Welcome to the Chapel Hill Financial Advisor Blog!

My name is Kent Fisher, CFA® and I work as a Financial Advisor at Old Peak Finance in Chapel Hill.  Please stop by in the future for my thoughts, ideas and general ramblings about all things finance.  I might throw in some local color as well.

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Nothing on this site should be taken as financial advice – it is only the opinions and ideas of one person.  Only for entertainment purposes some might say.

Please visit http://www.oldpeakfinance.com for greater details.

or send me an email:  kent.fisher@oldpeakfinance.com.

The Future of Wealth Management: “What” and “How” solved, but not “why”.

The Future of Asset Management is not a simple topic. The asset management industry is being re-shaped even as we type this blog by several mega-trends. Like many other industries, technology is the main agent of change.

But is this new? For many years people have been explaining that the challenges in wealth management were not strategic (“why“) in nature, rather they are challenges of implementation (“what” and “how“). However, was this correct? Technology is impacting the implementation challenge but not the strategic challenge.

For example, in the 1970s, one turned to their stock broker – not only for advice on which stock they should buy – but also for “how” you actually bought a stock, and where you would keep it. Compare to today, when we all know we can jump on the internet and buy & sell securities ourselves – no problem. So by solving some of the practical implementation issues, we are now free to focus on “what” to buy. Again, the internet is having a huge impact.

With a few clicks away from this blog is a wealth of information about “what” securities you should buy. I often refer clients to websites that I think contain cogent and useful information.  There is even a book called the One Page Financial Plan (I always chuckle when you realize the one-page plan is actually a 138 page book.) But the idea remains……much of the wisdom you need for a solid financial plan can be summarized into a few paragraphs. And now, it is sitting there on the internet just a few clicks away. Shoot, you don’t even have to go to a library to check the book out. Click and it is there.  The “what” problem is solved.

So much of the “mystery” involved with investing has largely been removed. “How” and “What” are quite simple. The only question left is “why“, and this is where it gets difficult.

The simple answer to “why” is because it is right for you.  Right in the sense that it helps solve the investing/wealth management challenge you are facing.  Sometimes this is simple and sometimes it is not.  This is why technology will not do away with us humans in the finance industry…..we are here to stay because we work mostly in the touchy-feely realm trying to answer the question of “why“. Generic solutions easily found on the web might not be appropriate for you. You will need help, guidance and someone who knows the intricate details of your plan. The future is full of change, but the need for a human is the one thing that will not change.

Book Review: How Much Can I Spend in Retirement? by Wade Pfau, Ph.D., CFA

This is why you should have a Financial Advisor…………to read books like this on your behalf and provide you with a summary!! Seriously, a great new book on retirement planning is out!

Wade Pfau has written a new book; How Much can I spend in Retirement? For those of you unfamiliar with Mr. Pfau,…….he is a highly respected figure in the financial planning industry. He is a Professor of Retirement Income in the PhD in Financial and Retirement Planning program at The American College of Financial Services. A very solid academic and practitioner in the financial planning community.

As you might suspect from an author with a Ph.D. and a CFA, this 345 page book is technical and precise. Some might say dry. In fact, Mr. Pfau is not going to completely answer his primary question. 345 pages for a partial answer. He is planning a companion volume that will try to answer the question using insurance (safety-first) products. This book is “a Guide to Investment-based Retirement Income Strategies.”  It will only approach the problem using investment oriented solutions. I think you get the picture……a very thorough examination of a topic that seems simple on the surface yet is really quite involved. It will take another volume to finally get to a more complete conclusion.

I am about 75% of the way through and am really enjoying the book. I will admit it is not for everyone. Wade provides a historic look at what is currently called the 4% Rule. He then moves forward by relaxing some of the assumptions used in the initial research, and what that would mean in today’s market environment. A plethora of additional topics are discussed all relating to the central premise of generating income from an investment portfolio that will cover your expenses in retirement. The degree of precision and attention to detail cannot be over-emphasized.  This is the real deal if you are a financial planner type.

The big takeaway from a read like this, is that investing and retirement planning are more complex than portrayed in popular culture. Service providers and our political types would like you to think it is all quite doable on your own. I would beg to differ, but naturally I have a bias in this direction.

If you only read one chapter from this book, head to the back, and read Chapter 9 :  Value of Good Decision-making in Retirement. These last 20 pages will probably have as large an impact on your retirement as the 325 pages that preceded it!  Or like I said at the beginning, have your Advisor read it and give you a summary!





Happy Thanksgiving! Guess who passed the CFP ® Exam?

Happy Thanksgiving!! Short post this week given all that is going on.

I’ve been quiet the past couple of weeks as I went into final prep mode for the CFP ® exam. I already have the CFA designation, so many will ask……that must have been easy, right? No, mostly different material with a different emphasis.  I’ll get into that in another post, but for now, thankful that we passed!

Also time to sit back and be thankful for all that has gone right in life. I often think we spend too much time focusing on the negatives.  If you only look at the evening news, you can easily become depressed.

So back away from the TV (unless it is football or basketball) and take a few moments to appreciate life’s little gifts.  Our time is short, enjoy the ride, and be sure to take time to smell the roses!!



Morningstar Troubles: Market Efficiency on display.

This past week featured an interesting event……..the plunge and rebound of Morningstar’s Stock price. It’s all related to the value of their highly regarded Star system for mutual funds.

Is this new? To those of us who believe in Market Efficiency (the concept that all public news is reflected in current stock prices. To beat the market, you will need material non-public information – an activity which is illegal.)……this was a non-event. There is a wealth of research showing that markets are efficient.

So why the fuss? Turns out many in the investing public do not believe and/or understand the concept of market efficiency. If they did, they would be skeptical of ratings and not let them hold sway over their investment decisions. But they don’t. The ratings do have a meaningful impact on investment activity. So when the WSJ did some analysis and found the predictive power of the ratings to be …er….um……..not as powerful as many believe, it caused the value of Morningstar’s Stock to fall. (and it bounced back the next day – who is going to remember this stuff in 6 months anyway?)

For an individual the lessons are clear:  if professional managers have trouble beating a market on a consistent basis, what chance does a part-timer (individual investor with another job) have? I’d say very little.

However, Capitalism and our financial markets are a great creator of wealth. Spend your time focused on issues that have a greater probability of increasing your wealth.  In other words….make a budget, save a fixed % of your earnings year after year, invest in an efficient manner (this will mean avoiding looking at active mutual fund Star rankings), and get an advisor who can help coach you through these issues. Life is short, get out and enjoy it!



Market Too Expensive? – Reversion to the Mean at work. Déjà Vu version.

As the Dow rolled past 23,000, once again the pundits are sounding the alarms.  They will eventually be right (a broken clock is right twice a day), but until then,  I still think you should keep the following in mind……….

As the Dow Jones Industrial Average hits new highs, there are many claiming it to be “over-valued”, “ready for a correction”, or “expensive”.  Most of these explanations share the same basic premise – reversion to the mean.

Reversion-to-the-mean (RTTM) simply implies that there is some “true” or “appropriate” level for valuations in the stock market.  Most of these values are derived from historical analysis.  Pundits compare today’s values to some sort of average (or mean) .  They then conclude that the market will be headed back towards its historical value in the future – hence the use of the term reversion.  So, the concept is that the market is off its long-term average value, and will be drawn back to this value over time.

Two big problems with these arguments.

1.  What is the “force” that drives the market back?  The RTTM concept works well in physical sciences where all behavior of particles is driven by the four fundamental laws of physics.  What fundamental law is at work here?  It’s just us humans using our minds. (Kind of scary I know.  What limits human creativity?)

2. The whole argument rests on the notion that we know what the “correct” or “appropriate” level is.  In statistics, they use sampling techniques to estimate what the “mean’ value is for a given population.  Works well if the population being studied is normal, follows fundamental physical laws, and the size of your sample relative to the size of the overall population is known.

But what do we know about the history of capitalism?  Will it continue for another 100 years? 500?  What makes us think what we have seen in the past is indicative or typical?  Maybe it was just an abnormal episode?  Do we want to look at the “mean” of an abnormal episode?

The best example of how these arguments can lead us astray was our last “great recession”.  We had only seen a national home price decline of large magnitude during the great depression of the 1930s.  We assigned AAA values to securities because we thought we knew the range of possible outcomes by looking back at history.  We were not ready for the national home price decline we ended up experiencing which was worse than implied by looking at the stats.  Oops.

All this to say that you need to know what you do not know.  We really do not know the “correct” or “appropriate” values for the stock market.  History can serve as a guide at times, but it does have fundamental flaws that will never be solved.  Be wary of the RTTM arguments that pop up every time we are above some long-term average – it really does not tell you much about where we are headed next.


Gun Violence: Your Investments Can Speak.

The recent events in Los Vegas can be depressing for two reasons; first, the tragic loss of life is horrific. On top of that is the realization that common-sense gun control is a political long-shot for the moment.

Is there anything one can do? Yes – two ways. Continue on with conventional political pressure – call your congressperson, senator, or any representative and let them know your views. At the same time – look at your investment portfolio.

Over the past several years there has been tremendous growth in SRI – Socially Responsible Investing. The premise is that investments must pass through Social Responsibility filters before they can be included in your portfolio. Currently, there are a wide variety of funds that do not invest – or limit investments – in gun manufacturers. I will not go into them here, I just want to touch on some common objections to SRI.

Objection #1 – Your returns will suffer. The magnitude of this issue will vary by manager and their investment style. If they run a concentrated portfolio and a social screen would kick-out one of their favorite investments, the impact could be meaningful.

If your manager utilizes broad diversification and factor tilts, the impact is lessened, as other investments can serve as substitutes. The result is just a negligible impact on performance (if at all).

Objection #2 – SRI is expensive. Yes, there is extra work for an SRI fund and it will raise costs somewhat. This issue is always present in investments, and can be mitigated by looking to the fund families that worry about costs. Vanguard, Dimensional Fund Advisors and TIAA (amongst others) are managers that have SRI offerings and worry about the final cost to investors.

The bottom line is that you can deploy your investment funds in a manner that is more closely aligned with your values. The SRI universe is much more developed and accessible today. It is maddening to feel there is little you can do to affect change, but knowing your capital is deployed in investments you can be proud of might help.



Sad truth: Picking stocks is bad for you, but picking the stock market is good for you.

Sorry the title of this post is so long. That means it will generate little internet traffic. 6 to 8 words is the sweet spot – my bad. However, this is an important idea that does not get all the press it deserves. So I am here to help out.

The New York Times re-visited an interesting topic the other day. You can get the direct link here:  NYT Link . The basic message is that much of the wealth created by the stock market is the result of just a few tremendously well performing stocks. The average stock is more likely to be a dog. So, if you are building your own portfolio, you better hope you choose these super-star stocks that propel the entire market higher. (and do not sell even after it has quadrupled etc. etc.). If you don’t, the article explains, often you would have been better off in a one month T-Bill. (itself a pretty poor long-term performer).

One way to be sure you catch these Super-nova stocks is to buy the entire market. i.e. Passive Investing. Guaranteed to catch all the winners, losers, and the super-stars that help us all build wealth. Nothing magic about these concepts – it is simply that the range between best and worst performing stock is far more extreme than we are used to seeing in everyday life. That guy that speeding on the freeway? Likely he was going 20% faster than you, not 2000% faster.

The chances of picking a super-nova stock? The same as the chances of picking the worst stock out there. By buying all of the stocks in the market, (and tilting the weights to favor value, small cap, profitability etc.) you are guaranteed to capture the next rising star. You catch the wonder that is Capitalism and its ability to create wealth by taking on risk.

So, do the smart thing. Resist the temptation to pick individual stocks, and pick the smarter strategy – pick the stock market. Your retirement will be glad you did.