Tag: NBA

All That Jazz

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Jerry Sloan, the legendary coach of the Utah Jazz, recently passed away. Mr. Sloan had a stellar career as a player and a coach. As a player, he was twice an all-star, and his number was retired by the Chicago Bulls.  In 2009, he was enshrined in the NBA hall of fame for his coaching ability. He coached the Utah Jazz for more than 20 years, “the longest coaching tenure with the same team in professional sports,” and retired as the 4th winningest coach in NBA history.[1] Mr. Sloan was consistent and respected.

Coach Sloan led the Utah Jazz to their first NBA finals in 1997 with players Karl Malone and John Stockton. The Utah Jazz teams under Sloan weren’t flashy like the Lakers, nor did they have the pedigree of the Celtics, and they weren’t as coarse as the Pistons, but they were fundamentally sound, and nice – like most people in Utah.

If Coach Sloan were an investment professional, he probably would have been a fan of dollar-cost averaging, a consistent strategy that relies on fundamentals and patience. The dollar-cost averaging strategy lacks the flair of private equity, liquid alts, futures trading, IPOs, or option collars. Still, it is stable and reliable, and for most investors, it delivers results.

How does dollar-cost averaging work? This strategy requires you to invest a fixed dollar amount each month into a mutual fund or several funds. Let’s look at an example. You decide to invest $500 per month in Vanguard’s 500 Index Fund (VFINX) over several years.

  • One Year: After one year, your investment is worth $5,950, and it generated a loss of 1.83%.
  • Five Years: After five years, your investment is worth $37,298. It generated an average annual return of 8.92% and produced a gain of $7,298.
  • Ten Years: After ten years, your investment is worth $105,927. It generated an average annual return of 11.11% and produced a gain of $45,927.
  • Twenty Years: After twenty years, your account is worth $310,255. The 20-year average annual return was 8.74%, and it produced a gain of $190,255.
  • Thirty Years: After thirty years, your account is worth $818,929. The 30-year average annual return was 8.79%, and it produced a gain of $638,929.
  • Forty Years: After forty years, your account is worth $2.97 million. The 40-year average annual return was 10.24%, and it produced a gain of $2.73 million.

For the dollar-cost averaging strategy to reward shareholders over time a down market is needed, and the lower, the better. If you’re investing for the long haul, a down market will allow you to accumulate shares at lower prices. Your share accumulation will pay dividends when the stock market recovers because you will own more shares at higher prices. If you participate in a 401(k) plan, you likely witnessed this happening in your account.

If you’re looking for an easy way to accumulate wealth, look no further than the dollar-cost averaging strategy. A calculated, consistent investment strategy over time is a winning formula. This strategy is easy to institute, and you can do it with an IRA, 401(k), 403(b), 529 Plan, or taxable brokerage account, and you can start it with any dollar amount.

Courage is the most important of all the virtues because, without courage, you can’t practice any other virtue consistently.” ~ Maya Angelou

May 30, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and are not suitable for every investor.

 

[1] https://www.hoophall.com/hall-of-famers/jerry-sloan, website accessed May 29, 2020.

 

The Los Angeles Lakers

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The Los Angeles Lakers are iconic. A dynasty. They’re one of the great franchises – not just in basketball, but all sports. They’ve won 16 NBA Championships. Their roster has included legendary players like Magic, Kobe, Shaq, Wilt, Kareem, Mikan, Worthy, Baylor, Jamal, LeBron and The Logo.

I grew up watching the Laker’s in the ‘80s with Show Time. Their battles with the Celtics, Pistons and Bulls were epic. A Magic led fast break, or a Kareem sky hook was magical. Listening to Chick Hearn enhanced the experience.

This season the Laker’s have fallen on hard times with a dismal record of 32-41. They’ll miss the playoffs for the 6th year in a row and snap LeBron James playoff streak. He had made the playoffs every year since 2005 and appeared in eight consecutive NBA Finals.

LeBron James is arguably the greatest player of all time. Despite his pedigree, it wasn’t enough to get his team into the playoffs. His abilities couldn’t make up for a less than stellar roster. When Mr. James was winning championships, he was surrounded by strong teammates like Dwayne Wade, Chris Bosh and Kevin Love.

It takes more than one strong performer to generate wins. It takes a team balanced with specialists.

Most investors are familiar with story stocks like Facebook, Apple, Amazon, Netflix, or Google (Alphabet). These high-flying brand names probably anchor most individual portfolios. It may be easier to identify these companies because they’re constantly mentioned on the airwaves and social media. But how do you expand beyond these highfliers? How do you build a supporting cast? How do you identify the 15th best stock in your portfolio?

Is it possible for a superstar company like Apple or Amazon to carry a portfolio of average, or below average, stocks? If you owned Weight Watchers, Camping World, Stamps.com, PG&E, PetMed Express, Red Robin Gourmet Burgers, Shutterfly, Kraft Heinz, Tupperware, United Rentals or Zillow your portfolio would have had disastrous results as each of these stocks was down more than 35% last year.

A portfolio of individual stocks may leave you exposed to concentrated losers, especially if you only own a handful of companies.  In addition, your portfolio may ignore categories like small companies, emerging markets, real estate holdings, or (gasp) bonds.

A diversified portfolio of low-cost mutual funds or ETF’s will give you an opportunity to find winners around the globe.

Dimensional Fund Advisors Global Allocation Portfolio is an excellent example of a diversified portfolio. The fund’s asset allocation is 60% growth, 40% income. It owns more than 13,500 securities scattered around the globe through eleven different mutual funds with exposure to stocks, bonds and real estate. It has generated an average annual return of 9.47% for the past 10 years.[1] It’s not dependent on one superstar stock. It performs well because it’s diversified with a strong supporting cast.

Rather than trying to find one stellar stock, build your investment portfolio with a broad mix of low-cost mutual funds based on your financial goals. Your diversified account will give you exposure to several magnificent companies. It will also remove anxiety by eliminating the need to find the “best” stock. You’re no longer dependent on the daily movements in the stock market because you now own thousands of investments from around the world.

So, go ahead and draft a portfolio of low-cost funds based on your goals and start winning the investment game today!

The game’s in the refrigerator, the door’s closed, the light’s out, the eggs are cooling, the butter’s getting hard and the Jell-O’s jiggling. ~ Chick Hearn

March 26, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

 

[1] YCharts: March 2009 – March 2019

Trust the Process

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The Philadelphia 76ers mantra has been “trust the process” after their GM, Sam Hinkie, was hired in 2013.  Mr. Hinkie said, “We talk a lot about process – not outcome – and try to consistently take all the best information you can and consistently make good decisions. Sometimes they work and sometimes they don’t, but you reevaluate them all.”

The process took time to take hold as the team won few games from 2013 to 2017. In 2016 they only won 10 games.  In fact, they were so bad they broke the NBA’s record for consecutive games lost.[1]

Because of their dismal performance, they were able to draft elite college talent through the league’s lottery pick system including Joel Embiid, Ben Simmons and Markelle Fultz.

Finally, in 2018 the process worked as they won 52 games and won their first playoff game since the 2012 season.

The process worked for Mr. Hinkie and the 76ers because he offered the fans a “concrete plan based on quantitative analysis.”   It appeared everybody was on board with the process except the owners and in April 2016 Mr. Hinkie stepped down as the GM.  Now that the 76ers are winning it appears the process is working, and Mr. Hinkie has been vindicated.

Financial planning is a process.  The gathering of your data and the discovery of your goals are major components for a successful plan. The journey to your finished product can be more important than the plan itself.  It will be your financial playbook expressing how best to approach your goals and investment selection by highlighting the strengths and weaknesses of your finances.  Once these items have been identified, you can focus your efforts to improve your finances by enhancing your strengths and improving your weaknesses.

After your plan has been implemented it’s important to reevaluate it often.  An annual check-in is recommended.  The review and analysis of your plan will allow you to make the necessary changes so that you can keep your financial team moving forward.

It may take years before you reach your goals, so patience is required.  The 76ers waited five years before they obtained their goals of reaching the playoffs.  They’re now winning and enjoying the fruits of their labor.  You may suffer setbacks along the way to obtaining your goals but if you follow your process you’ll be able to enjoy the fruits of your labor as well.

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” ~ W. Edwards Deming

 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

4/16/18

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.

 

 

[1] https://qz.com/890093/trust-the-process-how-three-years-of-losing-on-purpose-turned-the-philadelphia-76ers-into-winners/, Dan Kopf, January 28, 2017

Nothing but Net.

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One of the best sounds in sports is the swish of basketball as it passes through the net.   The ball flies over the rim and touches nothing but net.  I love watching long range shooters drain effortless, smooth three pointers.   Some of the greatest shooters in the game have been Larry Bird, Kobe Bryant and Steph Curry.  My favorite long range shooter was Meodowlark Lemon of the Harlem Globetrotters.  He would meander to the half court line, say a few jokes, launch a sky hook and it would swish though the net.

My friends and I used to play H-O-R-S-E at the local park.  Our shots were creative and crazy.  The stakes went up when one of us would call a shot with a swish.   The basket would only count if it was a swish. If the shot hit the backboard or the rim, it didn’t count.   The swish shot put added pressure on the players.

Investing has its own version of nothing but net.   It’d be nice to bank gross returns but this isn’t possible.   Gross returns are impressive but you can only spend net returns.  To calculate your net return, you must subtract inflation, taxes and fees.  The net return is what you can spend to buy food, gas and other household items.

Let’s review some net returns.

Stocks.  The gross return on stocks from 1926 has been 10%.  A 10% return is impressive especially when it’s compounded over 90 years.   Inflation during this time frame averaged 2.9%.   Subtracting inflation, the gross return for stocks falls to 7.1%.   Minus a 28% tax rate lowers your return to 5.1%.  If you work with an advisor who charges 1%, your net return is now 4.1%.   Netting out inflation, taxes and fees your 10% gross return cascades 59% to 4.1%.  A $10,000 investment in stocks will grow to $372,000 over 90 years with a net return of 4.1%.

Bonds.  Long term government bonds averaged 5.6% for 90 years.   Inflation reduced this return by 2.9%.  Subtracting taxes and fees your net return is now .94%.   A $10,000 in bonds is now worth $23,200.

Cash.  The cash return will leave a hole in your wallet.  The one-month U.S. Treasury Bill averaged 3.4% since 1926.   Subtracting inflation, taxes and fees your net return drops to a negative .64%.  A $10,000 “investment” in cash is now worth $5,611.

You need to own stocks to create generational wealth.   A heavy dose of bonds and cash in your portfolio is an air ball.   It’s recommended to keep a large portion of your portfolio in stocks so you can stay ahead of inflation, taxes and fees.

I hate to lose more than I like to win.  ~ Larry Bird

Bill Parrott is President and CEO of Parrott Wealth Management.  For more information on investment management and financial planning, please visit www.parrottwealth.com.

May 7, 2017

Note:  Your returns may be more or less than those posted in this blog.