Kim Miller's Egalitarian Adviser

Silos on the Plains

noreply@blogger.com (Kim Miller, CFP®) — Fri, 23 Mar 2018 22:52:00 +0000

“If you build it, they will come.”

- - “Field of Dreams” (paraphrased)

Consider how farm crops like corn and wheat get from the field to your table. Someone harvests the grain and hauls it to a shipping facility. There it is loaded into storage – usually a silo - eventually it is unloaded from the storage (silo) onto a truck or a train and shipped to market where it is sold to processors – food manufacturers.

Here’s a typical grain shipping facility using silos. Each individual silo could be filled with a different crop but each silo contains only one crop. Silos dot the plains and agricultural areas of the world and will for as long as they are useful.

The New Silos

Now consider the history of the computer. The same company that designed and manufactured the hardware also designed and manufactured the software that ran on the hardware. Computer silos, if you will. If one owned IBM equipment you couldn’t buy software from NCR – even if NCR software was superior in some way – because it wouldn’t work with your IBM hardware. And vice versa. Buying software that did something your current software didn’t meant buying new hardware too. Silos containing only one set of compatible solutions dominated the computer plains. One had to choose carefully, knowing that the path forward would be narrowly confined.

The Silos Crumble

Then came the personal computer (PC) revolution: IBM hired a reluctant Microsoft (imagine for a second that Microsoft was ever “reluctant”) to design an operating system (OS) for their new IBM PC. For a while, you had to buy an IBM PC if you wanted to use the Microsoft OS, named MS-DOS. But then someone cloned (reverse-engineered) the IBM PC and you could buy a PC from someone other than IBM for less money and the new machine would run the Microsoft OS and any software written to run on it. You probably remember the phrase “IBM-compatible”. The silos in the personal computer world started to crumble.

Generally, the PC world ended up split between just two silos: Apple Computer - with software that only ran on their computers and computers that ran only their software (or software written specifically for it) and Everyone Else, as all other manufacturers integrated with the Microsoft OS and made hardware and software to the Microsoft OS standard. All other silos in personal computer software and hardware crumbled. You might recall some of the names: Osborne Computer, Eagle Computer, Commodore Computer, Digital Equipment Company, etc. Compatibility of hardware and software drove the rapid adoption of the personal computer – the silo system was obsolete. Choice was easier, knowing that the path could evolve without having to start over at the beginning.

The Silo Makes a Comeback

Fast forward to 2018. Silos are once again starting to dot the computer plains:

Apple of course, continues to operate its own silo – designing both computer hardware and software including its dominance in digital music with iTunes. Apple now has the “Homepod” – a digital assistant that responds to voice commands.

Google designed a cell phone operating system: Android, aka “Droid” that has become the new standard for a large percentage of cell phone manufacturers – this system is not compatible with phones designed by Apple. Google has the “Home” – a digital assistant that responds to voice commands.

Amazon is building its own silo for hardware (the Echo – a digital assistant) and software (Alexa) as well as an entertainment silo delivering music and video tied to it’s Prime membership. No Prime membership, no Amazon entertainment.

None of these digital assistants and their developing entertainment eco-systems are compatible with the others – e.g., iTunes doesn’t work on the Echo. There are other examples – the point is that tech companies are finding competitive advantages in drawing customers into their solutions (silos) at the exclusion of other solutions (silos). We’re back where we started – faced with making a choice that locks us onto a narrowly confined path.

New Battery Technology Will Drive EV Adoption

noreply@blogger.com (Kim Miller, CFP®) — Thu, 16 Nov 2017 19:13:00 +0000

https://www.autoblog.com/2017/11/13/fisker-has-filed-patents-for-solid-state-batteries/

Security vs. Convenience - The Equifax Hack

noreply@blogger.com (Kim Miller, CFP®) — Tue, 14 Nov 2017 20:42:00 +0000

You have undoubtedly heard about the massive data hack at Equifax, one of three U.S. credit-reporting companies, referred to as “credit agencies” (Experian and TransUnion are the others). With 143 million credit files identified as exposed, I think it safe to assume that your information is “out there”.

You can check to see if your data was exposed: Equifax has established a “Am I impacted?” web page: https://www.equifaxsecurity2017.com/am-i-impacted/

I personally didn’t bother checking but went straight for the only action I could take that would provide any real measure of protection: I called each of the three credit agencies and initiated a Security Freeze on my credit files. A Security Freeze locks your credit file; denying anyone attempting to use your information fraudulently to set up loans, credit cards, etc. Will this action prevent all possible fraud with my information? No – fraud takes many forms, but it will prevent my credit files being used.

Applying a Security Freeze locks your credit file to all applicants, including yourself. When the freeze is applied, you are given a PIN (either immediately or by mail) which you will need to unlock your file in the future. With the PIN, you can unlock your file temporarily if you need to apply for credit or unlock it permanently.

You might reasonably ask: “That seems inconvenient - should I sign up for credit monitoring – that’s just as good isn’t it?” My reply is “Are you willing to take the chance that monitoring will catch every fraudulent attempt?”

Costs: two of the agencies charged $10 while the third charged $0.

Pro tips: 1) you must contact each agency separately – there is no “one and done”; 2) each person has their own credit files – if you are married both of you need to take separate action.

You can count on data breaches like this one happening again. Protect yourself.

Here are the phone numbers for the three agencies:

Equifax (800) 685-1111

Experian (888) 397-3742

TransUnion (800) 680-7289

You can learn more at the Consumer Financial Protection Bureau:

www.consumerfinance.gov

Use Your Imagination!

noreply@blogger.com (Kim Miller, CFP®) — Tue, 25 Apr 2017 23:27:00 +0000

“Imagination is more important than knowledge.”

- Albert Einstein

Consider a few of the great conundrums of life:

How long will I live?

How long will my spouse live?

What will it look like to retire?

How much money will it take to be comfortable?

What will I do all day?

How can I stop procrastinating and do something about it?

Let’s imagine…

Consider that the answers to most of these questions are not knowable with any degree of certainty. No one knows how long you or your spouse will live, no one knows what your life will look like after you quit working, no one knows how much money you will need, you probably don’t know yet what you will “do all day”, and of course the very essence of procrastination is to put off doing anything about any of it.

Financial planners are well known for the perfection of their analyses – you’ve seen the charts, calculated to the nearest dollar. Many people employed in our business feel that the more precision they bring to their analyses, the more likely the client is to accept the results. Unfortunately, financial planning software doesn’t help much in dispelling such reliance on precision, and in fact actively encourages it – “Look, color pie charts!”. A few years ago, a bank ran a series of ads which showed people walking down the street holding a large number sign, trying to make the point that “everyone’s number is different, but you better get cracking by engaging our services”. Of course, those “numbers” came out of nowhere. It’s probably not much comfort to know that a financial planner can show you how they arrived at your “number”.

The “number” is derived with inputs that are decidedly, subjectively assumptive – i.e., “guessing”. How long will you live? What rate of return will you earn on investments? What will the inflation rate be? A newer assumption gaining popularity – what will the rate of inflation in medical costs be? What will the capital markets “do”? This last assumption often takes the form of “what if” the capital markets do “this” or do “that”.

How can I bring certainty into the mix?

Newsflash: to a large degree, you can’t.

Apply Your Imagination

Consider making a list of “Things I can control” and “Things I can’t control”.

Here are some starters; notice that we’ve provided several blanks for homework.

Things I can control	Things I can’t control
How I live – work, health, relationships	How long I will live
How much I save/invest	Returns on savings/investments
My actions today AND tomorrow	Other people’s actions
My spending lifestyle
How I will live when I quit working
Where I live, where I will live
What will I…
How will I…

How much is enough?

Arguably the number one narrative used in retirement planning is some variation on “You don’t want to be eating cat food, do you?” We are aware of anecdotal stories of people doing just that, so while this approach sounds like fear-mongering, there is some truth there. Canned cat food is cheaper than canned tuna. Eating fresh food is universally desired, but it does cost “more”. Act accordingly.

Stop Procrastinating – Use Your Imagination

Consider your “future self” 10, 15 or 20 years from now. What action or series of actions can you take today that will make a difference to that person you will become?

Nobody Knows Anything ver. 2.0

noreply@blogger.com (Kim Miller, CFP®) — Tue, 25 Apr 2017 23:22:00 +0000

Q3 2016 Commentary

“Nobody knows anything...... Not one person in the entire motion picture field knows for a certainty what's going to work. Every time out it's a guess and, if you're lucky, an educated one.”

- William Goldman, novelist, screenwriter

Here we are post-election, with many Americans and much of the rest of the world wondering what just happened. “You mean to tell me that Donald Trump – DONALD TRUMP! – is our next president? Whoo – I’m getting the vapors!”

How did this happen? I’m here to tell ya – the “how” really doesn’t matter much, like “facts” and “issues” didn’t seem to matter to many voters. If one can construct one’s own version of reality and defend it against any nay-sayer with a simple “I don’t care what you think about my opinion”, then any position taken can be defended with a clear conscience. Like beauty, reality is found in the eye of the beholder.

“But what about the polls?” you might ask. Simple: they were wrong. When someone is looking (wishing?) for a specific outcome, confirmation bias creeps in and people – polls are run by people – sometimes find what they are looking for. It’s clear they didn’t find the voters who made the difference!

Let’s leave the politics behind and see if we gain some insight into the economic ramifications.

As some people I follow have said: “Mr. Trump is very comfortable with debt.”

Expect to see a massive expansion of the federal budget deficit with much of the new spending targeted to infrastructure spending – even the infamous Wall across our southern border could be labelled as “infrastructure”. This will be stimulative – but as Mr. Obama learned, don’t call it “stimulus”!

The increased deficit will contribute to corporate profits which will tend to drive stock prices up.

Income tax rates are likely to go down.

President Trump will be corporate friendly and cut income taxes for corporations as well as individuals. There will likely be some kind of tax holiday for overseas corporate money – this could be a source of funds for infrastructure spending – give corporations a tax break in return for buying infrastructure-related bonds, for example.

Mr. Trump’s stated trade policies are anti-free trade and protectionist.

A lot of people were convinced that he would bring back jobs via trade. Unfortunately, those jobs we lost in manufacturing are largely gone and for those that do return, most of the work will be automated e.g., performed by robots and will require far fewer people than in the past.

If imported goods are taxed at higher rates than now in an attempt to reduce imports, prices for imported goods will rise and prices for American-made goods are likely to rise too as corporations raise prices on goods they increasingly make (with higher-wage labor) here in the U.S. As a result, a possible increase in jobs would likely be offset by higher prices for a net effect of near zero.

The Federal Reserve rate hike rumored for December likely won’t happen.

The Fed will want to wait for more clarity on the policy direction before they take any action. Markets have suffered whiplash this year in part due to the Fed’s waffling for much of 2016 so this will be viewed positively. Keep in mind – a large-scale increase in the federal deficit will – more than likely - drive interest rates up. Rates are already rising in the bond market.

Bottom line:

Increased federal spending likely means we see higher profits, higher interest rates and higher growth. It will be good for the overall economy.

Since we’re travelling into unknown territory (uncertainty), it will take time for the markets to digest any new policies assuming they become reality. Capital markets tend to overreact to uncertainty in the short-term because markets don’t like uncertainty and Mr. Trump – as we have seen - provides plenty of uncertainty.

So the next time you are presented with a “can’t happen here scenario” remember: nobody knows anything.

Credit to Cullen Roche of Pragmatic Capitalism for some of the analysis used here.

If I Could Go Back, Would I Do Anything Differently?

noreply@blogger.com (Kim Miller, CFP®) — Tue, 25 Apr 2017 23:21:00 +0000

Q2 2016 Commentary

“Nobody knows anything...... Not one person in the entire motion picture field knows for a certainty what's going to work. Every time out it's a guess and, if you're lucky, an educated one.”

- William Goldman, novelist, screenwriter

Here we are post-Brexit, wondering which end is up and what does “leaving the European Community” mean anyway (if anything)? All the betting was on the “Bremain” side of the ledger and when “Brexit” won out, everyone long the status quo got caught with their shorts (short pants, not short positions) down. A recent client conversation went something like this: “You guys are walking a tight rope which someone has set on fire, while someone else is throwing rocks at you and yet another someone is heading towards the tight rope with a large set of sharp garden shears.” To which we added: “You forgot the live grenades we’re juggling.”

Fortunately – and most importantly - we avoided making mistakes while global markets went through a two-day hissy fit. For the time being, we’ve come out on the other side in rally mode with market averages nearly back to their closing prices pre-vote. Of course, we’re heading into a long holiday weekend and Lord knows what will happen then – because – nobody knows anything.

My Inbox is now filled to overflowing with post-Brexit analyses – “What You Need to Do Now” stories that always come out after a big move. I haven’t read even one of these “cool-headed analyses” – because – nobody knows anything – and I know that adding to the minutiae in my head isn’t going to help me decide what to do “next time”.

To be successful in the capital markets, you have to buy when you don’t want to buy and sell when you don’t want to sell. And when conditions dictate doing one or the other but it’s too gut wrenching, the best action to take is to re-balance your accounts based on your carefully-considered risk tolerance. If even that is too scary, the best action is no action. Take comfort in knowing that you aren’t the only anxious, clueless wanderer in the desert – because - nobody knows anything.

Emotional Intelligence and the Financial Adviser

noreply@blogger.com (Kim Miller, CFP®) — Fri, 22 Jan 2016 19:09:00 +0000

Q4 2015 Commentary

Kim Miller, Certified Financial Planner™

“The only person on the plane I have to worry about is me. If I get there safely, then everyone on board gets there safely.”

Tom Schuchat, former airline pilot

“Emotional intelligence is the ability to identify and manage your own emotions and the emotions of others. It is generally said to include 3 skills:

· Emotional awareness, including the ability to identify your own emotions and those of others;

· The ability to harness emotions and apply them to tasks like thinking and problem solving;

· The ability to manage emotions, including the ability to regulate your own emotions, and the ability to cheer up or calm down another person.”
Psychology Today

In my practice I frequently encounter emotional responses regarding money. Unfortunately, emotional responses regarding money are generally unhappy or negative emotions: “I don’t have enough money.”, “I’m not going to have enough money to retire.”, “I won’t have enough money to retire comfortably.” “I’m afraid to invest my money – I might lose it!”, “I’m afraid I might end up a bag lady!” and etc. Upon inquiry it often turns out that these unhappy feelings are deep-rooted and manifest themselves the most when “things look bleak”.

Financial advising as practiced at my firm is in two distinct, discrete parts: understanding the present while planning for the future and management of investment capital within the planning framework.

Here are the basic planning steps I take with every planning engagement:

· What are your objectives?

· What resources (known and unknown) do you have to meet your objectives?

· Is there a gap between your objectives and required resources?

· What steps can you take to close the gap?

· Develop an action plan targeting success.

· Like shampoo, rinse and repeat as necessary.

The process is intentionally designed to remove fear of the unknown. The closer we can get to having adequate resources to meet the objectives, the more comfortable we get in knowing that we can “get there”. We have removed – or at least reduced – the fear of the unknown.

I’ve had clients let out audible sighs of relief when they discover they don’t have a gap to fill or that the gap – or other perceived financial shortfall - is easily bridged.

People think they come to financial advisors for solutions, but what they really want is assurance that “it’s going to be alright” or “it’s going to be alright if you follow this list of action items”. They want their emotional feelings about money to be soothed, dampened, made manageable. This is what true financial planning advice provides.

Managing investment capital isn’t much different for the emotionally-intelligent financial adviser. Applying a process provides the adviser and client a framework in which rational decisions can be made and provides a level of comfort for those times when we’d rather run. I often say that the investment business is the only business in which people run for the exits when the goods are on sale. If we have a plan with which we approach the risk of investing, we can rely on that plan instead of relying on our emotions. This works for up-swings as well. Chasing “green arrows” as I call it is as dangerous as running from “red arrows”. Investors who invest with their emotions nearly always end up “buying high and selling low” even when every bit of investment advice ever offered in the history of the world has been reduced to “buy low and sell high”. The emotionally-intelligent adviser knows the difference and is able to convey that conviction to his or her clients. I often tell investment management clients that I earn my management fee not by trading accounts but mostly by waiting. Not panicking in a downturn and selling and the opposite – not panicking in an upturn and buying. If we have formulated our plan and placed our capital accordingly, patience is usually rewarded. Of course, no plan is perfect: sometimes we have to exercise more patience than at other times. It is always amazing to me how impatient people can be, but my response is always the same: “We have a plan and we’re sticking to it”. The corollary to this response is: “If you needed the money next week or next month we wouldn’t have put it at risk in the first place – if your time horizon has truly changed (not changed merely because you are anxious) then we should change your plan”. I remind them that we can always sell and reduce their exposure if they really want to do so, but unless their objectives have really changed, we need to stick it out.

As I write this, the capital markets have declined on nearly every trading day in 2016. “Things look bleak”. I’m keeping in mind what my Uncle Tom Schuchat* said, knowing that I’ll arrive safely, and so will you.

*Tom was an Air Force pilot; flew for Flying Tiger Air and then for Continental Airlines, “the proud lass with the golden ass” as he once said. He was married to my mother’s youngest sister. He died in March, 2013 at age 78 following surgery for pancreatic cancer. He never crashed a plane.

‘Twas the Night After Christmas –or- Santa’s Last Stand-Up Routine v.2015

noreply@blogger.com (Kim Miller, CFP®) — Wed, 30 Dec 2015 16:25:00 +0000

“Is this thing on?” [tap tap schreeeee] “Hey Mr. Sound Man – fix this mic wouldya? Don’t think I don’t know what you did last summer, ‘cause I do. Well, well, well boys and girls! I just flew in from Damascus and boy are my arms tired. [cymbal crash] How many times you think I’ve used that one? Ho-ho-ho!” [scattered laughter] “Whatever.” [takes a flask out of his pocket] “A little hair of the dog ya know? It’s been another back-breaking season.” [takes a long swig] “So…what’ll it be tonight? Sugarplums? Fairy dust? Rudolph? The old routine gets kinda stale when you have such a limited range of topics. Hmmm…how about a little game I call “Santa FAQ”? You ask all the questions you’ve always wanted to ask and I answer ‘em – OK? Keep in mind that just because I know everything [sing-song voice] (“…he knows when you are sleeping, he knows when you’re awake…”) doesn’t mean I can answer – the Patriot Act and the NSA, ya know. You there, in the back.”

“Uh, how do you get to the homes of all the little boys and girls in one night?” “I have a sweetheart contract with FedEx and now Amazon wants to build me a drone fleet that will darken the sky – no one on earth will see the sun from Dec 20 til Christmas morning! Next?” “Do you really eat all the cookies and drink all the milk?” “Heck no – I’m lactose and gluten intolerant! Most of it goes in the sleigh to feed the elves at the North Pole. Boy, do they get sick of cookies and milk.” “What about the carrots for the reindeer?” “They eat ‘em – how do you think they see in the dark?” [takes out the flask and takes another long swig] “How do the elves make all those toys?” “Since I instituted the best management plan on earth, they’re afraid not to! Who do you think Wal-Mart learned from? You wanna make money in manufacturing or in retail? Come to “Santa’s Management Workshop” (Ó Santa, Inc., all rights reserved). Keep ‘em hungry, underpaid and scared of getting fired. My record speaks for itself.” “Hey Fatso! How do you keep your suit clean after going down all those chimneys?” [raises his hand to his mouth and speaks into a microphone hidden in his sleeve] “Security?” [points to a man in the third row, stage right. An elf runs out from backstage and zaps the guy with a cattle prod] “Oouuuuugh! Ok, sorry!” [elf zaps him again before returning back stage] “Ouuuch!” [speaks into the hidden mic again] “Note to self: add that man to the PNL*.” “How do you really know who’s been naughty and who’s been nice?” “I used to have contracts with all the spy agencies: CIA, FBI, MI6, KGB, Mossad, NSA, but now I just use Facebook - they’re the best – and - “It’s free and always will be”. Ho-ho-ho: boys and girls, if there’s no charge for the product then YOU are the product. By the way, 9/11 really helped in that regard – I was able to put over half the world on the PNL*!”

“What about the members of the Miller Family?” “Whoa.” [takes out the flask, drains it] “Let’s see, hmmm…Sean is the top salesman in Oregon for Georgetown Brewing - you can guess what he wished for; Kelly migrated from Italy to France to London trying to gain a ladder hold in the fashion industry, a look-see period in San Francisco is the next rung so you know what she wished for; Andera is happily married to Ray in Connecticut for nearly 12 years now, and was recently promoted at her work to more responsibility with higher pay and more hours – her wish came true; Diane keeps plugging away as an RN with “retirement” on her wish list; and Kim works as a Certified Financial Planner ™ trying to figure out which way is up in the capital markets – heh, heh – you KNOW what he asked for.” “Yeah, yeah, but have they been Naughty or Nice?” “Uh, that information is Classified and requires a Top Secret clearance.” “What about President Obama?” “Ho, ho, ho – are you kidding? EVERYone knows which list he’s on – just ask Donald Trump.” “Uh, who really shot Bin Laden?” [frowns] “I told you there were some questions I can’t answer.” [speaks into the hidden mic] “Security? You know what to do.” [elf runs out from backstage and zaps the guy with a Taser. 3 more elves appear and drag the guy out, still twitching]. “Boys and girls, it’s been a pleasure. I’ll be back next year - same day, same time. Until then – Merry Christmas! I’m outta here.”

*PNL = Permanent Naughty List

noreply@blogger.com (Kim Miller, CFP®) — Tue, 13 Oct 2015 23:48:00 +0000

Q3 Commentary

Fast N’ Loose

I love the classic car shows on TV. More precisely, I love the classic cars on the car shows. The characters on the car shows I can mostly do without, but to see the cars, you have to buy a ticket to the entire circus. Someday there will be a box that allows you to fast forward a live broadcast – not only will you be able to skip the commercials, you’ll be able to skip the boring and annoying parts of the programs. I can hardly wait.

I often get my car fix watching “Fast N’ Loud” on the Discovery Channel but I also spend time with the Count on the History Channel’s “Counting Cars” as well as Discovery’s “Rusted Development” which is a combination of a lower-key “Fast N’ Loud” and “Hoarders”. The latest entry in the genre is a Discovery Channel show about cars in Cuba: “Cuban Chrome”. Predictably, it seems to revolve around the problem of obtaining the parts they will need to fix up their latest find – Yay Communism! This one will likely die as the trade embargo comes down – there will be a fully-stocked Auto Zone store on the corner across the street from an O’Reilly’s – no more suspense.

Regardless of the premise or the theme, all of these shows feature scenes of “The Deal”. You know, that moment when Desire and Greed meet Money, sometimes with a voice-over soliloquy featuring the characters’ thoughts or a cut-in of their thoughts as the deal goes down on camera. The Bid and the Ask. It always reminds me of a used car lot – since that’s what it is. Often, the buyer and seller are far apart on their price, but as the back and forth goes on, a price somewhere in the middle is usually agreed upon, they shake on it and it’s on to the next deal. Like a used car lot, the information asymmetry favors the seller – he knows what he has and knows his bottom line price, and I always hope he knows the real value. I have to think that having the camera crew present puts extra pressure on the sellers in these situations – kind of like having your mom and dad observing in your 1^st Grade classroom. You want to be on your best behavior and don’t want anyone getting the impression that you’re not nice or you’re hard to deal with. This pressure on the sellers sometimes leads them to accept less than they really wanted – sometimes a LOT less for the privilege of “Making a Deal” on TV. They can tell their friends about it! They’re famous! It’s their “15 minutes”! I wonder how they feel about it after they see the final, edited show featuring their trading acumen. Films and TV shows (and political ads) are all about editing – anyone can be made to look like a genius, a rube or a liar from the same live footage – it’s all in the editing. When you are watching, it is easy to forget that what you’re watching didn’t happen in real time, but in a series of live action scenes captured from different angles and at different times and then edited into a dramatic, coherent whole.

A recent episode of “Fast N’ Loud” had me pondering all of this and caused me to think about those archaic terms “honesty” (and especially) “integrity”.

The star of “Fast N’ Loud” is Richard Rawlings, the owner of Gas Monkey Garage - a classic car restoration and customizing shop in Dallas TX. He is described in the show opening as a “Hot Rod Hunter” and is shown traveling around the country looking at old cars for sale, often what are called “barn finds” – a car that has been sitting in storage for a long time, sometimes in a true barn, but more often in a garage or storage facility. They are invariably dusty, dirty diamonds in the rough. His job is to buy it (or them) for the lowest possible price for resale at the highest possible profit margin. Nothing wrong with that.

This episode featured a barn find full of classic Chevrolet Camaros and enough parts to assemble another barn full. It was the kind of find all us tire kickers dream about (not that we want to buy it, just that we want to witness the discovery, kind of like archeologists). The collection had been amassed by the seller and his wife over a period of 40 years or so – it was their shared passion. He had recently been widowed and decided that it was time to sell. Enter Richard Rawlings and the camera crew.

The seller wanted to sell everything – it was all or nothing – all the parts and all the cars. His asking price was $225,000. Rawlings’ counter bid was $150,000, and he said (off-camera) he knew someone who might be interested in the parts. The seller countered, asking $175,000. Somehow they ended up at $150,000 and shook on it (I did a double take right there on the couch – “Did I just see what I think I saw?”). I can only think the seller didn’t really have it in him to stick to his guns and gave in. But wait – it gets better – or worse, depending on one’s point of view.

The “guy who might want the parts” came on the scene – and right there in the seller’s garage (nothing had been moved) - said he’d take the whole deal and would pay Rawlings $200,000. So Rawlings hem-hawed once and said “done”. He re-sold something he’d owned for all of maybe 30 minutes (hard to know exactly) for a $50,000 profit without even lifting a finger. And of course, they had the obligatory “brag shot” where he celebrates his wheeling and dealing.

So you might say “Where’s the problem? Ain’t this America – the land of Caveat Venditor* and Caveat Emptor?” So here it is:

IF Mr. Rawlings was an honest dealer and had integrity, he would’ve done something like introducing the seller to his new buyer and letting the seller receive a better price, a 2/3rds retracement of what he had given up ($50k divided by $75k = 2/3). He could’ve asked the seller to pay him a finder’s fee for his efforts, 5% ($10,000) would’ve been generous. He did none of these. Instead, we are treated to the brag shot. I doubt that seller will be doing any bragging about the deal he made.

Another trader loses his shirt in the Market.

*Caveat Venditor: Latin for “let the seller beware” – it is the opposite of the more oft-quoted Caveat Emptor – “let the buyer beware”

noreply@blogger.com (Kim Miller, CFP®) — Thu, 13 Aug 2015 19:14:00 +0000

Q2 Commentary

Bid/Ask

I recently attended a televised auto auction – tire kicking for us tire kickers at its best. It’s like a neighborhood auto show but with money. There is some kind of perverse thrill in seeing a car you could’ve owned in your high school days for a mere $700 (used) go for $300,000 when paraded across the stage under bright lights with an auctioneer encouraging the bidding crowd in the bar area right up front. Makes one want to buy a bidder’s ticket just to hang out with the moneyed crowd. The psychology of these events is as fascinating as that demonstrated daily in the capital markets.

As always at these events, there were all kinds of cars and trucks – some in fully-restored show room condition, but many not - in the room. There were even several examples that are euphemistically called “20 footers” – i.e., “it looks pretty good from 20 feet away”. My fellow car nut companion and I enjoy playing “which one would you buy” – predicated on the idea that there would be no hindrance in wiring the required payment to the seller. The rules of the game are somewhat vague, as they’ve never actually been codified as Hammurabi or Parker Brothers might have, but we’ve winnowed it down to “if you could only pick one, which one would it be?”. There are inevitable comparisons drawn between years, makes, models, features, condition and other arcane minutiae such as “would I actually allow myself to drive it on the street?”. Many tire kicker types have a “the past must be preserved at all costs – including my own enjoyment – attitude” but we’re more practical. Why spend the money if you won’t let yourself enjoy it? This often leads to a discussion about drivability. Many of the cars we covet were built when doing 50 was considered fast. My daily commute requires 65+ just to stay out of the way – not a good environment for a classic mid-60’s Corvette with a 4 speed and a 4.10 read end gear ratio. Your fellow travelers on the freeway don’t care if you can smoke the tires for a block – but can you go fast enough to get out of their way – and stop in time when they do something stupid?

In contrast to the capital markets as currently conducted, the bidding at these car auctions is conducted live, in real time. An auctioneer with a classic auctioneer’s cadence which is barely intelligible except the price at the end of each phrase, cajoles the crowd to step up. Naturally, there is an emphasis on the “ask” – the next highest increment above the current “bid” or offer price. Sometimes you will see what looks like a perfectly good example of its kind stall out at well under what might be fair value and it rolls off the block unsold. The car didn’t sell because the seller’s reserve (minimum price) wasn’t met. At times, the seller is present in the crowd and the auctioneer will get him/her to drop the reserve: “the reserve is off!”. This sometimes results in another round of bidding as the buyers anticipate a “deal”. Here’s the kicker though: only the seller (and the auction house) knows what the reserve is (or was)! Car auctions are about as opaque as it gets when it comes to the seller’s asymmetrical information advantage. Even buying from a new car dealer nowadays is a fairly level playing field for an informed consumer who does his homework.

In contrast, the auction model in the capital markets is dead – people push buttons to activate computer programs to buy and sell with virtually no human intervention. Here’s a comparison of some of the salient elements:

Car Auctions		Capital Markets
	Participation:
In-person		Electronic

	Bar service:
Drink while you bid – make a mistake? What the hell – it was fun!		Only after markets close – make a mistake? You’re fired!

	Auctioneers:
Live - though largely unintelligible		Silent - though the occasional epithet can be heard

	Bid/Ask spreads:
Wide - enough to drive a Corvette through		Narrow – often less than a penny

	Seller’s information advantage:
High		Low

	Entertainment value:
High – view nice cars, watch someone else mess up		Low - try to avoid messing up

The capital markets aren’t the place to shoot the breeze while downing a few cocktails – save the fun stuff for a car auction.

noreply@blogger.com (Kim Miller, CFP®) — Fri, 29 May 2015 21:13:00 +0000

Q1 Commentary

Death and Taxes

“The only difference between death and taxes is that death doesn't get worse every time Congress meets.”

- Will Rogers

I’ll try to not get creepy with this, but Death has visited my family twice this year. My mother died in February at the end of a long decline due to Alzheimer’s. Her death was a blessing for her and the family and as near as I can tell, we’re all at or working towards peace. My father in law died in April following surgery he had in late February. The surgery was elective and his death thus preventable and unexpected. His family is at various stages in their struggle to come to terms.

Both of these people had once led vibrant, fulfilled lives. They had plans. They were going to “do things”. My father in law told me in the pre-op room of his plans “once I get out of here”.

I met an old friend of my mother in laws at a family memorial gathering last weekend. He said he was 86 and was looking forward to a trip he had planned to ride a jet boat down the Snake River – “it’s on my bucket list” he said. He went on to describe some of the other men who lived in the same assisted living facility as he and how they didn’t want to join him for a beer down the street because it wasn’t “on their diet”. He expressed amazement – “These guys are older than me! What else are they gonna do?”

By now you are probably getting the drift of where I’m going with this:

1. Life is short (shorter than you think).

2. Make peace with your family members. They love you in spite of yourself.

3. Do what you want, but do it.

4. Hell is full of regrets but there are no regrets in Heaven - they make you check them at the gate.

Now to business:

1. Consolidate your financial accounts to the minimum number needed.

2. Make sure your legal documents express your wishes. If they don’t, make a new set.

3. If your attorney tells you to make a list of your personal property with directions as to whom it is to be left, do it. (In all my years as an adviser I’ve yet to see one of these completed).

You thought I was going to say something about taxes didn’t you? :>

Making the Big Time

noreply@blogger.com (Kim Miller, CFP®) — Mon, 19 May 2014 23:23:00 +0000

Check this out: I made Brightscope's list at no. 62: Brightscope Top Social Influencers 2013

Innovation and the Need for Speed

noreply@blogger.com (Kim Miller, CFP®) — Mon, 19 May 2014 23:04:00 +0000

“The cars we drive say a lot about us.”

-Alexandra Paul

I’ve been doing a lot of reading lately on the operation of the stock market. Much attention is being paid to Michael Lewis’ latest book “Flash Boys” in which he lays out the argument that the U.S. stock market is rigged to provide several edges for professional traders, collectively called “high frequency traders” or HFT for short. Lewis’ book is merely the latest in a long line of books and white papers on the topic – you’ll find a list at the end of this commentary.

The stock market of today is nothing like the market that existed when I came into the financial business in 1982. In reading about the evolution of the stock market I started to look for parallels in innovation/change in other industries and the events that precipitated (forced) change and came to focus on the U.S. auto business. While the parallel is inexact (as most are) I think it interesting and instructive.

Innovation in the U.S. Auto Industry

I was born in the early 50s and came to know and love the U.S. cars of the 50s and 60s: Chevrolet, Ford, Chrysler, Studebaker, etc. As an aside, my family owned a 1958 VW Microbus, the first mini-van. We lived in Montana, and VW’s were so rare on the road at that time that owners would turn on their wipers in greeting an oncoming model.

In the 50’s and 60’s U.S. manufacturers were focused on competing on style differentiation and increased speed, not safety, reliability or economy. Cars were marketed as fashion, just like hemlines and changed as often. Going faster led to bigger engines and transmissions. In retrospect it seems like the rate of change in the auto business was slow, with most of the emphasis placed on “doing the same thing we did last year, but making it go faster and changing the style so buyers will feel left out if they don’t have the latest model”. A good example of this trend from the 50s are the so-called “Tri-Five Chevys” – the 1955, 56 and 57 Chevrolets that are distinct evolutions of the previous year’s style. You can pick any three or four consecutive years of the Chevrolet Corvette or Cadillac from the 50s or 60s and see the same ideas at work.

What changed to force innovation in the U.S. auto business in different directions? The rise of foreign competitors and the Arab oil embargo that started in 1973.

With the mass importing of foreign autos built by Volkswagen, Toyota, Honda and others, American consumers had more choices and those choices were less expensive and more economical than U.S. makes. The U.S. auto industry was initially slow to respond to foreign competition preferring their well-established path of “annual style changes and more speed”. Then came the Arab oil embargo in 1973. U.S. oil production had peaked in about 1970 and oil imports had become an increasingly-large portion of oil consumption in the U.S. The oil embargo forced consumers to evaluate the cost of getting around and U.S. autos were found to be seriously lacking in fuel economy in addition to a perceived quality gap. Innovation in the auto industry became focused on economy, safety and quality. The rate of change in autos picked up but not in the traditional style and speed categories. Car design became more homogeneous as the result of testing that revealed the “jelly bean” shape was more aerodynamic and thus more fuel-efficient. Consider auto design today – many cars on the road look very similar.

Consider the kind of car you can buy today for the price of a 1957 Chevrolet Bel Air which sold for $2,399. Adjusted for inflation, today’s price would be about $21,000. Style factors aside, the car you can buy today for that amount will be safer (disc brakes? seat belts? air bags? not in 1957), get better gas mileage (today’s V-8 engines have better fuel economy than the venerable Chevy 283) and be more dependable.

Bottom line: The U.S. auto industry would never have changed the direction of innovation without the influence of forces beyond their control: foreign competition and the Arab oil embargo. As a near-direct result, cars today are of uniformly higher quality, safer, more fuel efficient and a better comparative value for consumers.

Innovation in Stock Trading

The U.S. stock market essentially began as a gentleman’s club in New York City following the Revolutionary war with the signing of the “Buttonwood Agreement” which established a brief set of rules for trading securities. The Agreement was designed to reduce competition from “auctioneers” who were under-cutting the brokers trading in the New York Stock and Exchange Board. Virtually all securities trading in New York took place on what came to be called the New York Stock Exchange (NYSE). Stock exchanges were later opened in Philadelphia, Baltimore, Cincinnati, Chicago, San Francisco and other major U.S. cities.

These exchanges were organized as “open outcry” or “auction” markets. Your order to buy or sell stock on the NYSE would be taken to the Specialist (aka market-maker) who handled that stock and your order would compete with the other orders for the same stock. Your order was handled by people who dealt with other people. Specialists were broker-dealers who executed orders for customers and were required to maintain an orderly market in the stocks in which they specialized (hence the name). Maintaining an orderly market meant the Specialist was required to “make a market” in the stocks on his order book: to buy when there were no buyers and to sell when there were no sellers. For this responsibility, the market-maker/Specialist was allowed to earn a commission on the trades and to trade for his own account. For years, the NYSE had no real competitors and the majority of U.S. stock trading took place there.

In 1971, the National Association of Securities Dealers (NASD) opened the first electronic stock market – the National Association of Securities Dealers Automated Quotations (NASDAQ). The NASDAQ market was still run by people (though most of the trading was done by computer) and the NASDAQ market-makers were required to maintain an orderly market in the stocks for which they provided quotes – like the Specialist on the NYSE, they had to buy when there were no buyers and sell when there were no sellers. Like the NYSE Specialist, the NASDAQ market-makers were allowed to earn a profit on the trades passing through their books.

Nothing much changed until the mid 1990s. By this time there were a few more electronic markets, called “ECNs” for Electronic Crossing Markets which were designed for institutional traders such as pension funds and mutual fund companies. Changes in stock trading became driven by speed – the auction markets like the NYSE were “slow” and even the NASDAQ was slow by today’s standards. Differences between prices in different markets began to widen due in part to the asymmetry of information flow and traders sought ways to make money on the difference.

Needless to say, stock trading became faster and more dependent on computers than people. Your trades today are handled by computers dealing with other computers. Driven by the desire for faster trading on the part of market participants and the desire for fair markets on the part of the market regulators, a handful of landmark regulations and changes (including stock trading priced in pennies – “decimalization”) were implemented in the later 1990s and the 2000s. The New York Stock Exchange as we knew it ceased to exist in 2007 when it was converted to fully computerized trading. The floor of the exchange today exists only as a prop for television. Trading on the NYSE takes place in a large computer facility located in New Jersey.

The rise of computerized trading has led to the U.S. stock market being fragmented into more than 50 different trading venues. Market-making and the role of the NYSE specialist no longer exist. Trading is now controlled by ”liquidity providers” – broker-dealers (many of whom used to act as NYSE Specialists or NASDAQ market-makers) who stand ready to buy and sell stock but who are not required to do so. To participate in the markets these liquidity providers need only provide quotes at which they will buy and sell, but when prices aren’t moving in their direction, they simply cancel their quotes – essentially exiting the market - and the liquidity they were providing disappears. It is this kind of behavior that caused the Flash Crash of May 6, 2010 during which the Dow Jones Industrial Average dropped over 700 points in less than three minutes before recovering in nearly the same amount of time. Given the current structure of the markets, the occurrence of similar future crashes is highly likely.

Innovation in stock trading has been focused on speed and the markets today are more like a high-speed casino in which HFT firms earn billions of dollars every year basically scalping pennies all day long at the expense of other investors.

Bottom line: The drive for innovation in stock trading is still focused on speed, although there are signs of change (see Lewis’ book for details). We believe that a change in innovation will be forced on the U.S. stock markets but we don’t know what event or series of events will force that change in innovation as foreign competition and the Arab oil embargo forced a change in innovation on the U.S. auto business.

Reading List:

Title Author/s

Flash Boys Michael Lewis

Broken Markets Sal Arnuk and Joseph Saluzzi

Dark Pools Scott Patterson

Inside the Black Box Rishi Narang

The Quants Scott Patterson

The Problem of HFT Haim Bodek

If time is short – and when isn’t it? – Flash Boys is probably the most “reader friendly” book on the list. If you are patient, you can get it (and the other titles) at your local library for free.

The End is Coming (Sooner Than You Think)…

noreply@blogger.com (Kim Miller, CFP®) — Tue, 22 Oct 2013 22:14:00 +0000

“This is the end, my only friend, the end.”

“The End” – The Doors

Ok, it’s not the Apocalypse – that was last week with the Shutdown Showdown in WA D.C.

Seriously, it’s that time of year when steps you take before the end of the year can make a difference when you file your 2013 income tax return.

Have you fully funded your 401k for the year yet? The contribution limit for 2013 is $17,500 and if you are age 50 or over you can add another $5,500 for a calendar year total of $23,000. If you are contributing at an amount that will not hit either of these totals by December 31, you still have about four paydays – five if you get a separate bonus – to increase your contributions.

For W-2 employees, contributions to a 401k plan are done on a calendar year basis – once the year is up there’s no going back.

The annual contribution limits apply whether your 401k is pre-tax or post-tax (Roth) or a combination. Tip: if you have a Roth option, split your contribution between pre-tax and post tax. The current tax savings on the pre-tax contribution will offset the taxes you pay to make the post-tax contribution (for the most part). After retirement, the Roth contributions and related earnings come out of the plan tax free (see earlier blog post “To Roth or not to Roth”).

You can easily check your progress: your paycheck remittance advice (commonly referred to as your “paystub) should have your YTD 401k contributions listed.

Good luck!

Do You Suffer from A.A.D.D.?

noreply@blogger.com (Kim Miller, CFP®) — Wed, 13 Feb 2013 23:23:00 +0000

"I was trying to daydream but my mind kept wandering."

- Steven Wright (comedian)

You have probably heard about Attention Deficit Disorder (ADD) or Attention Deficit Hyper-Activity Disorder (ADHA) but I’ll bet you have never heard of American Attention Deficit Disorder (AADD). That’s because I made it up. That makes this Commentary a world premiere!

So by now you’re probably asking yourself something like “Kim, what the heck is AADD and why would you make up something like that?” The answer is simple – I am a sufferer - just like you. “What? I never heard of this, how could I have it?”

Again, the answer is simple. You and I live in America, the land that created and sustains AADD. And it mutates, becoming more virulent – every day. Don’t believe me? Turn on the TV. Turn on the radio. Boot up the internet to any webpage.

Admit it – your attention is demanded, divided, diverted, crushed, spindled and mutilated every second of every day, even Sunday (Meet the Press? NFL football? 60 Minutes?). You’ve heard of the “24 Hour News Cycle” – what about the “24 Hour Ad(vertisement) Cycle” – or the “24 Hour Social Media Cycle” - we are bombarded with messages demanding our attention all day, every day.

In America, we are PLUGGED IN. Someday in the future, people will have a chip implanted somewhere that brings in all the sources, all the time. Smartphone? Pffttt. Google H.U.D. glasses? Pffttt. It’ll be embedded under your scalp or in your arm. Like “Johnny Mnemonic” or Neo in “The Matrix” we’ll have a plug-in somewhere.

I have become a slave to my Smartphone (Apple’s iPhone 4 if you want to know). I can’t walk from my car to the grocery store without being sure the damn thing in is my pocket. Someone might call me! Someone might TXT me! Someone might email me! I might need to check my calendar! Someone might send me an amusing picture! Of cats! (Please, no – I am not amused by cat pictures). I might need to check my Facebook page! I might find something amusing to tweet on Twitter! I might need to take a picture of something - and then send it to all my friends! I might need to check the stock market futures! And I can do ALL of that while I wander the aisles at the local QFC. Some people might call this “being productive” or “multi-tasking”. No, it is AADD in full bloom.

I am the most plugged in person I know and I’m sure I’m a lightweight compared to others. It is driving me nuts. How about you?

How much of all of this is nothing more than a big waste of time? I guess it depends on whom you ask, but if you were to ask me I’d say “pretty much all of it”.

What purpose does all of this distraction serve?

It’s a drug. A drug that is intended to keep you distracted from what is really important in your life. If you are distracted, your judgment is impaired. You will spend money you didn’t mean to spend. You will spend more money than you intended. Think about the last time you went to say, Costco or Whole Foods. Or the last time you bought a new car. At Costco, the official name of this distraction is the “Treasure Hunt” – inventory is arranged and rotated so as to get you in the mood to wander the aisles to “see what they have this time”. At Whole Foods - which should be called “Whole Food Circus” – the arrangement of the various departments and color schemes and even the music are all designed to put you in the mood to wander the aisles. Ever get into a “discussion” with a new car salesman? It’s not a discussion. It’s a distraction to find out more about you so they can find the key to selling you on walking out with the keys right now. Here’s a tip: never wear clothing with any kind of logo on it when you shop for a car. It will be used against you.

AADD will also cause you to spend less time with your friends and family. I’ve had family members ask questions such as: “Are you checking your email right now? [Guilty!] Put that down!” [me in a small, sheepish voice] “uh, ok”.

When I first got my Smartphone, I thought “I’ll never be able to read stuff on that little screen.” Well guess what – I adapted without even thinking about itand now I read lots of “stuff” on that little screen. I’m hooked! Somebody help me! There should be a 12-step program for AADD!

So if you’ve read this far (lucky you!) you might be asking yourself “what does this have to do with investment management?”

I contend that AADD causes people to make poor investment decisions. Sometimes AADD causes me to make poor investment decisions. It gets difficult to separate the signal amid all the noise and distraction that emanates from the 24 Hour News Cycle, the 24 Hour Ad Cycle, the 24 Hour Social Media Cycle and the Wall Street Machine. But I keep filtering – as should you - the tsunami coming at me. Pick the important things to lavish your attention on and ignore the rest.

Some suggestions to combat AADD:

Avoid TV – use it as a tool, not background – cancelling your cable service might seem extreme but it saves money and more importantly, time;
Read more books – suggestions: “The Signal and the Noise”, “The Behavior Gap”, “Thinking Fast and Slow”, “Wait”, “Extraordinary Popular Delusions and the Madness of Crowds”, also, anything by Dickens - reading about the misery of life in 18^th and 19^thcentury England makes me feel more fortunate;
Leave your Smartphone behind for social engagements, family outings and recreation;
Listen to more music – there are several internet services that provide large catalogs for free (with a few commercials) or no commercials for a monthly fee;
If you play an instrument or write poetry or songs or have some other creative outlet – do it more often;
Attend live events – theater, music, Cirque du Soleil, Teatro ZinZanni, Trivia Night at your local pub, Open Mic nights for music and comedy;
Spend more time with family and friends;
Get outside – walk, run, ski, bike, row!

Call me – I’ll join you in any of these – and good luck!

The 12 Days of Debtor's Christmas

noreply@blogger.com (Kim Miller, CFP®) — Wed, 28 Nov 2012 07:22:00 +0000

On the first day of Xmas my true love gave to me

A paper bag tied up with a string

On the second day of Xmas my true love gave to me

Two bounced checks

And a paper bag tied up with a string

On the third day of Xmas my true love gave to me

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the fourth day of Xmas my true love gave to me

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the fifth day of Xmas my true love gave to me

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the sixth day of Xmas my true love gave to me

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the seventh day of Xmas my true love gave to me

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the eighth day of Xmas my true love gave to me

Eight Ichiro bobbleheads – a steal!

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the ninth day of Xmas my true love gave to me

Nine mis-matched sox (they were on sale!)

Eight Ichiro bobbleheads – a steal!

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a brown paper bag tied up with a string

On the tenth day of Xmas my true love gave to me

Ten Tulley’s gift cards

Nine mis-matched sox (they were on sale!)

Eight Ichiro bobbleheads – a steal!

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

On the eleventh day of Xmas my true love gave to me

Eleven transaction denied debit card slips

Ten Tulley’s gift cards

Nine mis-matched sox (they were on sale!)

Eight Ichiro bobbleheads – a steal!

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a brown paper bag tied up with a string

On the twelfth day of Xmas my true love gave to me

Twelve ringing headaches

Eleven transaction denied debit card slips

Ten Tulley’s gift cards

Nine mis-matched sox (they were on sale!)

Eight Ichiro bobbleheads – a steal!

Seven copies of “How Not to Spend too Much at Xmas for Dummies”

Six empty six packs

Five Master Cards! – with $39 left on the credit limit!

Four expired Amex cards

Three past due Visa bills

Two bounced checks

And a paper bag tied up with a string

Election-Related Investing Themes

noreply@blogger.com (Kim Miller, CFP®) — Wed, 24 Oct 2012 23:17:00 +0000

By now you know that America is electing a new president on November 6. No matter which side one is on, we know that one of the candidates is going to be elected. Like me, you may be asking yourself – “What are some of the possible effects on investing and will those effects be different depending on the winner?”

As you may know, it often is not the event itself that moves markets but the perception of the effect the event may have. The 2012 election is no different in this regard, so ignore the promises let’s focus on the likely outcomes.

Here are the Big Picture issues as we see them from an investment perspective:

Issue	Obama Re-Elected		Romney Elected
Regulation Environment Financial	Minus Neutral or minus		Plus Plus
Energy Carbon Alternative Nuclear	Neutral/mild minus Plus	Neutral	Plus Minus
Tax	Neutral/mild minus		Neutral/mild plus
Social Security	Neutral		Mild plus
Medicare	Plus		Minus
Medicaid	Plus		Neutral
Fiscal Cliff Tax Rates Sequestration	LT minus LT minus	ST Neutral	LT plus LT plus
Health Care Hospitals Doctors Med Technology	Plus Minus Minus		Minus Plus Plus
Defense	LT neutral/minus	ST Neutral	LT plus
Exports	Plus		Minus

ST = Short Term – less than 6 months

LT = Long Term – more than 6 months

Drill-down to sectors/industries:

Sector/Industry	Obama Re-Elected		Romney Elected
Oil & Gas	Neutral		Plus
Coal	Minus		Plus
Alternative	Plus		Minus
Financials	Neutral/mild minus		Plus
Transports Autos Rail	Minus Minus		Plus Plus
Health Care Hospitals Pharma Med Tech	Plus Neutral/Minus Minus		Minus Plus Plus
Defense	LT Minus	ST Neutral	LT Plus
Exports Aerospace Technology Autos Food Agribiz Processers Machinery Sofware/IT Nat Gas	Plus		Minus
Housing		Neutral

Fiscal Cliff Diving

noreply@blogger.com (Kim Miller, CFP®) — Wed, 24 Oct 2012 23:14:00 +0000

“A committee is a group of people who individually can do nothing, but who, as a group, can meet and decide that nothing can be done.”

- Fred Allen, comedian

Got a problem? Form a committee to study it. The committee will study the problem for as long as it takes. The “take” usually involves large sums of money and when the committee is in Wash D.C., the money involved is yours and mine.

You’ve probably heard plenty of press about the coming “fiscal cliff” that the U.S. is marching towards on December 31, 2012. The problem is a “two-fer”, meaning there are two parts:

Part One is the result of our leaders kicking the can down the road in December, 2010 to wiggle out of their inability to come to grips with the expiring tax policies of the previous administration. A deal was cut to extend most of those policies for two more years to December 31, 2012 (but see below for items that may affect 2012 income taxes).

Part Two is the result of our leaders kicking the can down the road in August, 2011 to wiggle out of their inability to come to grips with the expiring U.S. government debt ceiling. A deal was cut to force “severe” budget cuts in a broad swath of government spending if a Joint Congressional Committee couldn’t agree on what those cuts should be. The Committee was unable to agree on the cuts and here we are arriving at the date on which the mandatory budget cuts are to become effective – January 1, 2013.

BONUS! More provisions of the Patient Protection and Affordable Care Act - aka “Obamacare” – go into effect January 1, 2013. We’ll provide more details about these provisions in a special commentary after Election Day.

I don’t know about you, but I’m detecting a pattern here. It’s almost a perfect storm, a financial Katrina. You will continue to hear much hand-wringing and demagoguery from Wash D.C. about these issues because it is election season.

What You Need to Know Now

Most of these issues will not be dealt with until 2013 nor is earlier action necessary. However, some of the income tax items on the list may – if not dealt with before year end 2012 – affect taxes due for 2012. The following two are probably of the most importance to you:

Alternative Minimum Tax (AMT) Exemption – The AMT is a separate tax system that imposes a flat tax rate on certain taxpayers. The law contains an exemption amount (sometimes called a “patch”) which offsets the AMT for many taxpayers. However, the exemption has not been adjusted for inflation so unless it is increased by Congress, as many as 27 million additional U.S. households will be subject to the AMT in 2012. The AMT exemption was increased for tax year 2011 as part of the 2010 deal, but an increase for 2012 was not included. If you are subject to the AMT in 2012, your total income tax bill will be higher than otherwise.

Itemized Deduction for State and Local Sales Tax – Most states impose an income tax on their residents (only seven states – including Washington - do not). State income taxes are allowed as an itemized deduction but an itemized deduction for sales tax paid has been at the whim of Congress. A deduction for sales tax paid in 2011 was included as part of the 2010 deal, but not in subsequent years including 2012. If you are not able to take a deduction for state sales taxes in 2012, your total income tax bill will be higher than otherwise.

I have to think that our leaders aren’t so polarized that they can’t get something done about these issues before year end. But they might not.

What You Can Do About It

If you are working with a CPA or other tax professional, you should contact them to get their input on how these items might affect your taxes for 2012. We can provide a CPA referral if you like.

We intend this information to be informative, not alarmist. Nothing will be done in Wash D.C. on these issues until after the election. The 2010 tax deal was signed into law December 17, 2010 and we expect anything done this year will follow a similar timeline.

I have to think that our leaders will take the pragmatic approach and solve these issues before year end. Let’s hope they do so.

What I Learned Serving Beer for a Day

noreply@blogger.com (Kim Miller, CFP®) — Thu, 26 Jul 2012 00:03:00 +0000

“Beer. Now there's a temporary solution.”

- Homer Simpson

(voiced by Dan Castellaneta on The Simpsons)

My son Sean (25 year old college graduate) was recently hired for what is arguably the dream job of every 25 year old: beer salesman. His new employer, Georgetown Brewing is the third-largest beer maker in the State of Washington. Their primary claim to fame is Manny’s Pale Ale served by a large - and growing - number of venues in the Pacific Northwest.

Myself being more of a wine connoisseur (red, please) I haven’t spent much time delving into the culture of beer. This was about to change.

One marketing method employed by many if not all of Washington’s indigenous brewers is to serve their product at beer festivals around the state. My son was assigned to the Bremerton Beer Festival sponsored by the Washington Brewer’s Association to be held on July 21^st. Due to other scheduling conflicts, no one else from the brewery was available to help out. None of his friends – beer connoisseurs all – were interested in helping him for free – not to mention the prohibition against helping oneself to the product during the work shift of nine hours (plus set-up and travel time). There being no takers, my participation was solicited. Hey, what are Dads for anyway?

The Festival was to be held in downtown Bremerton about one block from the ferry dock with a start time of noon. Since I was the grunt, I let my son take the lead and he decided to drive around rather than risk missing the ferry by one minute and thus having to wait an hour for the next one. He was concerned about being late for setup and, not knowing exactly how the event would be conducted, he decided that we would leave the house by 6:30am to allow enough time to load up at the brewery and make our way to the event. We loaded up the company truck and hit the road, stopping at a near-by McDonald’s for our favorite quick breakfast: Egg-a-Muffin and coffee. The rest of the drive was uneventful (tolls on the Narrows Bridge are only collected going the other way) and we arrived at the event at about 8:30. We weren’t the first brewers there but were definitely among the first group. It turned out to be a well-run event. Our extra kegs went right in a cooler and they had plenty of ice on hand to keep the serving kegs cool and to fill the “jockey box” – basically a Colman cooler filled with coils for circulating the beer through the ice pack and taps for serving. You can see our jockey box in the picture above taken shortly after we finished our setup at about 9. Each brewer was assigned to a tent shared with another brewer. Our partners were the Roslyn Brewing Company from Roslyn. Like us, they were a pair of one company guy and one non-company helper. So, what do you do in downtown Bremerton with three hours to kill? More coffee.

The gates opened promptly at noon and within five minutes we had our first customer. At most festivals of this type your admission includes a small glass (5 oz. or so) and 5 or 6 tokens (wooden nickels!) good for one fill each. They tell you what they want (we had two selections) hand over their token and we pour them a beer and answer questions about the product. I now have a slight understanding of what an “International Bittering Unit” is.

The glass and token are the sole means of exchange. The rules are simple; no glass or no token: no beer. The Liquor Control Board is watching. They introduced themselves early in the day and were seen walking through the event more than once in the afternoon. Later in the day we had many people show up with their glass but no token. One trick when you’re low on tokens is to not offer it thereby requiring the server to ask for it (hoping he won’t) or to act like you’ve dropped it in the box without actually doing so. Late in the day we had one repeat customer who showed up with a token but no glass. She wanted us to fill up one of our water bottles for her – a definite no-no. She couldn’t tell us what had happened to her glass. The exception to the rule is provided by the festival in the form of a few free tokens they gave us for “friends and family”. We ended up using these for repeat customers as a good will gesture. If you see the same guy or gal coming back for five refills he or she must like your stuff! The beer business is all about hospitality – free beer obviously reinforces that.

Our business was steady all nine hours. No matter how nice the people are though, standing on your feet all day becomes a challenge. Except for bathroom breaks and a trip to the only food stand at the event (hot dogs) neither of us left our tent. It became a case of “mind over matter” until last call at 8:30. Our friends from Roslyn informed us of the next ferry time – 9:05 - you never saw four guys work so fast to get packed up. The ferry doesn’t save much time but it does save the effort in driving. It was a relief to simply sit down for an hour.

So what did I learn from this experience?

· Arrive early – it avoids anxiety

· If you’re not the leader, clam up and follow

· Beer drinkers are a pretty relaxed bunch

· Beer drinkers who’ve had too much are very relaxed

· If your pour has more than ½” of head on it, start over

· When supply is low (e.g., no token) demand responds with creativity (“Please, it’s just one!” or “C’mon, I REALLY like your stuff!”)

· When you get a compliment, accept it gracefully with something like “We love to hear that!”

· Follow the rules – you never know who is watching

· A little customer service goes a long way – “How’s your day going so far?”

· And lastly, if this financial advisor gig doesn’t work out, I know I can get a job pouring beer.

Application in client relationships

· Be prepared for meetings ahead of time – it reduces anxiety

· Talk less, listen more

· Be relaxed

· Be creative in meeting the needs of others

· Always act with integrity

· Accept compliments gracefully

· Always look for ways to improve the client’s experience and satisfaction

Wiping Out $90,000 in Student Loans in 7 Months

noreply@blogger.com (Kim Miller, CFP®) — Mon, 21 May 2012 18:08:00 +0000

(from the Wall Street Journal May 21, 2012)

[NOTE: this guy was extremely motivated to pay off his student debt asap. He made lifestyle decisions including taking a 2nd job to do so. Not everyone has a 6 figure salary, but the lessons still apply. Kim Miller, CFP]

By Josh Mitchell

Economists are increasingly worried that many young Americans will spend coming years buried under student debt. Joe Mihalic was determined not to be one of them.

Faced with $90,000 in student debt from his days at Harvard Business School, Mihalic vowed last August to eliminate every penny by this summer. He did — three months early.

The 29-year-old from Austin, Texas, is now becoming an Internet celebrity of sorts as financial advisers and young Americans link to his blog, NoMoreHarvardDebt.com, which had 180,000 hits as of Thursday morning. His story is touching a nerve at a time when young Americans are more indebted than ever.

So how did he cut through $90,000 in seven months? It helps to have a low-six-figure salary, as Mihalic does working for Dell Inc. But he also recommends getting roommates, a second job (in his case, landscaping), forgoing all restaurant dining (even McDonald’s), selling all unnecessary items around the house — and getting a flask.

Mihalic said he spent months taking a flask of liquor to bars so he could continue to go out drinking with friends without running up a tab. (Be warned: this is typically illegal.) Instead of the movies, he took dates out hiking, or for bagels and coffee. He ate protein bars packed from home and walked several miles to the city, to save a few bucks on transportation, during a trip to Michigan. He got two roommates to rent out his house.

Mihalic also took steps that financial advisers typically say are a no-no: He liquidated his individual retirement account, drawing a tax penalty, and stopped contributing to his 401(k), even though his employer offers a matching contribution.

“My mentality was I want to be done with these student loans as quick as possible,” Mr. Mihalic says in a phone interview, adding: “It was an emotional decision.”

He made his last student-debt payment six weeks ago. He said he saved roughly $40,000 in interest that he would have paid had he stayed on the 15-year schedule for repayment of his loans.
He says he learned other lessons, too.

“The flask thing, it’s kind of demeaning,” he says. “The funny thing is that girls weren’t really sketched out by it…They did laugh, and I could still get their phone number. It taught me a lot — you don’t have to be this flashy dude, buying drinks.”

Student Loan Debt

noreply@blogger.com (Kim Miller, CFP®) — Sun, 20 May 2012 19:32:00 +0000

I was quoted in an article in today's Seattle Times (May 20, 2012) about financial advice for people dealing with student loan debt. http://tinyurl.com/6n8jkbv

To Roth or Not to Roth, That is the Question

noreply@blogger.com (Kim Miller, CFP®) — Thu, 17 May 2012 17:23:00 +0000

We often get the question: “I have the option of making Roth (post tax) contributions to my 401k – should I do that? How should I decide?”

Without getting into all the minutiae of current tax rates vs. future tax rates, tax inclusive vs. tax exclusive and marginal rates vs. effective rates, the easy answer is: do some of each.

You can use the tax savings generated by the pre tax contribution to pay the taxes on the post tax contribution – and, you can arrange the mix of each so that it is tax neutral.

If tax neutrality is your objective, then the actual mix of pre and post tax contributions varies a little depending on your tax bracket. To keep it simple, we’ll show one example using the 28% tax bracket:

Maximum 401k contribution $17,000

Pre tax $ 9,884 saves $2,768 in taxes

Post tax $ 7,116 costs $2,768 in taxes

Total contribution $17,000

Net tax cost $-0-

Net contribution cost $17,000

What if you don’t have a Roth option in your 401k? You can use this same logic to fund a Roth IRA – the pre-tax contribution to the 401k can offset the taxes you pay to make the Roth IRA contribution. The math is the same.

At retirement when you withdraw your funds:

·        the pre tax funds plus related earnings will be taxable
·        the post tax funds plus related earnings will be tax free
·        ALL employer matching contributions plus related earnings will be taxable (regardless if the match is to pre tax or post tax contributions)

Lotto Fever

noreply@blogger.com (Kim Miller, CFP®) — Wed, 18 Apr 2012 22:38:00 +0000

“How come you never see a headline like 'Psychic Wins Lottery'? “

- Jay Leno

I was gonna clean up! I would be walking down the streets of Seattle handing out $100 bills to everyone – everyone! I’ve been here before, but $600 Million? Huh-uh. So I bought four chances – my world was going to change in a big way. I was sure of it – damn sure. So sure in fact, I was tempted – very tempted - to buy more chances. I’m sure of one thing now: I didn’t win. But up to the point where my logic kicked in, the fantasy going on in my head was exhilarating, intoxicating. It was indulgence pure and simple, and I rationalized it by telling myself that everyone else in the country was dreaming the same dream. Call it a collective dream.

A similar dream has taken over the stock market: call it Apple Fever. The price of Apple stock was $405 at the close of 2011. It was $600 at the end of March – a 48% rise in just 3 months. Headlines of “Apple to $1,000” started to appear. At one point Apple represented 4.5% of the total market value of the S&P 500 Index – bigger than the perennial leader Exxon. Apple stock is the largest or second largest holding in six of the ten largest mutual funds in the US. Anyone invested in a large company mutual fund or large company index fund owns shares of Apple. “Apple” is on everyone’s lips. If you want to see it in real time, check out www.stocktwits.com with the symbol $aapl or www.twitter.com with the symbol #aapl. We are all invested in the price of Apple going higher. The collective investment dream is almost palpable.

Lotto Fever broke with the actual drawing of the winning numbers – “Whattya mean I only had one number?”. Except for the lucky winners, the collective dream ended, we all woke up, and I was glad it was only four chances thrown away and not 40.

For better or worse, Apple Fever has yet to break and unlike the Lotto, there is no “final drawing date” - only higher or lower prices.

What’s my takeaway? Avoid catching fever, dream your own dreams.

Financial Cartography

noreply@blogger.com (Kim Miller, CFP®) — Fri, 30 Mar 2012 20:20:00 +0000

“When you come to a fork in the road…take it.”

-Yogi Berra

Many people who engage our services have only a vague idea of “where” they are going or how they will get “there”. We like to use the analogy of a jigsaw puzzle or a map to describe what financial cartography is and what it does. Think of putting together a jigsaw puzzle without a picture of what the finished puzzle should look like – pretty tough, huh? The financial lives of many people we meet resemble that jigsaw puzzle – all the client knows is they have a box of puzzle pieces but they don’t have a picture of what the finished puzzle should look like. And, without that picture they feel anxious about putting the pieces together.

Financial Cartography™ describes the series of processes by which we help clients determine their dreams, goals and objectives with the end result producing a financial map for their lives. We find that as this map is drawn, re-drawn and refined with new details, that clients become more engaged in planning their futures and discover that they do have the power to decide where they are going and how they will get there. When the map is completed to your satisfaction, we integrate the aspects of financial planning into your map so you can reach your objectives along the way.

Financial Cartography™ is not “retirement planning”, but life planning. “Retirement” is just a tactic for living a period in one’s life. Living a happy and fulfilled life is the ultimate goal and retirement is merely one part of that life.

Here’s another way to look at it: remember the last time you took a long trip in your car? What was that one thing you made sure you had before you left? A road map, perhaps? "Here we are at Point A, and here is our destination at Point B."

You knew exactly where you were going.

You checked the route ahead of time.

You carried a reference guide with you.

You had a pretty good idea of how long it would take.

You made note of any sight-seeing opportunities.

You packed a first-aid kit.

You packed food and drink.

You checked your car's maintenance items.

You gassed up on the way out of town.

Etc, etc, etc.

The point is - you did everything you could think of to ensure that the journey would be as pleasant as possible, that you would see the sights along the way and that you would arrive safely at your destination. That’s what Financial Cartography™ will do for you in making your financial decisions.

Survey Your Lifescape

”One does not grow old until he believes he has more to look back on than he has to look forward to.”

-Maurice Chevalier

The following questions are designed to help uncover your core values and beliefs, fulfillment of which will allow you to live a happy and fulfilled life. Please use the added blank pages if you need more room.

You win $100 million in the lottery. What would you do with the money? What would you change in your life? What would you do differently?

If you knew you only had five years left to live, what would you change in your life? (Assume that you would be healthy right up to the end and that you would not know the exact date).

If you found you had only 24 hours left to live, what would you regret not having done, regret not having had, or regret not having been in your life?

What is important about money to you?

What do you like most about your job?

What do you like least about your job?

If money were no object, how would you spend your time?

What do you most look forward to about the future?

What is your biggest fear about the future?

What causes are important to you?

If time/money were not an issue, would you volunteer? If so, what would you do?

How do you visualize your life in your 60’s, 70’s 80’s and beyond?

What does retirement look like to you?

What would you be retiring to? Where would you live in “retirement”?

What would you want your obituary to say about you and your life?

How do you want to be remembered?

Draw Your Map

“Begin with the end in mind.”

- Stephen Covey

Start with the age to which you want to live e.g., 95. What will your life look like between now and then? More importantly, what do you WANT your life to look like between now and then? Imagine the series of events you’d like to see take place each year between now and your assumed mortality – what are those events and when will they happen? Write them down. For example, give yourself a page for each year and fill up as much of each page as you can. Your subconscious mind responds to specifics, so be as specific as possible. It may be easier to start with a few items for each year and then come back and fill in the details as you get into it. Take your time – it’s your life.

30 Mileposts on the Roadmap of Life

noreply@blogger.com (Kim Miller, CFP®) — Tue, 27 Mar 2012 21:10:00 +0000

“Begin with the end in mind.”
- Stephen Covey

I had the privilege of attending a retirement celebration for the CEO of a not-for-profit retirement community where I serve on one of their management boards. He gave a short speech during the event and as I was listening, it struck me that the list he laid out had application as more than merely workplace aphorisms; that at its core it was a roadmap to a well lived life. I’ve edited a few of the items to enhance their universality. With permission, here is your roadmap:

1. Embrace opportunity. At times you have to step out of the way and let things happen.

2. Don’t jump to conclusions. Always give people the benefit of the doubt.

3. Act with fairness and respect. Require that of others.

4. Listen with an open mind. Listen a lot; talk a little.

5. Sometimes people simply want to be heard, even if things don’t go their way.

6. On any subject, there are always people who know more than you (they may even be close by).

7. You don’t always have to be right in order to lead effectively.

8. Rarely is the CEO 100% right.

9. Admit it when you’re wrong, or if someone has a better way.

10. Empowerment is critical in an effective organization.

11. Micromanagement is insulting and deadly.

12. Participation of the leader has symbolic impacts – be careful with that.

13. We are all equals. Only talents and assignments vary.

14. Recognize and honor talent.

15. Much of what you do sets precedents in memory, ethics and records – that’s why having and following established policies is important.

16. During difficult times, remember that “this too shall pass.”

17. Your life clock is ticking at work also. At a full-time job, you live at least ¼ of your life there. Think and act according to how good you want that ¼ to be.

18. Anger weakens you. Remember that any anger you feel is generated by you, and not thrust on you by others. Curb it.

19. Trust is fragile – slowly established, and quickly torn down.

20. You can’t please everyone. Show respect to those you can’t please.

21. There is business strength in diversity and a variety of compatible styles.

22. Try to learn something from all people and situations.

23. Don’t burn bridges. Sometimes you find yourself crossing back over.

24. Truth is powerful and essential. If you always tell the truth, it isn’t difficult to remember what you said.

25. If you always speak with truth and respect, you don’t have to worry about who heard or talked about it.

26. Never underestimate what you can do if you really try.

27. Think before you speak. Words don’t go backwards.

28. Effective leadership requires the respect of those led.

29. Fame is fleeting. Doing the right thing endures.

30. All leaders have their time. Step down when that time is up.

30 ideas © 2012 R. Tomlinson