Happy Father’s Day

Business Section


We don’t take Hallmark holidays too seriously in our house. Case in point: my official Father’s Day present this year consisted of a card that my children forgot to sign before they sealed it, which they then promptly lost in my wife’s car.

But unbeknownst to her, my daughter gave me the best Father’s Day present that any financial advisor could ask for, when, upon glancing at the back of the Business section of the newspaper that I was reading, she asked, “Daddy, what are all those funny looking charts?”

She was looking at charts that tracked the percentage movement of various stock indices over the past three months. And when I explained that to her, rather than nodding and moving onto something else, she asked, “Daddy, what’s the stock market?”

Oh. My. Goodness.

This is the moment that all financial advisors dream about when they become parents. (We have other dreams, too. But this is kind of a big one.) And it was happening to me!

I got to explain to my daughter that the stock market is where people can buy and sell small ownership pieces of the best companies in the world, some that she’s heard of (“I can own part of Facebook? And Nike?”) and some that she hasn’t (“What’s Allergan?”). We looked at the reporting of various stocks and read about the opening and closing prices, and how much of a change that was in percentage terms over the previous day, year-to-date, and over the past 12 months.

We talked about the fact that if you took all those different stocks and put them together in a giant “grocery store”, that’s the stock market. Except instead of being in a physical store, you buy them on the Internet. She learned that you can buy anyone that you want, and that some are more expensive than others. We also chatted a bit about what makes stocks go up and down, and how different people might look at the same stock and have wildly different ideas about how much they are worth.

I asked her what she thought the lowest percentage change could be, and she correctly answered 100%. I then asked her to find the stock with the lowest percentage change year-to-date, and she correctly found Time Warner, which had just been purchased by AT&T and subsequently had its stock price go to zero. We got to spend some time talking about why companies buy other companies, and how that can be both good and not-so-good, depending on your point of view.

At this point, I figured she was spent. Then she said, “Daddy, I think I get it. This is really interesting. But what’s a bond?”

Best Father’s Day ever.

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Cooking And Your Financial Plan


We recently participated in a fun team-building activity, the details of which were kept secret up until the event began. Speculation ran rampant. Would we be hiking? White water rafting? Skydiving?

All those guesses were wrong. Upon arriving at our destination, we learned that we were going to have a cooking lesson, followed by an “Iron Chef”-style competition.  We were greeted by our professional instructors, assembled into teams, and given our instructions:

  • Each team had a basket with ingredients for a specific recipe to prepare and cook. Team 1 prepared a spinach salad with goat cheese croutons as the appetizer, Team 2 prepared a sausage and chicken paella for our main dish, and Team 3 made a pomegranate almond tart for the dessert course.
  • We had 1 hour and 15 minutes to complete the entire cooking process including clean-up.
  • Each recipe was to be paired with a wine, and we had to present each course complete with a story that explained how we’d acquired the wine which was paired.
  • Here’s the kicker – The recipes were not complete and the baskets didn’t have all our required ingredients.

We all had a great time and learned a lot about preparing and cooking delicious meals from scratch.  Interestingly, we found that a lot of the lessons we learned from our culinary outing apply directly to our day jobs.  Here’s some of our lessons learned:

1 – Team-work is important

Each team had to work together during our cooking lesson, dividing up the responsibilities and then checking in and communicating with their teammates.  At Woodward, we use a team structure to serve our clients: each client has a multi-person advisory team, which provides for continuity and redundancy as well as varied skill sets.  Team members communicate on an on-ongoing basis, whether it’s preparing for a meeting, following up on action items or responding to client inquiries.

2 – A variety of skills are needed

Being great at prep doesn’t mean you can open your own restaurant if you can’t cook. Sometimes, you have to find a great chef and work with them to make the meal complete.  As financial planners, part of our job is to work with our clients’ CPAs and estate planning attorneys to deliver a great client experience.  Maybe it’s an in-depth technical analysis that we worked on with a CPA or maybe it was kicking around some potential tax savings strategies with an estate planning attorney.  Whatever the case may be, working with our clients’ other trusted advisors is a great way to ensure that our clients are getting fully integrated financial planning guidance.

3 – Organization is important, but so is flexibility

The teams needed to be organized and divvy up tasks in an efficient manner, and most of the teams did this.  But things happen.  Remember the incomplete recipes and ingredient boxes? We needed to plan on the fly and adapt to changed circumstances, which clearly happens in real life too.  We need a financial plan, but we need to be ready when life changes on us unexpectedly. Equal measures of planning and flexibility make for a tasty recipe.

4 – We can’t always wait for all the answers before moving forward

We didn’t begin with everything we needed during our cook-off, and things weren’t perfectly laid out for us. But it was a timed competition, and we didn’t get to choose to start the clock only after we’d figured everything out.  Financial planning is rife with uncertainty about markets, tax codes, health status…you name it. Sure, we’d all like things to be more predictable and certain. But that’s probably not going to happen, and we have to make peace with that and plot our path ahead in spite of the uncertainty.

5 – It’s important to try and enjoy the process

Because of the time pressure that was involved in our cooking lesson, everyone was focused on their own task.  It was difficult to step back and enjoy the process of putting something together and working with friends to accomplish a goal.  It’s easy to get wrapped up in unrelenting focus on earning and saving for retirement, or to overly focus on singular data points and events like “the number”, the retirement date, and the optimally safe withdrawal amount or percentage. Sometimes we forget to slow down and enjoy the ride.

6 – The backstory is important

As mentioned previously, part of the scoring included our story of how we acquired the fictitious bottle of wine to be paired with our dishes.  The stories were great and involved the use of locally sourced ingredients, private jets, long-lost relatives, trips to France, and passionate romances. My takeaway from this exercise was that stories matter.  Our stories matter, both the financial and the non-financial.  They add context, they clarify, and they add meaning.

I’m already looking forward to our next team event, but first I’ve got paella to cook.

Cooking 3


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The Role of Luck and Randomness

Along with millions of other Americans, our office held a small pool for the NCAA basketball tournament this past March.  We filled out our brackets and let the games play out.

Well, I won, despite spending less than 7 minutes constructing my bracket (possibly to the annoyance of some at the firm). I know a little about college basketball and understand the basics but didn’t follow this past season or the NCAA tournament at all.  So how did I win? It wasn’t a superhuman ability to filter and synthesize loads of information, nor am I being overly humble or allowing my introverted nature to prevent me from taking full credit for my accomplishment.

I actually shared my secret with the team once I officially received the interoffice trophy at our staff meeting following the tournament. I’ll tell you what I told them – it was luck. My winning was a random occurrence.

Luck and randomness are ever-present in our lives, and particularly in our investments.  Here are three important things to know about luck and randomness and how we can use this knowledge to make us better investors:

  1. Don’t confuse luck with skill

Winning the office pool one time wasn’t evidence of any special skill I have for lotteries or analyzing college basketball match-ups.  Likewise, just focusing on the results of any one investment clouds the issue of luck versus skill, particularly in the short term. Maybe you did a skillful job identifying something that the rest of the market couldn’t see, but there’s a good chance that the 150% gain on that high-flying stock you bought just a short time ago was due to luck. When one can repeatedly replicate that stock picking prowess over very long time periods then maybe it ventures into the realm of skill.

  1. Don’t try to control randomness

Certain things in this world are out of our control. No matter how much fans wanted to, they couldn’t will Virginia into coming back against UMBC and not blowing up everyone’s bracket.  When it comes to investments, our firm’s philosophy is that you can’t control the markets, and we don’t try to.  Luckily, one doesn’t need to in order to be successful.  We don’t jump in and out in anticipation of what the market may or may not do.  We rebalance as necessary which creates a disciplined way to buy low and sell high, taking emotion out of the equation.  As investors, we can focus on factors that are in our control – saving, spending, and prudent diversification of our investments.

  1. Don’t try to develop patterns from random events

When we have our office pool again next year, perhaps I should use the same selection methodology that I used this year (which I don’t even remember) because maybe there’s some pattern.  It likely won’t work since there’s no pattern, even though I may think there is.  For better or worse, the human brain is hardwired to look for and create patterns, even where they don’t exist. Our brains typically look for the easiest, most efficient way to do things.  And patterns, whether true or false, allow us to do that.

When it comes to investing, there’s also no shortage of people working on patterns based on what’s happened or what might happen. It’s a little like Mad Libs for investing:  “Oil will go [down or up], which means that the dollar will go [up or down], which means that we’re ripe for a [downturn or upturn] because that’s what happened last time, which means it’s time to rotate [into or out of] this [sector/country/asset class].”

If you’re a client of the firm, you know that we believe in holding a broadly diversified set of investments for the long term.  You’ve also probably seen the investment “quilt” chart that ranks the performance of various asset classes over the last 20 years.  We love this chart because it demonstrates that trying to discern next year’s winners and losers based on the rankings of previous years is a fool’s errand. There’s no pattern, yet there’s also no shortage of ideas on how to create a pattern that’s not there.

So, it’s nice that I won the office pool and with that, bragging rights for a year, so long as I remember how it was that I won.  It was luck – pure and simple.  And I can completely accept it.

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Swimming Superstar Katie Ledecky Decides To Go Pro – A conversation between financial planners

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Copyright: https://www.123rf.com/profile_torwai’>torwai / 123RF Stock Photo


Joe:  Well Allison, it looks like we’re back at it.  Katie Ledecky has finally decided to turn pro just as I recommended a year and a half ago.

Allison:  Yes, Joe, I saw the news release.  Are you saying that you were right all along?

Joe:  Well…If you recall, I suggested that she maximize her earning potential and take advantage of the many sponsorship opportunities that would be available to her once she became a professional and renounced her amateur status.  I was concerned that she might get injured and not be able to maximize her earning potential.  I was focused on the freedom and flexibility that her multi-million-dollar sponsorship deals would provide her – I mean, she won’t be a professional swimmer forever.

Allison:  But Joe, there’s more to the story than that.  Katie Ledecky is only giving up competing for Stanford in NCAA competitions.  She’s going to continue to attend classes and pursue her degree.  And she’ll still be able to do some training with her teammates.  Turning pro will let her fine tune her own training and schedule so she can focus on the 2020 Olympics.

Joe:  That all makes sense.  I guess it’s not worth thinking about the money that she could have earned and all the good she could have done with that.

Allison:  She said at her press conference that she didn’t have any regrets about waiting to turn pro.  She’s still only 21 and has plenty of time to make money from her sponsorships.  What you’re forgetting is that maybe it was never entirely about the money for her.

Joe:  You said “entirely.”

Allison:  I know, and here’s what I mean: she wanted to be part of a team and attend a great university.  And swimming collegiately at Stanford allowed her to do that. I think she just wanted to be a normal college student.

Joe:  You said “normal” – she’s probably swam more miles in the pool in the last year than I put on my car.  She’s a superhuman elite athlete! I just wanted her to take full advantage of her abilities.

Allison:  Maybe that’s not what she wanted.  The endorsement money might be great, but I’m not worried about her having waited a few years to start collecting it.  By the way, she’s also got a 4.0 GPA, so if swimming doesn’t work out, she’ll probably be ok.

Joe:  Like I said, not normal…

So, I guess it isn’t always about maximizing wealth.

Allison:  Not always.

So, what have you learned from all this and how might it help you be a better financial planner?

Joe:  I’ve learned not to jump to conclusions.  I’ve learned to listen, to present options and to go over their pros and cons.

Allison:  And you’ve learned that we don’t always have to do what the numbers say to do.

Joe:  Right.  And that most financial planning matters are rarely an “all-or-nothing” circumstance.  That there’s room for compromises and a combination of different strategies.

Allison:  Well thanks, Joe.  I guess that wraps things up.  I’m looking forward to our next chat and the lessons we’ll learn to help us become better planners for our clients.

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