You’ll Want To Know This When The Stock Market Starts Falling Again

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In case you missed it, you can watch an “At a Glance” summary of this week’s blog posting here.

Traveling was an escape for me.

By the time I was 25, I had already lived in six countries and visited over 45. I couldn’t get enough.

Why?

I was curious.

I wanted to see what they were doing. How they were living. And what they were thinking. I wanted to know what was going on in Nepal and Malta and Egypt and Guatemala…

The problem.

My dyslexic brain which couldn’t even figure out my own language, spelling or grammar. Let alone trying to figure out Spanish, German, Nepalese, Thai, Cantonese or Arabic…

How could I speak to someone in another country if I was still struggling with my own language?

And then I discovered something, almost magical. I figured out how to speak to people in their native language when I still couldn’t in my own.

It was simple. Easy to implement. And it almost never failed.

I found the same thing with investing.

It was simple. Unbreakable.

But before I tell you about the stock market discovery. I want to finish the foreign language discovery.

I discovered three words to learn in any language that could get me through a country. Three words that could get me almost anything I needed or wanted.

The three words are…

“I want to…”

That’s it. IF I learned those three words in the local language, traveling the country was easy. Or at least easier.

If I was in the backcountry of China like I was in October 1990, a place where foreigners hadn’t visited since 1949, I could say, “I want to” in mandarin and then either look for the verb I needed or I act out what I needed.

And it worked.

Simple. Easy to implement. And unbreakable.

The Single Biggest Insight Of My Twenty Year Deep Dive Into Stock Market Investing.

There is one piece of data that stands out more than any other in determining the performance of someone’s portfolio.  

It’s not the symbols they own. It’s not the company’s earnings report they read. It wasn’t the “pick of the month” newsletters they subscribed to.

[In fact, there is a direct correlation with a person’s performance and how many pick of the month newsletters they subscribe to. Spoiler alert. The more “pick of the month” newsletters an investor subscribes to the worse their performance is. Hands down. But that’s a topic for another day.]

And believe it or not, this one thing might be even more important, and for sure it’s, as important as the managing of losses.

Here’s the crazy thing. I didn’t discover this one thing. It was already discovered by the time I was 15 years old.

Three researchers discovered it. Three guys by the names of Gary Brinson, Randolph Hood and Gilbert Beebower worked collectively to crack the code.

They found the one thing. And they named it, “Determinants of Portfolio Performance.”

Not diversification, rebalancing, passive vs. active

AND There Were No Dissenters

When Gary, Randolph and Gilbert brought their findings to the world in 1986, there were no dissenters. Not. One. Person. Disagreed.

That’s how big this was.

The only piece of data people debated was how casual this one thing was. Did it cause 100% of the performance? 95%? 90%? Or maybe it was as low as 85%.

The one thing that determines your investment performance

Here’s Vanguard taking a swipe at their results. And Vanguard’s only disagreement was on how much this one thing determines the outcome. AND not whether it does.

The debate wasn’t on whether it worked or not. The debate was how much did it determine an investor’s performance. 100% of the person’s performance? 93.6% or the person’s portfolio? Or 91.5% or something slightly lower?

Literally that is what the debate was over. The debates that followed that 1986 paper were over how powerful this one thing was and not whether it was powerful.

So what did they discover?

Gary, Randolph and Gilbert discovered that the core assets you own in your portfolio determines ninety plus percent of your performance.

Said in plain English. An investor’s performance was determined by his/her allocation to stocks, fixed income, commodities or real estate.  

Asset Allocation Is What They Discovered Worked.

Gary, Randolph and Gilbert showed to the world in 1986 that an investor’s allocations is the one thing that determines their performance above everything else.

So what happened?

How come this idea is not plastered everywhere in plain English?

Two things happened that covered up their discover.

First

Their discovery was never taken out of their scholarly language. It was never put into normal language. Everyday language.

The Scholars Know

IT WAS NEVER TRANSLATED.

You get it.

These guys (PhD’s). And all of these guys speak a foreign language. And the language is designed to confuse non-native speakers. Confusion is built into the language.

I simply translated it.

All my years of traveling and living overseas allowed me to see the idea, scrape away the confusion and present the power. That’s what Fearless Wealth Investing is about. It’s about a powerfully simple investment approach.

Second

When the “Big-Box” world got a hold of this research they flipped it upside down and sent it walking in the wrong direction.

The Big Box Advisers Know

I want you to get how devastating of a mess up this was. I don’t know if the “Big-box” world  intentionally did this or if it was a mistake.

What was the Big-Box mess up?

They took Gary, Randolph and Gilbert’s discovery and they turned it upside down. Think of a person walking on their hands and not their feet. It can be done. But it’s a lot of work.

So what was the Big-Box’s actual mess up?

Two things…

Mess up #1:

The Big-box world took the discovery and focused it at the individual investor level. This is why the Big-box world is always asking people what their age and self-described risk tolerance is. This mess up puts the individual’s importance above the markets.

That’s the complete opposite of what produces stability.  

When an investor turns Gary’s et. al discovery on the market itself. The discovery then let’s the market tell the individual what core assets to be in. Should the investor be in stocks, fixed income, commodities or real estate?

Why is this an important distinction? Because the market with its trillions of dollars can better measure risk then an individual’s age. Is age important? Of course. Age still plays a part. But it’s not the lead character.

You get it?. It’s a subtle but critical.

Turn the discovery on the market. And let the market tell the individual investor where to be invested.

The Big-Box world did the opposite and I caught it.

Mess up #2:

The big-box world took the discovery and created a Rube Goldberg machine out of it. In other words, they took “simple” and made it complicated and confusing and overwhelming. Why?

Profit.

There’s more money in building a complicated, complex solution so an individual investor can’t possibly implement it. This is what the big-box AND the “pick of the month” newsletter world did and is continuing to do.

They compete to create incredible complexity. Where none is needed.

Yes. The stock market is complex. Yes, the economy is complex. And yes, humans are complex.

AND

The solution can be simple.

Complex questions but simple answers

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

P.S. If you make above $100k a year or did when you were working AND you still are biting your nails and worrying about the stock market’s next move lower, then this might be what you’ve been looking for.

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