FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Mike Tyson On Sticking To Your Plan (Dan Richards)
“Everyone has a plan until they get punched in the face,” said former boxing heavyweight champion Mike Tyson. Dan Richards points to this quote in his Q3 letter, which is posted on Advisor Perspectives.
“Most investors might nod their heads to facts such as the ones above and can agree to a plan for their portfolio, identifying the parameters within which their investments will be managed. Of course, agreeing to your plan is the easy part – the challenge is sticking to it. As former heavyweight champion Mike Tyson pointed out, It’s easy to keep to your plan when things are going well; it’s when investors get bloodied from market setbacks that sticking to their plan becomes a challenge.
“There are occasions when sticking within the parameters of your plan may feel boring, but history shows that the key to successful investing is having a sensible plan and then sticking to it.”
Student Debt Is Not The Ticking Timebomb You Think It Is (Manning & Napier)
The raw numbers of U.S. student debt are titanic, and our coverage has often reflected their seemingly alarming scale. But Manning & Napier argues that on a macro level and over the medium-term, it may not be that bad: “While it is true that nearly $US1 trillion of student loan debt outstanding exists today across approximately 39 million borrowers, our assessment of the potential overall impact is that it is more likely a modest headwind to growth, versus a larger threat to financial markets or the broader economy. In our view, the risk of a true financial crisis stemming from a surge in student loan defaults is very unlikely, due to several factors:
- The vast majority of student loans outstanding (approximately 85%) are either directly issued by the U.S. government (i.e., the Direct Loan program) or guaranteed through the Federal Family Education Loan Program (FFELP).
- Approximately 15% of outstanding student loan debt is provided by private lenders. Private lenders tend to be more selective than public programs when approving loans than and often require co-signers. As a result, the private loan delinquency rate is currently less than half of the national rate.
- In addition, Financial Obligations Ratios (FOR) for renters and homeowners excluding mortgages (i.e., consumer borrowing), show that in aggregate, consumer financial burdens remain below historical averages.
Tom DeMark: Markets Are Preordained From Here On Out (Bloomberg/Business Insider)
Bloomberg talked to respected analyst Tom DeMark about the state of the markets, and he sees a pattern eerily similar to the run-up to 1929:
“The market’s going to have one more rally, then once we get above that high, I think it’s going to be more treacherous,” DeMark says. “I think it’s all preordained right now.” He feels this is probably irrespective of how and when the crippling impasse in Washington is resolved.
“If you look at the new highs and new lows on the [New York Stock Exchange],” he says, “every time we made a higher high, there were fewer stocks in the index participating in that high. It’s getting narrower.” And once that happens, you typically get a collapse.
Our Matt Boesler put together a chart showing what DeMark’s referring to:
What Jack Bogle Got Wrong When He Said Rebalancing Is Not Necessary (Servo Wealth Management)
Vanguard Group founder Jack Bogle was recently quoted in Money Magazine thusly: “”If you can ignore market fluctuations (it’s better not to rebalance), since you’re likely to get higher returns.” Servo’s Eric Nelson says this is a specious argument (emphasis his): “Where does Bogle miss the boat? Of course a portfolio that becomes much riskier over time has higher returns! This is like saying an 80% to 100% stock portfolio (remainder in bonds) is superior to 60% in stocks because you’re likely to get higher returns — true, but that comes at the expense of higher volatility, something that was unacceptable given the initial portfolio allocation’s more conservative mandate. Specifically, by not rebalancing periodically and selling stocks to buy bonds (which is what will happen more often than selling stocks to buy bonds), you eventually will have all equity or at least an equity-dominated portfolio. But if that’s what you wanted, why not start that way in the first place? Presumably it’s because you didn’t need the higher potential returns and didn’t want to put up with the higher volatility. So if it didn’t make sense at first, why was it eventually acceptable?”
What Is A Nobel Prize In Econ For? (Crooked Timber)
Lots of people were puzzled by the fact that this year’s Nobel Prize in econ went to two individuals whose views are basically diametrically opposed. Count John Quiggin among them: “The big debate in macro can be phrased as “where did it all go wrong”. Robert Gordon says 1978, I’ve gone for 1958, while the New Classical position implies that the big mistake was Keynes’ General Theory in 1936. The failure in finance is even worse, as is illustrated by this year’s awards where Eugene Fama gets a prize for formulating the Efficient Markets Hypothesis and Robert Shiller for his leading role in demolishing it. Microeconomics is in a somewhat better state: the rise of behavioural economics has the promise of improved realism in the description of economic decisions…The result is that prizes are awarded both for “discoveries” and for the refutation of those discoveries.”
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