January 24


This Secret Tricked Me for 15 years

Family Update

My wife and I have been going to the bird sanctuary on Palmer Drive (the old celery fields). It is truly spectacular. People travel from all over the world to see these exotic birds.


The sound is memorizing. Just hundreds and hundreds of birds singing in harmony. We suggest early morning for the best show.


My friend from high school is visiting me this weekend. The kids are fascinated. They can’t believe that daddy had friends when he was their age. I’m sure they will help me show him the sights of Sarasota.


Joe was an engineer and figured himself to be a pretty smart guy. He worked at an electrical plant in charge of quality control. He enjoyed his work, but as he reached his 50s he began to pay more attention to the stock market. Joe knew that as soon as he retired he would be relying on these instruments to fund the rest of his life.


He noticed an article in the Globe and Mail titled, “Bear markets ‘suck’ but investors shouldn’t worry about them too much.” The article, written by an equity strategist at JPMorgan, apparently had some important information.


The article began with: “We caution investors to expect a lower return relative to prior years.”


Let me interrupt my story for just a second. Yes, this is a real article. And no, you shouldn’t read it. I have heard this prediction every year for twenty years. Why should you expect lower returns when the stock market has, to an incredibly consistent degree, shown great growth for 200 years? It’s just a stupid statement.


Okay, back to the story.


Joe continued reading the article. “Our base case assumes some alleviation but in a manner that sustains economic activity into 2023. Earnings growth provides the main tailwind to equities. Our 5,100 S&P 500 target implies a 23.1x P/E on the top-down earnings projection, which approximates the current level. Gradual supply-chain relief should favor the more economically sensitive Value style“Earning growth provides the main tailwind in equities.”


Hmmm, thought Joe. This is pretty sophisticated. I need to follow these articles. It’s important that I understand this stuff. 


Joe started to follow JPMorgan’s analysts. These guys are smart. I need to really study more, thought Joe.


There was a JPMorgan branch downtown, near where Joe worked. He decided to stop by and see what they had to say.


They sat him right down in an advisor’s office where the advisor began talking about JPMorgan and their research capabilities.


He said, “Our interest rate strategists forecast a continued rise in real interest rates that will lift the nominal 10-year Treasury yield to 2% by year-end 2022. However, we expect the ERP [equity risk premium] to compress modestly from current levels as the pandemic recovery continues and economic policy uncertainty surrounding potential reconciliation legislation passes.”


Joe’s eyes lit up. This is great! They can help me. It is so hard to understand, he thought. I’m sure these guys work with multi-millionaires. I’m so glad they are willing to work with me. 


So Joe took his investments and signed them over to JPMorgan.


End of Story


I have a secret. A secret that took me fifteen years to figure out. A secret that is so well-hidden that few people ever understand it.


These investment firms intentionally make this complicated. 


Joe’s experience is exactly what they were aiming for. Because, at the end of the day, JPMorgan started collecting some significant fees from his account. (It’s well worth it, thought Joe. As long as they can make me more money)


What these guys are saying literally means nothing. It’s gobbledygook.


What if they said, “A diversified portfolio of stocks and bonds will serve you well over time. You need to stick to a plan.”


While it’s an accurate statement, how is JPMorgan going to attract new clients? They look the same as everyone else. They have to sound fancy. They have to make it complicated.


With my own clients I utilize understandable, long-term strategies that work. A diversified and balanced portfolio of stocks and bonds works. Period.


Now I don’t think these analysts and mutual fund managers have evil motives. I’m sure that they genuinely think they are helping people. I’m sure they believe that people who put money into their mutual funds will make more money. But these people don’t make more money. There is ample academic evidence to prove this point.


It really is a bad situation. Financial institutions know that they can make a lot of money from your portfolio. They will do anything they can do to get their fees. It creates this massive world of financial advice that is contradictory and overly complex.


CNBC figured out that people, trying to understand their investments more, will watch its channel all day. CNBC couldn’t care less if its “advice” helps you.


That’s right. There is no reason for CNBC to exist. I know this might be a shock, but it is true.


There is no reason for Money magazine to exist. They are just taking advantage of the same situation. If people are confused, they will buy a magazine titled, “Top 10 Mutual Funds for Retirement Income.”


Money magazine makes money. Mutual fund companies make money. You do not. You get more confused and make more emotional decisions.


The whole thing is a complete mess. And there is no way to fix it (unless you read my book and read these newsletters). Heck, I’d give these books away for free if it helped someone escape this fate.


Going forward, if you hear anything like this, you can laugh and say, “I’m on to you.”


Be Blessed,




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