What did I teach?  I taught many of the same things I teach every Schulz Financial client:

• Market efficiency & evidence of the random walk;
• Statistics 101;
• Quantifying uncertainty and managing risk;
• The connection between risk and return;
• Forecasting under uncertainty;
• Other related matters

In short, my seminar, Oil & Gas Economics and Uncertainty, tackles a subject even more fraught with risk and unknowns than what my Schulz Financial clients endure.  Further, my students are always a very analytical bunch, like many of my Schulz Financial clients.  And going 1 on 20 with no intellectual support for 16 hours over a two-day period pushes me mentally and physically.  Hence, although I only do it approximately once a year, it’s a good experience that also benefits my Schulz Financial clients.

How does this benefit my Schulz Financial clients?  It helps in many ways, including:

• Going 1 on 20 keeps me sharp;
• Explaining what I apply forces me to continually rethink and challenge the subject matter. I never quit challenging the basis of how I manage my clients’ life savings;
• Through the open discussion format I use, I’m always learning from my students and collecting the things they have thought about and experienced;
• Because I teach students from around the world (Europe, the Middle East, Africa, Latin America, Asia and North America), teaching the course gives me real feedback on economies and issues around the world. It’s one thing to read something in the Wall Street Journal or Reuters, and quite another to either experience it through my travels or hear it first hand from a source I can question and challenge.

Thus, the experience brings many benefits to Schulz Financial clients.  Additionally, I love to teach and it’s fun, as well as providing a decent stipend for 16 hours of work (I have two teenagers who will soon be headed off to college).  Thus, all in all, it’s good for everyone.

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That’s right.  The portfolios I manage have a position in something on the order of 12,000 stocks.  That’s huge.  But is it too big?  Although it may sound like a lot, it’s minuscule when compared to the countless millions of companies that comprise the global economy.  However, by holding on the order of 12,000 stocks one has a thorough exposure to the top companies that move the global economic engine forward.

Why does one need such a broad exposure?  Take, for example, the steel industry.  By holding a broadly diversified portfolio, one gets positions in carbon steel, stainless steel and specialty steels such as bronze and copper.  Further, the investor gets exposure not only to large steel companies, but also to small steel companies.  And finally, the investor gets exposure to nearly every steel market in the world, ranging from established countries like the U.S.A. and Australia to emerging economies such as Czechoslovakia and Thailand.

This, in turn, brings into play things like some countries and steel mills benefitting when energy prices fall while in other countries the steel industry does better with high energy prices.  The profitability equation, and thus a company’s stock price, depends in part on who comprise its customers and what forms the biggest piece of its costs.  In some locations, the biggest cost may be the energy bill while in other locations it may be the labor bill.

The beneficial part of the equation for the investor is that all the bases are covered and each base, or company, is fighting to be as profitable as possible for the circumstances at hand.  Thus, the hyper-diversification benefits the investor in both the offensive and defensive modes.

Another fascinating thing to keep in mind is that through the investment methods and products I use I’m able to accomplish a scientific, balanced hyper-diversification position for a cost that is approximately 70 percent less than what one would face through a traditional mutual fund or private equity product.  Thus, scientific hyper-diversification helps to maximize the investor’s return per unit of risk and unit of cost.  That’s good.

As always, let me know if you have any questions or if I can be of additional assistance.

Thanks,

Rod

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So, as usual, we need to turn to the facts.  And what do the facts say?  To my surprise, the USA leads most of the world in research & development spending as a percentage of gross domestic product (see graphic below).  The USA also does well on scientists and engineers per capita.  Further, as evidenced by having the biggest circle, the USA leads the world in total research and development spending.

Moreover, when you look at the bubbles keep in mind that the area (not the diameter, but the area) of the circle is proportional to total R&D spending, and the area of a circle equals pr².  Thus, if the USA bubble has a diameter that is five times that of France, for example, the USA spending on R&D spending is twenty-five times the R&D spending of France (5² = 25).

So how does all of this impact your portfolio?  I haven’t seen any direct correlations between either R&D spending or per capita engineers and scientists by country to that country’s stock market growth.  Nevertheless, it is something I need to keep an eye on as I consider your global portfolio balance, as technology has always been a key economic driver.

Thanks,

Rod

The post Engineers, Scientists and R&D by Country appeared first on GreatWealth.

Looking back, over the past 20 months I’ve had, unexpectedly, three cases of a client looking their own mortality head-on.  Each of the clients are married and the primary decision maker regarding investments.  Further, each client is middle age, was (and in the third case still is) in good health prior to the unforeseen medical issue.  Specifically,

• One client developed a life-threatening blood condition;
• Another client was diagnosed with pancreatic cancer;
• And still another client informed me that a sibling had been diagnosed with stage four cancer prior to his 60th birthday, similar to that of a now deceased sibling.

In each of the above cases, I’m sure an immediate thought of the client was the financial security and trustworthy financial help for their loved ones on the road ahead.

Fortunately, each of the above situations involve a longstanding client.  Additionally, in each case, both spouses and myself have put forth the necessary effort over the years to develop a good working relationship.  Hence, if/when mortality hits the affected client, I’ll be there to help work through the inevitable financial questions and assist with developing a viable path forward for his survivors.  Thus, the surviving spouse doesn’t have to wade into the financial advisor market, or go it alone, while having to deal with countless other challenging issues.

To be sure, I could get hit by a car this afternoon or develop ALS overnight.  I have my own mortality issues.  However, it is statistically unlikely that I will pass in the same short time frame as the spouse who is leading a client couple’s financial decisions.

For everyone’s information, I am 58 years old.  I do not know what the future holds, but I do have reasonably good longevity genes and I follow a healthier lifestyle than either my parents or my grandparents.  Also, I plan to keep at my financial advisory practice until I expire, not out of necessity but out of enjoyment of what I do and who I work with.

So, in summary, none of us know what the future holds and we’re all mortal.  Also, I do not believe in using fear for anyone’s financial benefit, including my own.  However, having a longstanding relationship with a competent financial advisor has the potential of smoothing a critical piece of the transition when mortality hits.

Thanks,

Rod

The post An Ancillary Benefit of Having a Good Financial Advisor appeared first on GreatWealth.

1) Headlines are meant to attract attention and sell the publication;

2) Markets have typically moved and incorporated the news long before it becomes a headline;

3) In most situations, the headline writer can’t add 3+2; and,

4) Even when the writer can add 3+2, he rarely understands the power, speed and efficiency of markets.

If one were to act on the subject headline of December 10, 2015, he would have likely sold his position(s) in emerging markets just prior to the end of 2015. Now that we have hindsight, how did emerging markets perform for the immediately subsequent calendar year of 2016?

Specifically, DFA’s Emerging Markets Core Equity Fund (DFCEX) delivered a gain of 10.2%, which is close to the long-term average for emerging markets. Not great, but not bad. And yes, all my clients have at least some position in emerging markets, typically 3-6% of their equity position.

So, in retrospect, should we ignore all headlines? No, as it’s good to stay abreast of the news. It’s one of the things my clients pay me for. However, one should be wary of letting headlines dictate or overly influence investment decisions. As always, please let me know if you have any questions or if I can be of any help.

Thanks,

Rod

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