It’s March and that means basketball. This year is a bit odd in that the entire NCAA Men’s Basketball tournament is being played in Indiana and to make matters worse my alma mater, Indiana University, isn’t even in the tournament.
However, a record nine Big Ten teams made the final 64 so all should be ok, right? Not exactly!
Either these nine teams were grossly over rated, or the Big Ten teams had the worst seedings possible or both. Eight of the nine teams were beating in the first two rounds. Thankfully, Michigan came back to win against LSU, and we have at least one representative of the Big Ten in the final sixteen. Now folks that is embarrassing!
So, in my embarrassment, not just for the Big Ten but for my now long-suffering Hoosiers, I set to work to figure out what was wrong with Big Ten Basketball.
How could so many strong teams be eliminated so quickly?
My unscientific conclusion after watching several games was that the Big Ten lacked 3-point shooters and was too focused on the inside 2-point game.
Here is how the game has changed, according to Teamrankings.com, the average team shoots 37.7% from 3-point range while only 33.47% from 2-point range. Why on earth if those stat lines are true would you ever shoot a 2-point shot again?
Now we know why? If all you shot was 3-point shots defenses would adjust and cut it off completely. However, the 3-point shot opens up the lanes and the middle of the court. This allows the centers and forwards to dominate inside at an even higher shooting average. One works to help the other!
So, what does this have to do with wealth management?
Answer – a lot!
We have 3-point shots in finance that have better odds than shorter 2-point shots just like in NCAA Basketball. The clearest are the following:
I am sure this is just the tip of the iceberg as far as odds go, but their what come to mind immediately!
Let me know if you can think of any other 3-point shots in personal finances that defy the odds!
(Tampa, FL) InTrust Advisors, Inc. is pleased to announce Keith Hruby, MSF, AAMS® as the newest member of our team.
According to Jeff Diercks, the Founder and Managing Director of InTrust Advisors, "Keith brings valuable experience having served affluent families across the country. Keith brings a comprehensive understanding of tax and investment planning and how they relate to developing a holistic, effective financial plan."
Mr. Diercks said further that "Keith has 10 years of experience working with affluent families and business owners providing specialized counseling in the areas of cash flow management, retirement planning, stock options and employee benefits, insurance, investments, income taxation and charitable planning."
Keith began his career as a commissioned officer in nuclear submarines following his graduation from the United States Naval Academy. His military tours took him all over the world, including two deployments to the Western Pacific, a tour in Naples, Italy on the staff of the Commander, U.S. SIXTH Fleet, and a tour in Yokosuka, Japan on the staff of Commander, U.S. SEVENTH Fleet. He later was recalled to active duty to teach Finance and Economics at the U.S. Naval Academy, his Alma Mater. Keith was a Financial Advisor with Raymond James prior to joining InTrust Advisors.
Keith’s unique skill set will enhance firm initiatives in helping clients maximize after-tax income through wise tax and investment planning. His passion is structuring charitable giving in order to minimize taxation of assets and maximize the impact to non-profit organizations.
InTrust Advisors is a boutique multi-family office located in Tampa, Florida that works to remove the burden of planning and day-to-day management of complex tax, investment and estate structures for high net worth families nationally.
As I mentioned in my previous post, when I first entered the business way back in 1995, it was quite common to look at portfolios and see a diverse set of assets including gold and silver, commodities, hedge funds and CTAs, as well as, equities and fixed income or bonds.
Over the past ten to fifteen years however, the amount of market intervention by Central Banks and from global governments has made such diversification almost moot. Today, it’s much more common to see just portfolios of stocks and bonds.
In fact, one of the greatest migrations we have seen is to portfolios that contain just passive index funds or ETFs. Part of this move has been due to cost, but the rest of the story is it has just not paid over the past 10 to 15 years to be in anything but the S&P 500 index. As the saying goes, “a rising tide lifts all boats” and the S&P 500 has been the broadest, lowest cost boat.
However as you know, tides don’t always rise and neither do stock and bond markets. We are already in the longest bull market on record for equities and bonds have enjoyed a thirty-year period of falling yields (rising prices) and there is just not much upside left with yields near the zero bound unless the Federal Reserve takes rates negative, which they have pledged not to do.
As we noted in our post called “Is This the End of the Growth Cycle?”, eventually the growth cycle becomes corrupted by greed, fiat currency devaluations and debt expansion, which then replaces fundamentals (where we are today). As we saw in this same post, the solution is greater diversity of holdings to include precious metals, commodities, and volatility traders.
Sounds simple enough but hold on there Kemosabe! It is not that easy!
As we are seeing now, we may have continued Central Bank or Congressional intervention, which may prop markets up for periods of time. We have rolling bouts of deflation, with inflation in some areas. Eventually deflation may give way to inflation. This is a process and it is fluid!
Enter the active manager, no longer the goat of the past 15 years, this guy may add a great deal of value going forward. By goat I do not mean the Tom Brady type of goat (Greatest of All Time). I mean the type that eats your schoolwork or craps on your floor if you bring it in from the field. The bad type!
In our opinion, the days of buying and holding the S&P 500 Index are drawing to a close. This doesn’t mean low cost index funds do not make sense. It just means that days of buying and holding through thick or thin are probably drawing to a close.
Volatility is on the rise and it has remained elevated as you can see here from this weekly graph of the VIX or volatility index. This means more heart burn generally and much less stability in stock and bond prices.
With volatility elevated, this is the time that active management shines. The active manager is first and foremost a risk manager. He presses the gas petal when conditions are right. He stomps on the brake petal when conditions change. He may even raise his foot some and take some pressure off the gas petal in our proverbial car when conditions are starting to look dicey.
History also shows that outperformance tends to be cyclical. With the latest period of passive outperformance, here in large capitalization stocks, now approaching a decade, it may be time to assume this equation will flip again.
We believe the perfect portfolio solution is a mix of the passive buy and hold and the actively managed. We call this mixture a multi-disciplined portfolio.
Here you can see those expected results when comparing the SG CTA trend follower sub-index with the S&P 500 index and then a 50%/50% multi-disciplinary portfolio for both indexes.
Notice how returns were better and volatility risk (standard deviation) was lowered in the process.
This is obviously a simplified model and depending on your portfolio size and your financial goals, this portfolio may include active investment strategies like several we run, passive buy and hold portfolios (which we also run), hedge funds, commodity trend followers (many times known as CTAs), precious metals, bitcoin and more. Since very few of us have a crystal ball, let alone one that works, the portfolio diversity is increased to handle an environment that is more fluid and volatile.
Let us know if this is something, we can explore for you?