Opinion

John Wasik

Bill Bernstein’s ways to rewire your brain for investing

Jul 5, 2012 15:18 UTC

CHICAGO, July 5 (Reuters) – Bill Bernstein is both a
neurologist and a money manager, which gives him a unique
perspective on the human impulses that he says typically
short-circuit people’s portfolio decisions. Author of six books,
including “The Four Pillars of Investing,” he says we need to
rewire our brains to do the right things at the right times.

Long a rare voice of wisdom in an increasingly bi-polar
market environment, Bernstein says the trick to smart investing
is “learning how to behave. You have to fight your worst
instincts.”

Here are some behavioral guidelines he suggests:

1. Be careful with advisers.

It’s perfectly understandable if you don’t want to go it
alone in investing because there’s a lot to know and only a few
people are experts. If you choose an adviser, make sure that
they are a fiduciary; they must put your interests above that of
their firm. They also shouldn’t overcharge you, meaning annual
fees of less than 1 percent.

And if they aggressively push loaded (sales commissions
charged), hedge funds, alternatives or actively managed funds?
“Make a 180-degree turn and run,” says Bernstein.

2. Buy and hold is okay – then rebalance.

With market volatility soaring in this young century, you
have to evaluate how much risk you can take. You need an
investment policy statement, which is a roadmap to what kind of
stocks/bonds/alternatives allocation is best for your time of
life, vocation and personal goals.

Five money lessons I’ve learned through 10 bear markets

Jul 2, 2012 16:50 UTC

CHICAGO (Reuters) – I turn 55 today. As a member of the baby boom generation who hopes he’s aging like a fine wine and not turning into vinegar, I abhor the idea of losing money again in a 2008-style meltdown.

If I’ve learned anything, it’s that I’m a lousy psychic, so I don’t try to guess what any market will be doing in the future. Having speculated in precious metals, tech stocks and bought and sold at the wrong moments, I’ve made plenty of mistakes and run off the cliff with the flock far too many times. Here are some lessons I learned along the way.

1. Being liquid is golden

Hewing to Ben Franklin’s advice, savings is my top priority. When we hit a family health crisis in 2009-2010, I was glad we had cash reserves and an investment club portfolio of established dividend-paying stocks that I could liquidate.

Is buy and hold dying a quick death?

Jun 29, 2012 15:05 UTC

CHICAGO, June 29 (Reuters) – Portfolio volatility is your
sworn enemy if you’re nearing retirement or market downturns
make you nauseous. But if you’re a buy-and-hold investor – and
believe that stock market risk diminishes over time – you still
need a new course of action.

With high-frequency robotic trading, exchange traded funds
and global news hitting markets at the speed of light, there’s
no reason to believe volatility is going away.

Recent research by Lubos Pastor of the University of Chicago
and Robert Stambaugh of the University of Pennsylvania confirms
this view. In a forthcoming piece in the Journal of Finance,
they examined 206 years of stocks returns and confronted the
conventional wisdom that stock risk declines over time.

Sure things in the age of uncertainty

Jun 25, 2012 18:47 UTC

CHICAGO, June 25 (Reuters) – If there was such a thing
as a global financial uncertainty index, it would be soaring to
a stratospheric level.

The euro zone crisis still festers, 15 major banks were
recently downgraded by Moody’s and the U.S. faces a boatload of
political risk through its year-end of fiscal cliff tax
increases.

Markets are being roiled by volatility, and so bonds have
become like caves – refuges from widespread fear.

Three likely winners in healthcare: John Wasik

Jun 22, 2012 13:37 UTC

CHICAGO (Reuters) – The one thing the Supreme Court will have no impact on as it decides the constitutionality of the Affordable Care Act is the immutable trend in U.S. healthcare: the growing cost of caring for an aging population.

A handful of industries will remain profitable despite the thorny politics of healthcare policy, and the best way to view this volatile situation through the lens of stocks is in the long term.

The annual growth rate in healthcare spending is expected to remain around 4 percent from now until 2014, then ratchet up to 6 percent, according to recent forecasts by the Centers for Medicare and Medicaid Services. In comparison, general consumer prices are rising just under 2 percent on an annualized basis.

Three likely winners in healthcare

Jun 22, 2012 13:34 UTC

CHICAGO, June 22 (Reuters) – The one thing the Supreme Court
will have no impact on as it decides the constitutionality of
the Affordable Care Act is the immutable trend in U.S.
healthcare: the growing cost of caring for an aging population.

A handful of industries will remain profitable despite the
thorny politics of healthcare policy, and the best way to view
this volatile situation through the lens of stocks is in the
long term.

The annual growth rate in healthcare spending is expected to
remain around 4 percent from now until 2014, then ratchet up to
6 percent, according to recent forecasts by the Centers for
Medicare and Medicaid Services. In comparison, general consumer
prices are rising just under 2 percent on an annualized basis.

Four currency strategies for euro/dollar angst

Jun 18, 2012 15:57 UTC

CHICAGO, June 18 (Reuters) – Developing a currency strategy
for your portfolio is like playing a chess game in which the
pieces are the futures of entire countries. Will Greece be able
to form a government and get its act together to keep the euro?
What about Spain and Italy? With the embattled euro and dollar
under a perennial cloud, does it make sense to have currency
strategy for your portfolio at all?

If you’re heavily invested in the securities of one
denomination, adopting a currency hedge may make some sense,
although the direction of currencies is notoriously difficult to
predict. All denominations are subject to political risk, the
economic health of the countries backing it, inflation and
interest rates. And currencies don’t pay a quarterly dividend
like a stock can or have a fixed coupon like a bond. Their
values are determined relative to other currencies and vary
depending upon a number of economic measures. It’s a complex and
volatile brew.

Then, there’s always a concern about currency debasement, or
the fear that countries are printing too much money, which in
turn stokes inflation. While that’s not an immediate concern in
the U.S. or Europe now, it could be if those economies heat up
again. And it could be that conventional wisdom about a
currency’s decline will be wrong long term.

Five contrarian reasons not to refinance

Jun 15, 2012 16:07 UTC

CHICAGO, June 15 (Reuters) – These days, lenders are
incredibly picky when it comes to customers. When I looked into
refinancing a few months ago, a mortgage broker asked for two
years of tax filings, and wanted my accountant to certify them.
Since the savings on a new loan would’ve been minor, I passed.

That’s not the advice you hear most, though, when it comes
to refinancing in today’s rate market. With 30-year loan rates
still under 4 percent, if you know you’re going to stay in your
home for a while – or need to cut payments on other properties
you own – don’t wait.

Unless the U.S. economy goes on life support again, it’s
hard to believe that rates will go any lower – in the June 14
Freddie Mac mortgage survey rates were 3.71 percent for 30-year
loans and 2.98 percent for 15-year notes. Until this week, those
averages showed a quiet six-week streak of record-low rates.

Drill for income with energy stocks

Jun 8, 2012 15:02 UTC

CHICAGO (Reuters) – Whenever the threat of an economic slowdown starts hulking around like a cranky bear, I look to essentials that are important to me as a long-term investor, like energy. Then I consider what investors need most while they watch share prices dip, and that is steady dividends.

Although I have severe reservations about energy companies’ role in global warming – they can be doing much more to promote clean/alternative energy – energy companies that pay healthy, consistent dividends still make sense. They will still make profits drilling for oil and natural gas far into the future, even in the face of falling oil prices.

Good examples of old, healthy dividend payers are Exxon-Mobil and Chevron, two of the largest energy producers on the planet. Even as oil prices gyrate, the total long-term global demand for oil and gas is increasing. And if you’re willing to hold onto these stocks, you can be rewarded over decades.

Staples and discretionary stocks, it’s that easy

Jun 4, 2012 16:13 UTC

CHICAGO, June 4 (Reuters) – To maintain your mettle as an
investor in the face of mixed economic signals, you have to be
able to be able to do what F. Scott Fitzgerald said was the test
of first-rate intelligence: be able to hold two opposing ideas
in your mind and still function.

On one hand, it’s counter-intuitive to buy into a decline.
It doesn’t feel right, although you will get better prices on
quality stocks. The standard approach, which I suspect most
investors choose, is to retreat to the sidelines.

If you can take the risk, keep investing in solid companies.
If you need growth in your portfolio, don’t pull out; embrace
the long-term prospects of owning companies that produce
consistent profits and dividends. A good place to look for
profits are U.S. consumer staples and discretionary stocks.
These stocks are among the most profitable in the world, have
paid robust dividends and continue to benefit from the
snail-like U.S. recovery that may be “de-coupling” from Europe
and not moving in lockstep.

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