and help you better put some perspective on things.

Who Would've Known?


Do you know who the largest investor in the world is? Warren Buffet? Harvard University? Some sheik over in Abu Dhabi? No, no and no. It’s actually The Norwegian Government Pension Fund Global (NGPF). Who would’ve known? I certainly didn’t.

This got my curiosity up and I went investigating further. It’s the largest and top ranked sovereign wealth fund in the world, topping 53 other sovereign wealth funds from 37 countries. It has almost $600 billion in the fund. By comparison, the largest pension fund in the U.S. is the state of California that has $230 billion. In fact, NGPF owns about 1% of every listed company in the world. Amazing!

Their key core investment beliefs are 1) markets are efficient 2) commitment to global diversification 3) equity risk premium will be main source of returns 4) passive index approach to investing 5) low costs 6) transparency. They own almost exclusively publically traded securities in a 60% equity/ 40% bond portfolio that relies on beta (market returns) not alpha( trying to beat the market) for its returns. Does that sound familiar? It’s exactly the way we design our portfolios here at Verity Capital Management.

That’s encouraging to know. Main street investors can invest the same as the largest investor in the world.

Here's a link on this Norway model that you can peruse at your leisure if so inclined.The Norway Model

Excuses, Excuses and More Excuses

“He that is good for making excuses is seldom good for anything else.” –Benjamin Franklin


As my father used to say... they’ve got more excuses than Carter has liver pills. It seems like that is all the active money investing world has to explain their consistent underperformance. Just like last year, only one out of five active managers are outperforming their passive benchmark (index) in 2012. Ouch! That means 80% of active managers are underperforming.

Yet the beat goes on and on for most investors. They continue to look for the holy grail and find the stocks that will outperform or the money managers that will find them. Why not put the odds in your favor. Give up the fairytale. get real and use a passive index approach to give yourself the best chance to reach your financial goals.

Check out this article by Larry Swedroe where he weighs in on this topic.
Excuses pile up for active management failures

Nobel laureate, William Sharpe, sums it up best... “Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appears to refute this principal are guilty of improper measurement.”

Delusional or Lying?

“Underlying most arguments against the free market is a lack of belief in freedom itself.” –Milton Friedman


What’s moral about the free markets?

Listen as renowned professor of Economics at George Mason University, Walter Williams, presents the case for why the free market is morally superior to other economic systems.
Prager University: Free Market Morality

The capitalistic free market system has also created more wealth than anything known to man. That’s why we design portfolios that capture these global free market rates of return. No stock market timing. Just a disciplined approach that essentially owns all global asset classes in a low cost diversified portfolio at a risk level you’re personally comfortable with. Anyone who says they can do better is either delusional or flat out lying.

Are You Better Off?


When you go the polls tomorrow the presidential candidates want you to ask yourselves if you’re better off than you were 4 years ago.

Alan Roth hits the nail on the head in his CBS MarketWatch Column last week when he asks, Is your portfolio better off than it was 4 years ago? Here’s the link to that article...
Your portfolio: Better off now than 4 years ago?

The last 4 years have been very scary times for investors who follow headlines.....government bailouts, stock market crash, huge deficits, unemployment etc. etc. Yet despite all this the market continues to chug along.....up 62% since Halloween 2008, up 130% since the market bottomed March 9, 2009. As Roth points out, if you didn’t get these returns it’s not because of Romney, Obama or Bush but rather the culprits are expenses and emotions.

Investors who stay the course and remain disciplined and unemotional in a well- diversified portfolio will get rewarded over the long term. This is not to say that our political leaders should not be held responsible to make prudent decisions to help our unemployment and deficit situation. However, it does say that trying to predict and forecast the stock market is not a winning strategy.

Proper structure and discipline are the keys to long-term investment success regardless of economic conditions or political winds.

No Excuses


Here's a link to an article written by Jim Parker of Dimensional Fund Advisors (DFA) called...
The Top Ten Money Excuses.

Many of these excuses can make us feel good emotionally for a short period of time but are detrimental to our long term financial health.

When you invest the right way using the principals of rigorous academic research over the last 50 years, you can turn your excuse list into a no excuse list.

You Know Anyone?

“No, I don’t believe in market timing. I’ve been around this business damn near a half - century and I know I can’t do it successfully. In fact, I don’t even know anyone who knows anyone who has successfully timed the market over the long term.” –Jack Bogle


Neither do I Jack, neither do I.

I’ve been a big fan of the Dalbar research on market timing. Dalbar is an independent research out of Boston that does studies on investor behavior. It turns out that market timing not only doesn’t work but it’s also very costly to investors. Based on Dalbar’s research over the 20 year period ending 2011, the S&P averaged 7.81% return per year while the average investor earned 3.49%. That’s a 4.32% per year difference mostly attributable to investor bad behavior. That is, getting out of the market when things aren’t so great and not getting back in until things are better. This strategy seems logical and it definitely appeals to our human emotions of fear and greed. The problem is nobody and I repeat NOBODY knows when to get in and out of the market on any consistent basis to achieve long term success.

That’s why it’s critical to build a globally diversified portfolio at a risk level you’re comfortable with. A portfolio that will allow you to remain seated in your seat so you can get the returns you need for achieve your financial goals.

Check out this short video where Lou Harvey, the president of Dalbar talks about market timing.
Market Timing Will Cost You Big Time Says Dalbar’s Harvey

This Would Be Wall Streets Worst Nightmare

“Even if you are a minority of one, the truth is the truth.” –Mahatma Gandhi


I hope Dan Solin can pull this off. He’s trying to get a responsible financial show on network or cable TV.
A show that would tell investors the truths about investing and not all the Wall Street hype the traditional financial media promulgates.

Here’s a short “sizzle reel” he put together to generate some interest in this concept.
The Show Wall Street Doesn't Want You to See

It absolutely boggles my mind with all the information that is being withheld from investors. I wish you luck Dan and God knows a show like this is certainly needed to help counterbalance all the misinformation out there.

Who's Worried?

“Those who have knowledge don’t predict. Those who predict don’t have knowledge.” –Lao Tzu, 6th Century B.C Chinese Poet


Investors are really worried again. This time the market is doing too good! How could the market possibly being so good with everything that’s going on out there....dismal job growth, fiscal cliff concerns, the European crisis, Iran, slowing growth in China.

Check out Larry Swedroe’s recent article where he addresses these concerns.

Investors worry while markets rally

The key for investors is to have a well developed plan that will allow you to ride out the various crisis du jour that will inevitably arise over the course of your investment horizon. As we all know, the market is a very efficient information processing machine and is impossible to beat over the long term.

This is a good time to access whether your risk level is appropriate for you. If you find yourself unceasingly worried about what’s going to happen and how will it effect your portfolio, perhaps it’s time to lower your risk level. The biggest key to successful investing is the ability to stay disciplined and don’t try to outsmart the market.

Back To School


It never ceases to amaze me how much things seem to change after Labor Day. The days are getting noticeably shorter in daylight and the cooling temperatures let us know that summer really is over. There seems to be a more seriousness about the is back in session, vacations are’s time to get back at it.

Since school is back, I’d like to share with you a short video that does a great job of explaining one of the key academic tenets of our investment philosophy....efficient market theory (EMT). I know, I know not a very exciting topic but this is an important concept for investors to get if they are to have a successful investment experience.
It’s actually a very simple concept that states that stock prices reflect all available information. In other words, investors always pay a fair price and it’s impossible to beat the markets. The truth of this concepts gets reinforced year after year as the vast majority of professional money managers can’t outperform their appropriate benchmarks.

EMT is actually really good news for investors. They don’t have to worry and waste time picking stocks since they’re fairly priced. Instead, they can focus on what they can control....deciding on the risk return tradeoff they are comfortable with.

One of my heroes, Eugene Fama, was the first to develop EMT. Watch this short video where he and a few other really smart people discuss EMT and why it’s important to investors.Efficient Markets Theory

By the way, many people in the finance world think that Fama will one day be awarded a Nobel Prize for his work in developing EMT.

The Big Lie

The evidence in favor of all index funds, all the time, is irrefutable, overwhelming and important to all investors.” –Richard Ferri


Sometimes things just don’t make sense. Professional investors can’t and never have been able to beat the market averages. Seems like the whole investment industry is based on the “big lie” that is totally contrary to this truth. This lie has perpetuated to such a degree and has gotten so big that it’s accepted as truth. It’s so big that it’s almost inconceivable to believe it couldn’t be true. Sadly, most investors have bought into this “big lie” and have a stressful and unsuccessful investment experience.

The old curmudgeon is at it again. Dan Solin doesn’t mix his words...he tells it like it is. Please take a minute to read his recent post. It's a great short article that really hits home and explains why we invest the way we do.

The Big Lie Is a Cruel Hoax

I love his last line...... “If your portfolio does not consist of “all index funds all the time”, it’s because you are being fooled into believing it’s your fault that your actively managed portfolio is underperforming its benchmark”.

Drinking The Cool-Aid

So who still believes markets don’t work? Apparently it is only the North Koreans, the Cubans and the advice managers.” –Rex Sinquefield, Co-founder and board member of Dimensional Fund Advisors


I have been accused of being cult like in my investment philosophy and drinking the cool-aid of Dimensional Fund Advisors (DFA). I happen to think they are the smartest people in the investment industry and run the best mutual fund company in the world.

My basic investment philosophy is nobody can consistently beat the market. My mission is to construct portfolios that best capture global market returns at the lowest cost and expose investors capital to the risk elements that they will get rewarded for long term. Simply put....nobody does this better than DFA.

Check out this article last week by Larry Swedroe in which he examines if DFA delivers what it promises....capturing what the markets have to offer.Does DFA hit its benchmarks?

Pretty solid evidence, I’d say. Since inception the DFA domestic funds as a group have outperformed their appropriate benchmarks by .68% a year,the international funds by .77% and the emerging markets by an astounding 3.46% per year. Normally, you’d expect the benchmark index to outperform since they have no costs. Yet, even with the fund expense ratios and some trading costs, DFA was still able to beat the index benchmarks. Also keep in mind that the vast majority of active funds fail to beat their benchmarks year in and year out.

Also check out the low effective average expense ratios... domestic funds .24%, international .32% and emerging markets .55%.

Yup, call me cultist but the proof is in the pudding. Stick with this philosophy and you’ll outperform just about all other investors over time. What flavor cool-aid would you like?

The Power Of The Pencil

“Underlying most arguments against the free market is a lack of belief in freedom itself.” –Milton Friedman


Most of us take for granted the power of the free market. It’s not something most people spend any time really thinking about. Check out this short video which I think does a fantastic job of explaining the phenomenon of the free market. It’s all explained by a simple pencil.Tribute to Milton Friedman and the Humble Pencil

It’s single person alive can make a pencil. It happens miraculously by the forces of the free market and we can buy one for pennies at the store.

This is why a belief in the free market forms the basis of our investment philosophy. The free market has created more wealth than anything known to man. Important to’s the markets that give you returns, not the high priced Wall Street money managers. That’s why we develop portfolios to capture this global free market rate of return and tune out the Wall Street hype.

Here’s the original short video where the master himself, Milton Friedman, explains the power of the market through a pencil.Power of the Market - The Pencil

When A Wise Man Speaks

“No one has ever become rich by being a long-term bear on the fortunes of the United States and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world.” –Burton Malkiel


When really wise people speak, it’s generally a good idea to pay attention. I consider Burton Malkiel to be one of these wise people worth listening to concerning matters of investing. He’s a professor of economics at Princeton University and author of the classic investment book,A Random Walk Down Wall Street . This book was originally written in 1973 and is currently in its 10th edition. This is a must read for every investor and was one of the key books that helped me shape my investment philosophy.

Last week Malkiel wrote a piece in the WSJ op-ed section. The title of the article says it all:

Even Amid The Current Turmoil Stocks Still Beat Bonds

Malkiel goes on to point out that long term investors who simply buy and hold low-cost broad based index funds don’t achieve mediocre results but well-above-average returns. In 2011, index fund investors outperformed 80% of actively traded equity funds and these results have continued into 2012

To his buy and hold strategy, I would also add the very important component of rebalancing.

Yes, when wise men speak, even wiser men listen.

Nothing But The Truth

“Diversification is your buddy.” –Eugene Fama, Professor of Economics University of Chicago


Check out Mark Matson’s appearance on Fox Business last week. Mark explains what diversification really is and why it’s the key to a successful portfolio.Fed Up With The Fed!

The traditional financial media wants short term results and quick picks for what’s going to do good in the next 20 minutes, not the next 20 years. Mark does a good job on staying on point and keeping investors focused on what’s really important. That’s why we use his firm as one of our main money managers for our globally diversified portfolios.

The Man Who Saved Capitalism

“The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.” –Milton Friedman


I would be remiss if I failed to point out that the great economist, Milton Friedman, would have turned 100 last week. Friedman lived to a robust 94 years old and was one of the world’s greatest advocates for the free markets.

His great intellect and wisdom is sadly missed today and could go a long way in getting us out of the economic malaise and political quagmire we find ourselves in.

Here’s a great editorial from the WSJ last week.Stephen Moore: The Man How Saved Capitalism

Friedman, besides being a great intellect, had a great wit and had a knack for relating to the masses. He even
had his own TV show in the 1980’s called Free To Choose. He also appeared on The Phil Donahue Show on
many occasions.

Check out this clip where he educates Donahue on Socialism vs Capitalism.
Milton Friedman - Socialism vs. Capitalism

R.I.P Milton Friedman and may your wisdom endure forever!

The Greatest Hits Of Investing

“Fundamentals of investing are like music in that true classics stand the test of time.” –Dimensional Fund Advisors


Brad Steiman has put together his top ten list of favorite investment hits. This comes after a decade of working at Dimensional Fund Advisors, the smartest mutual fund company on the planet.

Here’s a link to the list. Hopefully you’ll take the time to read this. This pretty much sums up why we invest the way to do.The Greatest Hits of Investing

Want to lose weight? It’s simple! Everyone knows the less and move more. Simple but not easy! Want to have a successful investment experience? Also, it’s simple! Accept that markets work, avoid stock picking and market timing, effectively diversify and pay attention to costs. Again, simple but not easy!

If you don’t have time to read the article now, please print it out and read it later. I feel it’s that important.

Don't Eat Your Dog

“Capitalism has created the highest standard of living ever known on earth.” –Ayn Rand


I could not agree more Ayn. Certainly capitalism has created more wealth for the good of the world than anything known to man.

I don’t know if you’ve seen white board art before but it’s pretty cool.

Check it out on this video where Arthur Brooks makes his case for the moral good of free enterprise.
Don't Eat Your Dog: The Surprising Moral Case for Free Enterprise

This is an important message that seems to get lost in the shuffle of political rhetoric. The free markets give us a chance to earn our success ( however we define that), they promote true fairness by rewarding hard work and merit and they do the most good for the most vulnerable.

Here at Veritas Advisors, we design diversified portfolios to capture this global free market rate of return. That’s why we own over 12,000 individual stocks in 44 different countries. Important point to remember that most investors overlook...returns come from the markets not the money managers.

Are You Delusional?

“So investors shouldn't delude themselves about beating the market. They're just not going to do it. It's just not going to happen.” –Daniel Kahneman, Nobel Laureate in Economics 2002


So when are investors going to stop deluding themselves? Returns come from the markets, not the high priced money managers ( who can’t beat the market anyways!). Every investor is entitled to market rates of return. Don’t mess it up by stock picking and market timing.

Check out this 3 1/2 minute video of Mark Matson’s appearance on Fox Business last week.
Forget Doom & Gloom Sayers

Mark is the CEO of a firm we use to help us manage clients money to achieve these global market rates of return.

The Not So Surprising Results

“Wall Street's favorite scam is pretending luck is skill.” –Ron Ross, Ph.D Economist and author of
The Unbeatable Market


What do you think the results would be if 80 years of data to identify the best mutual fund managers were put under the microscope of rigorous academic research?

The surprising results ( well actually not so surprising if you’re a regular reader of these e-mails) from a recent Bryant University study are that superior performance by mutual fund managers is really just random luck and that fund managers performance seems to get worse the longer they’re in the business.

Check out this article and short video for more on this study.Mutual Fund Managers may owe Their Success to Luck More Than Skill, and That Luck will Turn, Research Shows

This is the main reason why we use a passive structured asset class approach to investing. Active management is expensive and more importantly it doesn’t work. Investors are best served through a low cost passive approach that achieves global market rates of return at a risk level they are comfortable with. I know I sound like a broken record but this is an important point that the vast majority of investors don’t understand.

Happy Birthday America!

“Underlying most arguments against the free market is a lack of belief in freedom itself.” –Milton Friedman


This might be a good time to reflect on one of our Country's founding principles and one that has surely made it the great Country it markets. It's hard to argue against the fact that capitalism has created more wealth for the good of the world than anything known to man. This is why it's the basis on which our investment portfolios are built on. The free markets are where returns come from, not from the high paid Wall Street money managers.

Check out this video where Albert Brooks makes his case for the moral good of free enterprise.
Prager University: Arthur Brooks on Free Markets and Happiness

Happiness is earned and not given by others. Earned success is only possible through free enterprise.

Happy birthday America! Have a great 4th of July.

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