Sell Draper Buy Bogle
This September was the 5 year anniversary of the Lehman Brothers collapse in 2008. While the market had been declining since late 2007, this event marked two major events.
To begin, it was the first tangible evidence something was wrong…really wrong. Second, this event turned a declining market into one of free fall for the next 6 months. Investors were reeling as exhibited in the chart below.
$422,000,000,000 – the amount of money investors moved from stocks to money market funds in 2008
Essentially, half of investors owning stocks threw in the towel and fled to the opposite corners of cash, bonds and gold over an 18 month period. The golden rule, "buy low, sell high," was not strong enough to withstand the worry and pessimism of the time.
Ugh...pass the Pepto.
Enter Don Draper – the iconic main character in the hit series
Mad Men.
Like an annoying mosquito buzzing around your head, the Wall Street marketing machine relentlessly pursues any opening to suck the blood (money) out of you. It employs "Don Draper" marketing tactics, packaging tempting products to persuade investors to 'sell that and buy this.'
When tech stocks and gold were hot, there were no end of new funds and coin dealers marketing to capture the consumers' burning desire to get in on big returns. And capture that desire – and money - they did.
As this unique five year Anniversary is Upon Us, Be WARNED:
The marketing machine is now primed to kick into full gear and start selling
FIVE-YEAR returns, often making it seem as though the economic collapse left these investments unaffected.
Chuck Jaffe of MarketWatch writes**:
"…at the five-year anniversary of the collapse of Lehman Brothers—the signature event of the financial crisis of 2008—mutual fund companies are watching as the passage of time removes all of that pain from five-year performance records.
This creates a before-after picture that's as startling as the sudden transformation of a 98-pound weakling into a pumped-up, sculpted contender for Mr. Universe.
In fact, according to Lipper Inc., when you take the fall of 2008 off the books the
cumulative 5 year return of the average large-cap core fund goes from 37.82% entering September to 94.14% by the end of the year.
It will be interesting to see how the marketing machine targets investors and advisors regarding five year returns. The new Dodge Durango campaign utilizing Will Ferrell's character, Ron Bergundy, comes to mind as a possibility.
In these commercials Bergundy says nothing about the car. He spends the ad time joking about Dodge and insulting horses. But the Durango looks great behind him and sales are up 35% since the beginning of the campaign two months ago.
More recently, the entire Dodge fleet is behind Bergundy as he does nothing more than argue with the producer about the pronunciation of the word "Dodge." It's hysterical, only 30 seconds, and most importantly…it's working.
Click here to check it out:
Dodge commercial
Maybe the mutual fund companies will hire Ferrell and do the same thing with 5 year 100% cumulative returns in the background. On the one hand you doubled your money if you were invested like this...what else do you need to know? On the other hand, if you were invested in the fund for 6 years instead of five...now you're back to even.
Enter John Bogle
John Bogle, the father of index investing and founder of Vanguard would never be hired by Don Draper. At 84, he still takes the train instead of a limo, wears a $14 dollar watch, and keeps his thermostat at 55 at night. Personally, John isn't the image of success. Even worse is that Bogle's message is boring.
Here's Bogle's sizzle free advice:
- Don't allow transitory changes in share prices to alter your investment program.
- There is a lot of noise in the daily volatility of the market, which too often is 'a tale told by an idiot, full of sound and fury, signifying nothing'.
- One of the greatest sins in investing is to be captured by the siren song of the market, luring you into buying when prices are soaring and selling when they are plunging.
- Impulse is your enemy because market timing is impossible. Even if you correctly sold shares before a decline (a rare occurrence!), where on earth would you ever get the insight that tells you the right time to get back in? One correct guess is tough enough. Two are nigh on impossible.
- Time is your friend. If, over the next 25 years, shares produce a 10% return and a savings account produces a 5% return (right), $100,000 would grow to $1,080,000 in shares vs. $340,000 in savings.
Markets will plummet and markets will soar. Marketing will remain ubiquitous regardless of current circumstances. If you feel tempted to do "something" call your trusted advisor first. He/she can be your advocate and objectively assist you in determining if changes are likely to help you meet your financial goals.
"Every time I did something because of marketing, it was going to be on the long list of things I shouldn't have done." – John Bogle
I welcome your questions and comments,
Marc Becker
Accredited Investment Fiduciary
Managing Partner, Wiser Financial Coaching, LLC
Wiser Financial Coaching, LLC, is a Registered Investment Advisor Firm
*source:
http://www.ft.com/intl/cms/s/0/baf06c20-d85b-11dd-bcc0-000077b07658.html#axzz2f3zD8GBz
http://www.marketwatch.com/story/mutual-funds-erase-financial-crisis-from-history-2013-09-13
**source:
http://www.marketwatch.com/story/mutual-funds-erase-financial-crisis-from-history-2013-09-13
Trivia Time
This week's question: Name two teams that the USA will face in the first round of the 2014 World Cup.
Do you know? E-mail your answer wendy@wiserfinancial.com and if you are correct, receive a free "Way to Go!", "You Rock!", or other congratulatory phrase. Then brag to all your friends about how smart you are.
The answer will be in the next newsletter!
Last week's question: What was the only hurricane in the Atlantic basin to make landfall with wind speeds confirmed at or above 190 mph?
Answer: Hurricane Camille in 1969.
Source: www.wikipedia.org
Congratulations to Dick. W. and David R. for getting the correct answer! You rock!
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