Keep Your Distance – Socially and From Cyber Fraud

The bear economy is creating a bull market for cyber-crooks. An unfortunate side effect of economic downturns is an increase in cyber fraud. Worldwide cyber fraud has hit an all-time high. For the first time on record, data theft has now surpassed the stealing of physical assets as compared to the past two decades. Given our current global pandemic, cyber fraud has only increased as fraudsters try to take advantage of high demand for information regarding COVID-19.

Due to recent restrictions placed on communities and social distancing, more and more people are spending their time online. Cybercriminals are taking advantage of the increase in online traffic. According to the cybersecurity firm, MonsterCloud, there has been an 800 percent increase in cyber fraud claims since the beginning of the year.

Here are some of the most common cyber frauds as reported by Charles Schwab:

  • Outbreak maps. Malicious actors have begun spreading malware through online maps claiming to track the impact of coronavirus. As users visit the sites or click the links, they are exposing usernames, passwords, credit card numbers, browsing history, or other nonpublic personal information that is then exploited by the attackers or sold to other criminals on the dark web.
  • Email campaigns. Criminals are also leveraging common forms of fraud like spam email campaigns, using infected attachments or downloads to gather information.
  • Charitable giving. Scammers may pose as organizations in need. It is important to verify where your donations are going to before donating. One important resource here: https://charitycheck101.org/

Fortunately, there are several steps that individuals, businesses, and families can take to prevent a cyber attack. As many continue to work remotely, and as we transfer to a more digital society, please consider the following:

  • Make sure everyone is using a VPN, or a virtual private network, to do office work from home.
  • Require devices to have two-factor authentication, which verifies a person’s identity before logging in.
  • Only use WiFi networks that are password protected.
  • Companies should maintain a reliable back up for their data on a different network.
  • Organizations should make sure their antivirus software is up to date.
  • Everyone should think before they click on links and emails.

“Think before you click” is perhaps the most important measure here. At DWM, we take cybersecurity very seriously. As the majority of us work from home over the next few weeks, we continue to rely on two-factor authentications, virtual private networks through our cloud platform, antivirus software, and secure home WiFi. We also continue to collaborate with our third-party technology providers to stay proactive and increase our security on a daily basis.

https://dwmgmt.com/

Why this Bear Market Feels so Different, and What Not to Do Now

It’s official – the almost 11 year bull market is over thanks to a couple of “black swans”: COVID-19 and the oil price war.

Quick terminology recap here:

  • Pull-back – a falling of a price from its recent high, typically 5%
  • Correction – typically 10% from recent high
  • Bear Market – 20%+ from recent high

Within a few weeks, we zipped past just a pull-back and correction and are officially in a bear market. Further, a recession is imminent with businesses about to take a hit from “social distancing” and broken supply chains. The US government is trying to get its arms around this threat and is working to eventually restore life back to normal. In the meantime, uncertainty continues. The market hates uncertainty and investors’ portfolios reflect that.

We’ve had pull-backs, corrections, and bear markets before. What’s different this time is the personal impact or the “human effect”. I think all of us have personally felt the coronavirus impact us in the last couple of days with upcoming plans being altered. Many are coping with tough travel decisions with Spring Break around the corner. Handshakes have turned into elbow bumps. Many employees are working from home. And our cherished past time of watching sports gets disrupted with major sports suspending their play. Heck, even Tom Hanks and his wife have tested positive for COVID-19.

Yes, this is certainly different from the Great Recession of 2008 as that didn’t impact personally like this threat has. And because of it, the level of emotion is stronger. And the emotion of fear is dominating right now. And with the help of the media, the fear is building upon itself and, for some, creating panic.

This downdraft has happened so fast – it was exactly one month ago that the stock market was hitting its all-time high – that even if you wanted to, it was almost impossible to react. Stock benchmarks are down over 25% as of this writing. This volatility for most is stressful, unnerving and can be tough to stomach. Fortunately, a balanced portfolio that holds multiple asset classes – not just equities, but fixed income and alternatives – has helped cushion the blow, but not by much given that most investment styles are down.

Emoji Graph

People struggle to separate their emotions from their investment decisions. See the slide above which shows how emotions relate to the different stages of the market. These emotions cause these investors to sell and buy at the worst times as this “recency bias” influences undisciplined investors to chase performance through buying high and selling low.

Now see the slide below which shows what happens when an emotional investor who went to the sidelines and missed the best ten days. The average annual return dropped from 6% to 2.4%. If that investor missed the 30 best days, their return goes negative.

Impact of Market Timing

The moral of the story is you don’t want to try to time the market. You should stay the course and stick with your long-term asset allocation target mix. We have had multiple discussions with our clients about risk. Risk tolerance, risk capacity, and risk perception. And from those discussions, we have identified appropriate long-term asset allocation target mixes. This crazy environment is a test of character to stay with that disciplined strategy and not give in to fear. It sounds hard to do, particularly, in scary times like now, but disciplined investing has ALWAYS paid off. The market inevitably always bounces off its lows to eventual new highs.

We aren’t calling this the bottom, by no means. We don’t know exactly what tomorrow brings. No one has a crystal ball. The market could trade lower, but if you have faith in our country pulling through this pandemic like it has in the past and understand this threat will be beaten, then remain disciplined and fully invested in your long-term asset allocation. We understand that everyone is wired differently and based on your current perception of the risk today, that may be hard to do. If so, please contact us so we can discuss further.

 

https://dwmgmt.com/

Technology and Real Estate Collide: Will we be trading homes like stocks in the next several years?

The total wealth of Americans is $113 trillion. The major categories are real estate, both homes and commercial, of $50 trillion and stocks and stock funds of $35 trillion.

Technology has had a huge impact on stock trading. 50 years ago, selling or buying company shares was opaque, illiquid and expensive. Now, technology has taken over more and more aspects of trading. Markets are transparent and liquid. The cost of equity trades is zero or close to it.

Real estate not so much. Of course, while every common share of Amazon is identical, no two houses are identical. Throw in emotion, 5-6% commissions and time delays and hassles in buying and selling and it’s no surprise that the real estate market has had low volumes and heavy transaction costs. As a result, only 7% of American homes change hands every year.

American homeowners traded property worth only $1.5 trillion in 2019, paying out about $75 billion in commissions. About $40 billion of stocks are traded each year with less than $10 billion in commissions, which are shrinking. The real estate transaction model is still opaque, illiquid, expensive and stressful. More owners are staying put and this is contributing to the decrease in homeownership in the US to 64%, lower than it was in the early 1990s.

In the last decade, technology has started to gain traction in real estate transactions providing more transparency, more liquidity, less cost and quicker and easier moves. The old real estate model may be replaced by a new one, with lower fees (on a percentage basis) but more turnover and more customer satisfaction. The last decade has seen the birth of a new industry- property tech or “prop tech.” It has attracted $40 billion in venture capital in the last three years. The four biggest firms, Zillow, Redfin, Compass and Opendoor have a combined valuation of $23 billion. Prop tech is fundamentally changing how the real estate sector operates.

Zillow’s “Zestimate’s” 2006 algorithm for pricing used traditional metrics; such as number of bedrooms and baths, square footage etc. Today Zestimate goes deeper and has become more accurate. Homeowners listing with Zillow upload pictures and provide additional detail information. The new Zestimate model has an error of less than 2% (of the home’s actual selling price) as compared to a 14% error back 13 years ago. The next wave of Prop tech could include more hyper-local automated valuation model (“AVM”) elements to their valuation models. Zestimate’s hyper-local AVM algorithm in Washington, D.C. has only a 1.2% error. Zillow’s AVM won’t replace appraisers for mortgages that are needed. However, Zillow believes it could transform appraisers from evaluators to fact-checkers.

Prop tech has also sped up transactions. Discovering listings used to take days. Now Redfin (and others) notifies customers with its “Updates” faster than anyone else about new listings and price changes. Using just a couple of clicks on their smartphone, Redfin customers can “Book it Now” and request a home tour, almost like making an online restaurant reservation.

Another trend is instant buying- or iBuying, offered by both Zillow and Redfin. Sellers can sell in a few days. The companies make prompt, algorithm-driven offers, pay in cash, and sell homes themselves- sometimes after some minor upgrades. Opendoor takes it one step farther. It buys using iBuyer and then resells through the Opendoor app, backing sales with a 90 day guarantee. Opendoor says home buying and selling can be “as easy as buying and selling cars.” Knock is another iBuyer who buys houses for cash and then helps sellers find their dream house. Knock even handles repairs and updates on the old house.

Prop tech may even provide a complete solution. (Think of Amazon meets real estate). Jen Chao, executive at Redfin sees prop tech heading towards such a comprehensive offering. She believes that the overall management of buying and selling a house, including finding the house, negotiating the contract, finding the mortgage, an attorney, a mover and more is a very big deal to many. So much so, that many just don’t move. Chao feels that Redfin can become a one-stop shop, providing a seamless home-buying (and/or selling) experience.

Chao says this automation will not do away with the work of agents and other real estate professionals. “Real estate is a highly personal business,” says Chao. Technology is being used to streamline and get rid of the tasks that software can do really well, to free up time for agents and others to focus on things that require the human touch.

Prop tech proponents believe the future of real estate is rooted in precision and personalization. At DWM, we believe our total wealth management process is very similar. We use technology to streamline and perform tasks that software can do and we use our combined knowledge, experience and communication skills to provide the personalization that is so important. In short, that is how value is maximized for our clients.

https://dwmgmt.com/