Reversion to the Mean is a Bitch – 3 Ways to Avoid Getting Killed When The Next Market Pullback Occurs.

Dear friend and teacher Lance Roberts’ writings get my attention.

Admittedly, his work feeds my confirmation bias as we tend to agree on most topics, especially when it comes to stock market valuations, the macro-economic climate, reversion of averages and most important – the mistake of benchmarking a portfolio to a market index like the S&P 500 or as I call it:

“My brain and ego are both bigger and smarter than the market as a whole.” 


Investment managers who claim to consistently beat the market also will boast how they’re above-average drivers, lovers, parents.


Avoid them.

It’s this kind of performance-based thinking (or lack of it) that seduces investors to take portfolio actions based primarily on greed. Or fear. Most investors generate above-average returns, didn’t you know?

Until the math is done to prove how well below-average their returns are.

Some compare their lousy returns to a friend’s (embellished) performance and grow frustrated enough to place their risk tolerance aside and create portfolios which are too aggressive for their nature. At the first sign of market pull back I’ve watched these investors sell everything and ostensibly suffer unnecessary losses.

As people we are bigger than life in our own heads.

big head

It’s that kind of myopic ego-based bullshit that can take over the mind of a money manager who then takes on more risk at the wrong time. And if your money manager is getting increasingly aggressive NOW, then this is the WRONG TIME.

And it’s with your money.

Lance’s recent piece 30% Up Years: The Case For “Cashing In” resonates with me.

The writing doesn’t need explanation – it’s perfect as is. It requires an awareness. The messages shouldn’t be minimized even though we are in a favorable market environment which is based in part on seasonal factors along with money managers’ desire to play “catch up” on returns as they close out the year.

In other words, we have moved beyond fundamentals into momentum territory. Just be aware!


It’s ok to participate if you understand what’s driving stock returns. If you believe it’s primarily fundamentals, you should stay out now. Stick with short or ultra-short term bonds and go live your life. Be happy.

Don’t fool yourself.

At this later stage of a cyclical bull market, self-denial, hubris and financial industry media will get you in trouble.

Investors and their financial partners must remain vigilant of risks of markets drunk on unprecedented Federal Reserve policies and publicly-traded corporations who continue to book record profit margins by treating employees like indentured servants.

In case you’ve been under a rock: Corporations survive solely to placate shareholders and buy back shares.

Employees and customers have limited influence on senior management. It’s worse since the financial crisis.

As former U.S. Secretary of Labor Robert Reich lamented recently through social media:

A few decades ago, when American companies were still American and when corporate profits still bore some relationship to the wages of most Americans, the nation fretted over the “competitiveness” of U.S. corporations. But now that the stock market has gone through the roof while most Americans are in the cellar, that old worry seems a bit quaint. For example, Walmart, America’s largest employer, …is highly competitive internationally. Yet it claims it can’t afford to pay its U.S. workers more than the miniscule wages it doles out to them. The claim is dubious. According to data compiled by Bloomberg, Walmart has bought back about $36 billion of its stock over the past four years, and in June announced another $15 billion of stock repurchases. The effect is to bolster the value of the remaining shares of stock.

Corporations will overwork labor and continue to perpetuate wholesome corporate philosophies driven underneath by limited vision, anemic research and development, and an ongoing fear that’s pumped into the brains and hearts of their employees.

The message by middle management remains pervasive: “Be thankful you have a job,” is still heard in meetings (I’ve asked. I know). The words are considered “motivation.”

Unfortunately, many workers are too frightened to leave or are saddled with too much household debt so they continue to languish in their soul-sucking corporate positions.

Perhaps your employer is different.

cubicle death


Hey, as a money manager, I love it!

It’s one of the reasons, even though I’m cautious, that markets can continue to do well through the end of the year and first quarter of next. 

At this mature stage of a cyclical bull market, it’s important to avoid allowing your hubris to go haywire. Don’t believe you’re just so damn good, your next goal should be to “beat an index.”

Here are Lance’s rules as to why it’s impossible (along with my commentary); I’ll add three ways to let keep yourself in check as markets eventually revert to a mean:

“While Wall Street wants you to compare your portfolio to the ‘index’ so that you will continue to keep money in motion, which creates fees for Wall Street, the reality is that you can NEVER beat a ‘benchmark index’ over a long period. This is due to the following reasons:

1) The index contains no cash. And you should always have cash. Cash is an asset class, cash is for withdrawals, cash is the ultimate diversification, cash is there to make attractive purchases.

2) It has no life expectancy requirements – but you do. Stocks for the long term? Can you wait 30 years to break even when you purchase at lofty valuations? NO.

3) It does not have to compensate for distributions to meet living requirements – but you do. You also should maintain two years worth of distributions aside for living expenses in retirement.

4) It requires you to take on excess risk (potential for loss) in order to obtain equivalent performance – this is fine on the way up, but not on the way down. Losses are tougher to make up. If you lose 50% you’ll need 100% to get back to even.

5) It has no taxes, costs or other expenses associated with it – but you do. If you invest you’re gonna have fees, commissions. There is no free lunch when it comes to expenses.

6) It has the ability to substitute at no penalty – but you don’t. Commissions, taxes will drag on returns.

7) It benefits from share buybacks – but you don’t. On occasion you benefit from a stock that now has better EPS due to buybacks, however, there’s no consistency to this for you.

In order to win the long term investing game, your portfolio should be built around the things that matter most and beating an index isn’t one of them. It’s great for cocktail party conversation around holiday season, but that’s about it. 

Here’s what’s important. Never forget:

* Capital preservation (A lost opportunity is more easily replaced than lost capital).

* A rate of return sufficient to keep pace with the rate of inflation.

* Expectations based on realistic objectives. (The market does not compound at 8%, 6% or 4%. Losses destroy the effects of compounding returns). 

* Higher rates of return require an exponential increase in the underlying risk profile. This tends not to work out well.

* You can replace lost capital – but you can’t replace lost time. Time is a precious commodity that you cannot afford to waste.

* Portfolios are time-frame specific. If you have 5-years to retirement, but build a portfolio with a 20-year time horizon (taking on more risk), the results will likely be disastrous.

Three ways to avoid losing your ass, right now:

1). If you must commit capital to stocks 5 years after the financial crisis, go SMALL. Let’s face it: You missed the big ship. Go for the dinghy and be happy. Keep your stock allocations below 50%. Keep the rest in short term fixed income or yes, cash.

2). Work with an advisor who will calculate your required return. To meet a personal benchmark. THEN WORK BACKWARDS into the asset allocation plan. Most financial consultants are there to sell you product, not to calculate your desired return. And remember generating return takes work on your part, too – Increased savings, lower debt-to-income household ratios. working longer. There’s no sexy magic here. If you’re being sold an investment first: WALK. 

3). Now is the time to stop listening to friends and family about stocks. The extremes in sentiments will confuse you. Aunt Millie sold out in 2009 and won’t go back. She’s awaiting the “big one,” the crash.  Joe went “all in” two years ago and is up a billion percent. There’s a happy medium. Cut the noise. Create rules, work the numbers. Understand where you are behaviorally when it comes to risk. Does your adviser assess you behaviorally or utilize some bullshit risk tolerance questionnaire which tells you nothing about yourself.

Pay the 40 bucks, take the test and bring the results to your advisor. Most likely, you’ll need to do this before you sit with a financial pro.


As Lance writes so perfectly: “The index is a mythical creature, like the Unicorn, and chasing it takes your focus off of what is most important – your money and your specific goals. Investing is not a competition and, as history shows, there are horrid consequences for treating it as such.”

Be thankful for good advice this year.

Know your limitations.

Accept who you are from a risk perspective.

Work with an objective financial partner who listens to you.

And get your ego out of your portfolio.


Governing Money – Lessons from the “Governor.”

In a former life, the world before hell and earth went inside out, Philip Blake was a husband, father. I think he sold insurance (and wasn’t very good at it). He probably carried too much debt, drank too much  – I’m certain erectile dysfunction was a grim reality.

I bet he fantasized about having sex with the twenty-something barista at Starbucks or even worse – the overweight college dropout with crooked, yellowed teeth and soured look from behind the register at the local Piggly Wiggly convenience haven. In other words – HO HUM. Mundane. An existence we all mistake for a life because we were told that’s what life is, ya idiot. Or as a friend would say – lame ass!

And now?

He’s bigger-than-life in a world shrinking (literally) from decay. Ain’t that a bitch!

walking dead zombie A former insurance prospect? You betcha!

The “Governor” as he’s been proclaimed by the inhabitants of the fictional town of Woodbury, exists, rules, and on occasion, thrives (code for: gets some). You know what that means. Wink, wink.

It appears the whole end of the world thing has added pep to his step. He dons cool vests and brandishes a big-ass knife low on his hip. He’s handy with an automatic weapon. Yep – he’s discovered his true, higher calling, although the path he takes on occasion, would classify him as certifiably insane. Well, if the world was as it was, once upon a time – the one of sales calls, stopping for beer and milk on the way home to the mortgage payment; praying to get it up on a weekend for the wife he’s long tired of. But in this new world?

He’s the king, baby!!

the governor hip

The Governor appearing calm, collected in front of Woodbury residents. Notice the power stance (I’ve eaten a great breakfast at the coffee shop behind him and was able to leave town, peacefully).

But this new normal is truly abnormal. It requires a huge (over) dose of out-of-the-box thinking followed by unorthodox actions to keep him and his close-knit brood, alive. Fight or die. Stay alert because at any moment you may become a food source for ravenous, rotting flesh eaters and/or victims to the living who want what you have, what you worked so hard to build. All you possess can be gone in an instant. In this place, you fear the living and dead, equally.

His life demands tremendous inner reflection, strong leadership, a healthy dose of paranoia, an intense hunger for knowledge of the deademy (my zombie bon mot for enemy,) stamina, charisma, a penchant for strong tea, an instinct to survive and on occasion, cold-blooded murder of his own species (the living) which is an odd way to re-populate the planet. The deeper he believes in his mission to preserve what’s left of the human race, the more he perceives outsiders as threats. Appears almost everyone is an outsider.

fish tanks

The Governor laments the “experiments” that just didn’t work out.

The end of the world definitely raised his stature. Forced him to rise above. Imagine a former insurance hack re-born as a new-found savior. Only in the America of the living dead. Bittersweet (bloody) success. Climbing the ladder of what’s left of the human race.

The Governor fights passionately to protect what he’s re-created – a tree-lined, bucolic microcosm of once was; the time before this time or whatever this putrid shit is now. He preserves, behind big makeshift walls made of of fat tires and metal, the lives and well-being of his followers. The ones who still breath and don’t seek to eat each other.

In this Georgia sanctuary, residents adhere to daily routines like doing laundry, taking the kids to school and on occasion, they gather together to enjoy a hearty zombie gladiator fight in the center of a dilapidated makeshift arena. Hey, we must have our sports events no matter what, right?

Born from the imagination of master comic-book genius and creator of the concept for the hit show, “The Walking Dead,” Robert Kirkman’s “Governor,” is possibly one of the most complex characters to bridge the annals of comic and television history.

the governor walking dead

The Gov, played by Brit actor David Morrissey, in a pensive mood.

Something has gone dreadfully awry on the road to Woodbury (when it’s not dressed up for television this town is really the peaceful haven of Senoia, GA). You can see it in the eyes of the town folk. They’re scared of Philip Blake. Philip Blake who knocked on their doors once trying to push term insurance. In that old life, they didn’t open the door or got the dog to chase him. Maybe a family pet bit him.

I guess change happens when you can no longer self-regulate (or have no reason to try) – you create the rules, acquire minions to reinforce them. Ostensibly, a bit of sanity erodes as you’re tormented by the memories of those you lost, those you cherished, to wide-mouthed bites of growling corpses who drool black goo. When your back is truly against the wall – you shake things up.

Ponder the horror long enough and the snap-crackle in your mind ostensibly goes pop. You’re no longer who you were. The person inside, the one who worried about following the lawn fertilization schedule to the letter on weekends, is in a dark place now. Deader than dead.

The Governor has allowed the demons to occupy a great portion of his psyche and they rest on his mind on a full time basis. He can’t win against them any longer, so he commands them steer them to push him forward. Hey, when in Rome!

Black inside, tortured but he’s moving. Getting shit done. Every day.

He’s been re-shaped, reborn, by the end of the world he knew and the path he cuts to cling desperately to what was. After observing him you cannot decide who’s more rotted inside – him or the staggering corpses who meander around the parameter, tripping over debris, bumping into burned-out husks of rusted autos of drivers not lucky enough to escape from rotting marauders of warm flesh.

To the people he protects, the Governor is the best thing around. He’ll do whatever is necessary to guard his flock from strangers – living or dead – as long as they’re loyal. There’s something admirable about his rise to power, his grandiose vision to take back a human race most likely lost forever; yet, his actions at times are so horrific, his thought process so cold blooded, you almost wish to take your chances with the ghouls outside the walls of Woodbury.

He does have his heartwarming moments. Like when he talks soothingly to the chained and straitjacketed pre-teen zombie  who once was his daughter Penny. He keeps  her nestled in what appears to be a human kennel, deep inside his quarters. He brushes her hair (which falls out), sings to her.

Penny snarls and snaps at him as he releases the chained collar tight around her neck – her jaws make a  sharp snap sound, directed toward his warmth, like a blind ravenous canine searching for a steak in the dark. She’s so long gone, however. Yet, it’s Philip’s very last cling to hope, to who she was, the young life with so much potential she represented. Represents still, as he works with a genius professor geek deep in the bowels of Woodbury who works fervently to discover what makes these dead things tick. And perhaps, just perhaps, a cure!  He denies the fact there’s truly no cure for what ails precious Penny (except a bullet to the brain).


A heartwarming moment as Penny noshes on body parts of the once living who faced the Governor’s wrath. 

And if you watch AMC’s hit show “The Walking Dead,” you’ve been fascinated by the Governor and his actions. Why? Because you know (oh, you do), that you can go bat-shit wacko if faced with the same horrific circumstances. You would be altered in ways you cannot imagine. You would work effortlessly to cling to what was, because what was there and now is gone changes you. Lose enough people you love, then you tell me.

There’s a little bit of Philip in all of us. 

There’s a bit of anger, insanity, in all of us. 

There’s a bit of bad behavior where the living are slaughtered, the dead walk (figuratively) in all of us. 

There’s a bit of motivation to protect Woodbury, the safe haven, in all of us.

And when we sit alone and stew about this stuff, allow the demons to play handball against  our psyche, then we are no longer insurance salespeople, stockbrokers, artists, psychologists, the “sane” ones. We are indeed – governors.

Random Thoughts:

1). Construct the walls around you (carefully). Just be mindful of the materials you use. Employ love, civility, warmth and mix in a small dose of paranoia for those who attempt to enter your Woodbury. On occasion, you’ll let undesirables through however, do what the Governor does – dispose of them quietly and explain to yourself how that person, entity, drug, drink was endangering the lives of your minions (or brain cells).

2). Be open to what breaks your current mindset. Recently, I had a revelation after an e-mail exchange that allowed me to easily remove someone from my Woodbury. Realize that Penny isn’t gonna return, put your own back against the wall, get winded. Then wake up. Instead of changing for the worse (as you’ll see in the Governor in the remainder of season 3 and 4), bounce hard against that wall and propel forward. Philip Blake has been broken by the horror of his experiences. He had good intentions in the beginning, but something really bad happened along the way. Watch your path. Create guardrails to not veer off to blackness.

3). Don’t be afraid to retaliate now. As the economy improves, I’m personally seeing, hearing, about people breaking the chains of their old employer and discovering healthier ways to make a living. Something I predicted in my book “Random Thoughts of a Money Muse.” Check out the link below, here’s a blurb from a recent CNBC article outlining the trend:

The steady drumbeat of “you’re just lucky to have a job” that played through the recession is finally starting to fade and employees may be getting ready to say, “I quit!” and bolt for the nearest exit.

Don’t feel bad – be slightly angry about how you’ve been treated. Rise above. You’re the Governor over your fate and as the economy slowly recovers, you should get your mental minions to focus on a brighter future.

4). Get shit done. Every day. For a time you’ll seethe, give yourself that. Then go ahead and continue to tend to your walls which surround the quaint town in your mind. Eat healthier, exercise more, find better conversationalists, seek friendships where you didn’t look before. Read a book. I’m reading Eckhart Tolle’s Stillness Speaks at this time.

5). Be bad. It’s ok. Just don’t appear to be above, criticize, or correct others. You’re not perfect and on occasion, you rot and stink worse than the walking dead. And your opinion is just that especially when wrapped in judgmental tone. You’re getting tuned out, too. Fast. The Governor has convinced himself that even the horrific things he does is for the good of his little community. He’s lost the ability to judge his behavior, self correct. You cannot do the same. Oh, unless the dead want to eat you. Then feel free. Have a glass of wine, a dessert, kick a wall (I accomplished all three last month).

6). Appreciate what you have. Now. Before the dead come back and the world goes to hell. Learn to appreciate those you care about. Feel good about your possessions; realize there’s a point when too many possessions eventually own you, especially if you’re taking on debt to “own” them.

7). Appreciate and gain protection. I know I’m making fun of Phil being a pain-in-the-ass insurance salesman in another life, but do not discount the need for life insurance. Bypass the salesperson. And think term insurance. It’s the cheapest, purest type of insurance. One of the best life free life insurance needs calculator out there is here:

For insurance quotes investigate or

8). Know your enemies. Inside and outside your skin. Which emotions hold you back? Are there people in your life who do the same? Self assess, write it out, drink some strong tea or coffee and take some time to analyze. Then toss out of Woodbury, those threats to your well being.

9). Learn to let go. When the Governor lost his beloved Penny to a samurai blade to the head, you can tell how broken he was and about to become (terrific acting by Mr. Morrissey). You need to let go of what’s dead already. A love, a longing, a feeling, a thought, a friend, a lover, an actual shopping cart with wheels that work at the supermarket. Learning to let go means less stress. Laugh more.

10). Stand like the Governor. I mean it just looks cool, right? Hands on hips. Your body language says a lot about you.


The set of “The Walking Dead.” Note the tire, metal walls. Also, the building in the background (with ladder) was the place where the Governor & Michonne fight was filmed. 

11). Don’t lose yourself in anger and regret. With his beloved Penny gone, the Governor has lost all hope (and sanity). He is consumed with the torment that goes along with surrender of the traits which make one human. And a white-hot anger about his failure to protect Penny was enough to break his sanity. Regret and anger has now overwhelmed every thought, each motivation. Perhaps a cure against living death was close.

It didn’t matter now.

It was sweltering on the “set” of Woodbury during Season 3. Then he emerged. Walking behind us. David Morrissey. In his cool signature Governor vest. Carrying a script.

When I asked my daughter why she sat off to the side instead of joining me in a discussion I was having with him, she said bluntly:

“Dad he scares me. He’s the Governor.”

Comic Gov

The Walking Dead comic-book version of the Governor.

Impressions are everything.

Aren’t they?

From mental imprints, projections are born.

Out of grief.




Don’t let them consume you.

Work to break free.


I have faith.

You’re not the Governor.

A new season of “The Walking Dead” begins October 13, on AMC – 9pm/8pm CST.


Five Silly Signs of Economic Recovery – What are Yours?

As economics is a social science, we all exist or swim in the soup of its existence. The best economic indicators are within 3 miles of your house. No really, they are. I’m always observant of the world, mostly my world, as a launching point for economic discussion or analysis.

I’ve learned to get better at taking in the signs of my current surroundings, stepping back, and examining how they apply to everyone else.  On occasion, I’m able to at least scope out an investment idea which ostensibly requires further homework and some hair pulling. But that’s ok. I’m thinking. I’m observing. I’m talking. I’m taking notes.

However you want to term it – Economic conditions are sluggish, sort of ok, not so hot; as a friend of mine would lament – sort of “meh.” I’m thinking the economy is somewhere between “meh,” and “yay!” Like pergatory. No fire, brimstone. No heaven. Just sort of blah. There’s an economic angel in there somewhere waiting for wings. For the first time, in a long time, I’m seeing a decent positive tone to my 5 hometown signs of economic recovery.

Random Thoughts:

1). Waitstaff at my local Denny’s is progressively less appealing to the eye. During the throes of the financial crisis, I noticed the waiters, waitresses, cashiers, looked like models. Good-looking people were serving me my Grand Slam Breakfasts. Now, not so much. The current staff messes up my order more often now, too (I ordered over easy not scrambled). In my mind, the lookers have moved on to better opportunities. I’m willing to sacrifice my breakfast for the greater good of economic prosperity.

 Why did my sexy waitstaff wander off?

2). It takes twice as long as usual for Domino’s to deliver my order of chicken wings. My pup Princess hates this even more than I do. I ask: Hey, what’s up with the wings taking an hour to fly over here? I’m sorry sir we are really, really busy. I don’t understand it. And it’s a Tuesday. I always tip the Domino’s delivery people 20 percent.

3). Less bodies at the local gym at 2pm weekdays. I shouldn’t even be there at 2pm weekdays. It seemed that during the “Great Recession,” I couldn’t find an available treadmill. Now? Rows and rows (and rowing machines). Perhaps it has to do with people waiting for their chicken wings from Domino’s and losing weight from starvation. May be coincidence but I’ll take it as a positive.

 4). Higher heads. I’m noticing progressively higher tilts to the jawlines. Like the people on the street are working through this economic cycle, getting a better handle on their household financial situations, feeling lighter, less burdened. I’m seeing more of a shine to people’s eyes. Perhaps more of a focus on the little things that are more important. I like it although I’m a bit paranoid so I’m always thinking people are staring at me for some reason. At the zenith of the housing bubble I was downright paranoid all the time. Now? Slightly. Good sign.

 I’m walking here..

5). Everywhere I go temporary license plates. I know for sure autos make up more of our GDP growth than housing does. I’m seeing more temporary tags than ever on the back of cars. They’re usually poorly printed paper tags that look like your kid drew them using black crayon on white posterboard.

Ok, these are fun, perhaps silly. We are completely entitled as deep inside we are all economists.

You know you have your five. Or two. Or one.

Share them. Write this stuff down. See if you’re correct in a year.

What  – you have anything else to do?

Not an economic sign.