Failure to Fail

My 10^th grade daughter has more homework each night than I had each week when I went to high school. It is astounding; she is up until 1 or 2 o’clock in the morning doing homework. She is not a procrastinator or busy multitasking on Facebook and Instagram. She may get a late start because she runs cross-country, but I don’t think she starts her homework any later than most 10^th graders.

The state of education in this country and maybe other developed countries is simply abysmal. I am not an expert on education, and in all fairness I have never attended a PTA meeting in my life. What I can tell you is that schools are failing to really educate our children. Schools do a really good job of giving homework and preparing students for standardized test, but are we educating our children?

In a recent New Yorker article on this subject, Nathan Heller writes about whether elite colleges are “bad for the soul.” Much of the article is about William Deresiewicz and his essay in the American Scholar, “The Disadvantages of an Elite Education,” and book Excellent Sheep: The Miseducation of the American Elite and the Way to a Meaningful Life.

According to Deresiewicz, the system “manufacturers students who are smart and talented and driven, yes, but also anxious, timid, and lost, with little intellectual curiosity and a stunted sense of purpose: trapped in a bubble of privilege, heading meekly in the same direction, great at what they’re doing but with no idea of why they’re doing it.”

Why are we still having students memorize facts instead of teaching what they really mean or don’t mean? My daughter is asked to read the front page of the New York Times every day and then quizzed on random facts. Wouldn’t it be better to discuss the front page and ask students what they think of a story or have a discussion about how they’re dealing with the stories about ISIS or Ebola?

I constantly see T-shirts or bumper stickers advertising the importance of failing, getting up, dusting yourself off, and trying again. But are we really teaching our children this approach to life? If they are only focused on their grades and knowing what they are supposed to know, are they learning the importance of failing, figuring out what it might take to find a different way, and then trying again (and again)?

If we really believe in the importance of failing, then we have to encourage our kids to be okay with failure, to take risks and experience a full range of outcomes, both good and bad.

This idea of learning through tests has crossed over into college. This is a time in young adults’ lives when they should be exploring every opportunity. Deresiewicz writes, “The job of college is to assist you, or force you, to start your way through the vale of soul-making. Books, ideas, works of art and thought, the pressure of the minds around you that are looking for their own answers in their own ways: all of these are incitements, disruptions, violations. They make you question everything you thought you knew about yourself.”

We are truly failing our children if we don’t start letting them know it’s okay not to get an A if it means they are really engaging with what they’re learning. If they’re studying in order to get an A but fail to really know, feel, or understand the material at hand, it’s not an A. It means they are robots.

Slow Mo

 As I have noted in several blog posts, before I was an investment advisor, I imported wine, olive, and balsamic vinegar. The balsamic vinegar that I imported was produced by a friend of a friend in Modena, Italy. His name is Massimo Bottura. Massimo is a chef, and his restaurant in Modena has been awarded three stars by Michelin for the past few years. Massimo has become quite a famous chef and recently published a book called Never Trust a Skinny Italian Chef.  

Massimo turned me on to a growing movement in Europe at the time called “Slow Food,” which caught on here in the United States many years ago. Slow food was a reaction in Europe to the rising number of American fast food chains then spreading across the Continent. The tipping point came when McDonald’s opened a store at the base of the Spanish Steps in Rome.

Slow food is a state of mind; it’s about eating food that is fresh and healthy, food that is pesticide and chemical free and accessed in a way that is beneficial to all.Slow food is also a lifestyle choice; it’s about slowing down and enjoying the proverbial roses. 

I view investing in a similar fashion. Like the Slow Food movement, it’s organic, and it needs time. Wealth is created slowly, by saving and riding out the ups and downs. Investing should be boring.

When Warren Buffet was once asked how the average person gets rich, he answered: “Spend less than you make, always be saving something. Put it into a tax-deferred account. Over time it will amount to something. This is such a no brainer.” I love Buffet’s mantra, “Boring is beautiful.”

It is hard for me to believe that the man I was driving around Emilia-Romagna with tasting balsamic vinegar is now one of the world’s most famous chefs. In the last few weeks he has been on Charlie Rose and Jimmy Kimmel. He even created a special hamburger for Shake Shack. When interviewed by Charlie Rose, Massimo spoke of the concept of “making simple the difficult thing.” As a purist and true believer in simplicity, I love that idea. Whether we are talking about food, wine, life, or investing—keeping it boring and simple, that is the road to success.

Take Me Away

Okay, somebody call a time-out. Things are getting a little too edgy. Everybody back to their corner, now! We know that we live in a 24/7 news cycle world. It never stops—they’ve got to keep you scared and interested so you don’t change the channel or stop looking at the screen. 

I’m taking a breather. This week no market volatility discussion, no recession talk, no Ebola—let’s sit back and open a nice bottle of wine and breathe. Ahhhh, relax, and let’s enjoy the weekend.

A long time ago I gave up drinking chardonnay, especially that overly oaken beverage they claim is wine. Did you know that some California wine producers actually soak their juice in wood chips to get that oaky flavor? 

Recently I have been drinking one of France’s treasured wines, Muscadet. Muscadet is sometimes confused with the sweet wine muscatel, from the grape varietal muscat. Muscadet is a dry white wine from the Loire Valley. The wine is made from the muscadet grape, sometimes called melon. It is bone-dry with a little bit of a mineral taste, in a good way. There are several growing regions within Muscadet; the most famous wines come from Muscadet Sèvre et Maine.

What I love about Muscadet is that you can taste the fruit. It is not overpowered by oak or wood chips. It is subtle and elegant. Muscadet is best served with shellfish, but at a recent lunch I enjoyed a glass with Pork Milanese and a frisée salad—perfection!

Muscadet is best enjoyed young, so purchase a bottle from a recent vintage (within the last two years). Another great thing about Muscadet is that it is cheap. You don’t have to spend more than $12.00 for a good bottle.

Two bottles that I have enjoyed recently were from Château de la Chesnaie 2013 and Domaine de la Tourmaline 2012.

Go ahead, put your worrying on hold, or better yet, let it drift away and buy a few bottles of Muscadet this weekend. Prepare a pot of mussels or buy some fresh oysters and shrimp and Muscadet—take your troubles away.

 

Wouldn't It Be Nice

October is here: autumn foliage is getting into full gear; it’s time for apple picking, pumpkin carving, drinking pumpkin beer; and the stock market is getting a bit more volatile. Statistically speaking, 25 percent of all 6 percent moves in the stock market (up and down) have occurred during the month of October. What does that sentence mean, and what does that mean for your portfolio? Simple answer: absolutely nothing!

We have all grown a bit complacent following the financial crisis of 2008–9. Since then, global markets have rebounded nicely, and one begins to wonder, “Why don’t I just own stocks? Why don’t I just own GoPro or Alibaba?”

I like to tell clients that it would be great if stocks went up every day, but they don’t. You have to accept that with up comes down. Over the past few months I have been reminded of the importance of asset allocation. Headlines announcing the current geopolitical risks—Hong Kong, ISIS, Ukraine—have heated up, making the daily swings in the stock market more pronounced.

Now is a good time to ask yourself some questions: Have my views about investing changed? Can I stomach another downturn? Have I become too conservative? Do I need to rethink my portfolio construction? It’s also a good time to review your savings goals: Do I have enough saved for retirement? Can I put more money away? Have I saved enough for my kids’ college tuition? What do I want my legacy to be? What kind of charitable contributions can I make?

I am not negative about the stock market; I am actually agnostic about it. No one knows from month to month what will happen. I do know that over time the market goes up more than it goes down. And I know that at some point I would like to retire, have a nicer bicycle, and play more squash. How about you?

It’s true, we can’t control the markets—but we can control our goals, and we can do a lot to create the outcomes we want and need.

Like No Other Market

From time to time I will look at stock prices of companies that I like or whose products I use. The great fund manager Peter Lynch wrote a book called One Up on Wall Street many years ago. Lynch preached the message of buying stocks of companies that you know—whose products or services you actually use. So, for example, if you like Big Macs, buy McDonalds stock; if you use Band-Aids, buy Johnson & Johnson.

This strategy may or may not work. I have never back tested the stock prices of the companies that I like or whose products I use. Quite frankly, that doesn’t sound too interesting, and my hunch is that they have probably performed worse than a broad base index fund.

A few years ago Fairway Market went public. Fairway is an iconic specialty food store here in New York City with fifteen or so stores in the metro New York area. It is an amazing store of fresh produce, cheeses, olives, hams . . . It is a food lovers’ paradise. The stock went public at 13 and climbed higher. Many New Yorkers who shop at Fairway bought the stock because they used the product. Of course this is a great company, "I shop there." As of today, Fairway stock trades below $4, nearly a 70 percent drop in price. Is Fairway’s business off 70 percent from two years ago? I doubt it.

Sure, there are cases when a company you feel good about performs well on the stock market. But overall there is no foolproof correlation between stock price and how much you like or use a product. Peter Lynch is a very smart guy, and his fund, the Magellan Fund, was a great fund for twenty years at Fidelity. And then it wasn’t.

All this week the financial news has been filled with headlines of the largest IPO in history, Alibaba. Alibaba is the Chinese version of Amazon, Facebook, and Google all rolled up into one company. Everyone thinks this stock is their ticket out of here to happy street. They think they know something that no one else does and they are going to cash in on this one. The problem is that everyone is thinking the same thing. Alibaba knows this and therefore keeps raising the price of the stock it is going to IPO on Friday.

Investing is not a sport, and it should not be a form of gambling. There is no easy ticket, and the idea of investing in companies because you use the product is not logical, or at least it does not make sense to me.

There are a very few who get rich quickly from the stock market. Imagine if you were employee number 10 at Microsoft or number 55 at Walmart. For most of us wealth is built over time, with a diverse portfolio designed to handle the ups and downs that the world throws at us.

You Complete Me

The other night I watched my favorite movie of all time, Jerry Maguire, for the hundredth time. Despite what some may think, Jerry Maguire is not a chick flick. Jerry Maguire is a movie about a person who decides to reexamine his life and live it according to the terms that he wants. It’s about making a decision about who you truly want to be.

As I come up on my two-year anniversary of launching Clearfront Advisory, I thought I would have my Jerry Maguire moment and write my own manifesto.

My tipping point, what pushed me to leave the bank world, where I was working, was seeing that banks and brokerage firms don’t care about their clients. Advisors within brokerage firms and banks are not fiduciaries; they are salespeople. If you have heard this story before, I apologize. I was sitting in a “sales” meeting, and the “sales” manager was talking about the concept of grabbing more “wallet share” from clients. My stomach churned hearing the phrase “wallet share.” It sounded like stealing to me. The “sales” manager went on to discuss credit cards, mortgages, and having clients leverage their securities and borrow against them to pay bills. I thought we were supposed to help clients save more, not spend more. If you weren’t aware, banks make money lending money—it is much more profitable than managing client assets.

Two years ago I planted my flag and went out on my own as an independent financial advisor. It was one of the best decisions I have ever made. When you start your own business, people invariably will think you are crazy. I don’t know why. There is nothing more liberating than waking up each morning and knowing there is no one else to depend on than you. As one client put it when I left banking, “There is nothing better than betting on you.”

I did not pull an all-nighter or do handstand push-ups like Tom Cruise did in the movie while penning his manifesto. But I have given a lot of time and thought to what I want and what I want Clearfront Advisory to be.

·         Keep Clearfront small and intimate. We want to know each client and want them to know us. Bigger isn’t better; bigger creates bureaucracy and distance.

·         Stay true to the simple concept that our clients are everything. We may be investing or advising on their lives’ savings. Treat their money like our own.

·         We don’t want to work with everyone. Not everyone is a good fit. We want to work with clients who believe in us and what we stand for.

·         Keep clients diversified in their investment decisions. Be cost sensitive in investment selections and the fees we charge. Be tax aware when making decisions—remember, it’s not what you make; it’s what you keep.

·         Coach each client to have the discipline to stay the course and not worry about what they can’t control. Focus on what you can control and on what is truly important.

·         Markets work and are efficient; it is fruitless to try to time markets or think you are smarter than the market. A vast majority of professional money managers fail to beat their benchmarks each year.

·         Have a simple and transparent fee structure so that clients know exactly what they are paying for and what services we are providing.

·         This is not a zero-sum game; there are no winners or losers. Everyone should succeed.

·         Be modest. If you hire me to beat the market, you will be disappointed.

At Clearfront we want to be held accountable. If there is something you are not getting from us, tell us. This is a relationship, yin and yang; communication is paramount and a cornerstone of what we believe in.

Thank you for your support and loyalty. We look forward to continuing this journey.

Happy Second Anniversary!

 

Back to School

I just got back from dropping my kids back at college. When—or a better question is why—did this become such an undertaking? Not to sound like one of those grumpy old guys who yearns for the "good old days," but when I went to school, I think I had my stereo, speakers, albums, typewriter, and two duffel bags of clothes. I probably had two pairs of sneakers (they call them tennis shoes in Michigan), a few pair of jeans, shorts, t-shirts, a sweatshirt, and maybe a nice sweater in case I was going out to dinner. My parents dropped me off at the dorm, then they were on their way back home.

Not so much today. I can’t tell you how many trips I made to Bed Bath & Beyond. It is beyond belief! Retailers have done a great job convincing kids and parents that they need a lot of stuff. Mostly you need a lot of stuff to hold all of the stuff that you have. If you want to invest in a stock, invest in the companies that make the containers that hold all of this stuff.

Most of my financial clients’ greatest concern, aside from retirement, is paying for college. I advise clients to save as much as they can, and after they come up with that number, save more. College is really expensive. The rate of inflation for college tuition is over three times that of the general rate of inflation in this country. If someone were really smart, they would come up with an investment vehicle that returned the rate of inflation of college tuition each year!

Anyway, I am done lecturing and reminiscing. My point is, maybe another way to save for college is to not buy as much stuff. In the long run, not spending money on things we don’t need probably has a greater return than some investments we make.