Three Point Shots and RIAs: More in Common than You Think

s curry 1Hats are off to the Golden Warriors for a fantastic season with 73 victories.  Of course, this eclipsed the record 72-win season that Michael Jordan and the Bulls had 20 years ago.   Steph Curry had a huge season, averaging 30 points a game, including making 402 three point shots, breaking his 3-point record total last year by 116.

These days, the best teams shoot lots of 3s.  It wasn’t always that way.  Larry Bird, whose best 3-point season was 87-88 when he made 98, puts it this way:  “I thought little of the shot when it came into the league (in 1979).”  That first year, the entire NBA averaged 2 attempts per game.  Of course, many coaching staffs and their owners were slow to accept change.  It took 15 years before the league averaged 10 three-point attempts per game.  This year the average was 25 per game with Golden State averaging 32.

Just 10 years ago, NBA defenses focused on protecting the paint.  Now they know they need to protect the perimeter as well.  The math is pretty simple.  A three-point shot is worth 1.5 times that of a 2-pointer.  And, if you can make them 45% of your attempts, as Steph Curry does, that’s huge.  But even a three at 33% accuracy (NBA’s overall rate was 35% this year), yields the same points as shooting 50% from 2-point range.

A similar sea change is happening in the wealth management world.  Registered Investment Advisors (“RIAs”) like DWM continue to draw assets from the big banks, wire-houses and other brokerage segments at an impressive pace.  Since the 2008-09 financial crisis, there has been a big movement to RIAs.  RIAs managed 19% of assets in 2010, 25% now and Cerulli Associates of Boston estimates the number will be 28% by 2018.

Again, the math is pretty simple.  The world has changed.  Double digit equity returns in the 80s and 90s, fueled by higher economic growth and inflation, are gone.  Actively managed mutual funds have been shown to underperform over time.  Families are looking for more than “big-name” investment management.  They are looking for an experienced, competent wealth manager to help them in all aspects of their financial life. People are demanding more value for their money.

They are also looking for a financial advisor that is committed to putting their interests first.  RIAs, by law, are required to follow a fiduciary standard.  Brett and I have signed an oath demonstrating that commitment and also are Accredited Investment Fiduciary (AIF®) certificants. But not every advisor has been adhering to the same standard. So the Department of Labor (“DOL”) has taken action.

Just last week, the DOL issued its new rule requiring advisors to adhere to fiduciary rules with respect to most of the $23 trillion U.S. retirement market.  As we reported in our February 18, 2016 blog “Fiduciary Standard Closing in on Reps and Brokers”, the new rules should eliminate the large front-end loads and high average annual expense ratios on most retirement accounts.  This will save individual investors billions of dollars each year.  Investors will continue to demand more fair-dealing with their money.

Of course, not all RIAs are the same and not all NBA players are Steph Curry.  His success is a combination of a number of factors, including his own “special sauce.”  Certainly Steph has exceptional hand-eye coordination, a quick release and great repetition.  It’s more than that.   Curry is shooting as he is jumping.  The result is a sharp arc and steeper shot which provides a wider opening into the rim.  Hence, his huge accuracy.

Steph had to work hard to get here.  He was often the smallest guy on the court growing up and had to find a way to get the ball over the taller boys and keep up with the bigger and better players.  Curry had to develop his own unique offering which is extremely successful and a delight to watch.

Similarly, there are lots of excellent RIAs, but we feel very few with a “special sauce.”  DWM is one of those few.  We were “late to the party,” starting in 2000; experiencing tough markets for us and our clients from day one.  We had to work harder: our investment management offering needed to be focused on finding better ways to protect and grow assets.  And, we needed to add lots more value than simply managing money.  We do this with a proactive, proprietary process focused on “Increasing Family Wealth by Adding Value” every day, week and month of the year in every aspect of our clients’ financial lives.   For us, that’s just like hitting a 3-point buzzer beater.


What’s Next for the Economy and Markets?

crystal-ballTough question. A more relevant question would be: “How do I obtain long-term investment success?” We’ll discuss both today.

First, the economy and the markets are not correlated over the short-term. Last week’s overall market selloff again demonstrates this. Yes, over the long-run, there is a correlation between GDP growth and corporate earnings. But data demonstrates that over the short-term, there is no correlation.

Second, it is imperative to filter the noise of the media and put the current situation in broader context, than to guess about the future. Our economy is still recovering from the 2008 credit crisis. Similar crises were followed by weak GDP and job growth. The Fed confirmed last week that we are following this historical pattern. Since September 2012, when the latest QE program started, the unemployment rate has fallen from 7.8% to 7.6%. The Fed expects GDP to increase 2.3-2.6% this year. Inflation is up only 1.05% year over year.

Of course, these results, and the stock markets, have been influenced by easy money policies. Since 2008, the fed funds rate has been near zero. Hence, the Fed has employed additional policies to boost the economy. The most significant has been QE. The Economist on Friday described Chairman Bernanke’s tough assignment: “In a zero-interest rate environment, the central bank can influence monetary conditions more through words than through actions.” Mr. Bernanke’s comments last week, which pointed to the path that actions were “data dependent” were interpreted (perhaps incorrectly) by many investors to mean greater “hawkishness” (tapering was about to start). Virtually all markets tumbled.

The economic data doesn’t support a change in the bond-buying policy. Unemployment is still at 7.6%, labor participation rates are near 29 year lows, inflation expectation are falling, and perhaps, most importantly, there has been no substantial improvement in job growth:


Yet, despite the weak pace of overall growth, the recovery in the last four years seems to be getting smoother. The housing market is up, the energy sector is booming, auto sales are improving, household finances are looking healthier and consumer confidence is at a five-year high. The Fed has increased its 2014 growth forecasts to 3% to 3.5%, from a March forecast of 2.9% to 3.4%. So, we’re making progress, but will it continue? And, if so, when will tapering start?

We agree with Yogi Berra, who said: “It’s tough to make predictions, especially about the future.” We humans are not so good with making accurate predictions. However, these days, you can generally find an opinion to confirm almost any point of view. In fact, studies have shown that the most confident, specific forecasts are a) most likely believed by readers and viewers, and b) least likely to be correct.

We prefer to focus on the long-term. People seem to lose sight of their financial future in the midst of all the noise. Most of us have a long-term investment horizon- perhaps 20, 30 years or more. During that time, we can expect bull and bear markets, volatility and short-term market swings. Emotional reactions to short-term events and media noise can cause you to miss market rallies and doom you to long-term investment failure.

You need a disciplined investment strategy and perhaps a full-time professional investment adviser to help you with it. Your asset allocation needs to represent the three asset classes; stocks, bonds and alternatives, with further diversification within each asset class. Your portfolio needs to be reviewed continually and rebalanced regularly. You need to make your capital work for you all the time, and not leave money sitting in cash. Over time, asset allocation, diversification, rebalancing and mean reversion will all work in your favor.

So, we won’t focus on predictions. Instead, what we will do is to help you establish and maintain a long-term probability-based investment approach that should reap dividends and investment success for you for years to come. Give us a call. We’d be happy to chat.