Brady v. Brees

Tom Brady and Drew Brees are meeting in the NFC divisional playoff game today. Tom Brady is 43; Drew Brees is 42 – the oldest match up for quarterbacks in a playoff game. Messrs. Brady and Brees will be first-ballot Hall of Famers when their careers end. Mr. Brees is the NFL leader in passing yards with 80,358. Mr. Brady is second with 79,204. Mr. Brady is the all-time leader for touchdowns with 581, Mr. Brees is second with 571. Mr. Brady ranks eleventh for games played at 301, and Mr. Brees ranks sixteenth. Mr. Brees and the New Orleans Saints won Super Bowl 45, and he was named the games MVP. Mr. Brady is the all-time leader in Super Bowl wins with six, and he was named the Super Bowl MVP four times.

A quarterback aged 40 or more is rare, and these two are defying the odds. Despite their success, they have faced criticism and doubts. The San Diego Chargers traded Mr. Brees in 2005 after successful shoulder surgery. I bet the Charges wished they had kept him on the roster. He continually faces criticism about his height and arm strength. Phil Simms said, “Listen, his arm strength was never great.”

Tom Brady was the 199th pick, drafted in the 6th round, a snub he has not forgotten. In 2016, Max Kellerman “decided to declare that Brady’s career was about to be over sooner rather than later.”[1] He also called him “a bum.” After four years, Mr. Kellerman admits he was wrong about Tom Brady’s late-term playing career.

I’ve never met Tom Brady or Drew Brees, but I suppose they ignore the criticisms, and they probably aren’t aware of most things said about their potential “demise.” Rather than listen to the experts, they work out regularly, practice often, eat well, and repeatedly perfect their craft – they follow their plan and focus on what they can control.

The average NFL career lasts 3.3 years.[2] Mr. Brady is playing in his twenty-first season, Mr. Brees is in his twentieth. To survive and excel in the NFL for two decades requires perseverance, dedication, and tenacity – traits these two NFL greats have in abundance.  

As an investor, you may face criticism and doubt about your investing style or portfolio. TV personalities, experts, analysts, relatives, neighbors, friends, or social media trolls may give you pause to think about your financial future. You may hear others say: “How come you own that company?” or “Why don’t you own this company?” or “The stock market is going to crash, you should sell your stocks!” Tune out the noise and chatter.

To create generational wealth, focus on those things you can control and ignore the rest. Here is a shortlist of things you can manage.

  1. Savings. How much money do you save per month or year? The amount you save will have the most significant impact on your future wealth. Contribute the max to your 401(k) and IRA. Automate your savings. If you save $10,000 per year for thirty years, you could have more than $1.5 million in assets when you’re ready to retire.
  2. Expenses. You have complete control over your spending. The less you spend, the more you save. January is an excellent time to review your spending habits. If you spend some time pouring over your bank and credit card statements, you may find a few expenses to reduce or eliminate.
  3. Investments. You can purchase any investment in the world – stocks, bonds, real estate, gold, Bitcoin, art, jewelry, etc. However, if you want to retire in style, it’s best to own investments that grow, like stocks. The 100-year average for stocks has been 10%. If you keep most of your money in cash, it will lose value every year because of inflation and taxes.
  4. Diversification. Diversify your assets across stocks, bonds, and cash and rebalance your portfolio annually. Diversification is considered a free lunch on Wall Street.
  5. Plan. Your financial plan is unique to your situation. To succeed as an investor, buy investments you’re comfortable owning and follow your plan; it is your financial playbook, guiding you to long-term success.

Investing is not a sporting event, but it does require a game plan with long-term strategic thinking to succeed.

If you’re wondering, Brees holds an edge over Brady in games won – 5 to 2.

“Don’t ever underestimate the heart of a champion.” ~ Rudy Tomvanovich

January 16, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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 aren’t suitable for every investor.


[1] https://www.sportscasting.com/max-kellerman-finally-admits-he-was-wrong-about-tom-brady-becoming-a-bum/

[2] https://www.espn.com/blog/nflnation/post/_/id/207780/current-and-former-nfl-players-in-the-drivers-seat-after-completing-mba-program

Same As It Ever Was

Election day has come and gone, and pollsters once again missed their mark. In 2016, they forecasted a Clinton landslide, and she lost. This year, Biden was projected to win by double digits, and a blue-wave would overtake the House and Senate. The election is not officially over, but it won’t be a double-digit victory, and we did not experience a blue-wave. Same as it ever was.

In 1948, Thomas Dewey was declared a winner over Harry Truman by the Chicago Tribune. They were wrong. Harry Truman famously held up their newspaper with the headline: “DEWEY DEFEATS TRUMAN.”[1]

In 1946, Darryl Zanuck, movie producer at 20th Century Fox, said, “Television won’t last because people will soon get tired of staring at a plywood box every night.”[2] Have you binged on Netflixed lately?

Decca Recording Company refused to sign the Beatles in 1962 because “We don’t like their sound, and guitar music is on the way out.”[3] They probably had a hard day’s night by not signing the Beatles.

Ken Olson, president, chairman, and founder of Digital Equipment Corporation, said, “There is no reason for any individual to have a computer in his home.”[4] Can you imagine working from home without a computer during the pandemic?

The San Francisco 49ers were a pre-season favorite to win Super Bowl 55, but since they started playing actual games, they will finish in the middle of the pack, at best.

Forecasting anything is challenging, especially in the short-term.

It will snow in Colorado this year, but who knows when it will start, how much will accumulate, and when it will end. No one knows if it will snow on December 7 in Estes Park, but it may.

Trying to predict the direction of the stock market may be the most challenging to forecast. Fortune Magazine told readers last week to “Buckle up, investors: it might be a rough few days.” One Wall Street veteran said, “The S&P 500 ‘could easily dip into correction territory on Monday; it wouldn’t be surprising if that happened.'”[5]  What happened? The Dow Jones rose 5.08% or 1,346 points.[6]

The stock market has averaged 10% per year for the past 100 years regardless of who wins the Super Bowl, snows in Colorado, or occupies the White House.

The bottom line is that no one knows what will happen today, tomorrow, next week, or next year.

As an investor, what can you do if no one can predict the future? Here are my suggestions.

  1. Invest according to your goals. A financial plan can help you quantify and prioritize your goals. Are you saving for college or retirement? Do you want to buy a new car or a vacation home? Your goals will determine your asset allocation. If you need your money in one year or less, invest in cash. If your time horizon is five years or more, invest in stocks.
  2. Invest for growth. For the past twenty-five years, my asset allocation has been 75% stocks, 25% bonds regardless of market conditions. When stocks rise, I rebalance my portfolio to buy more bonds. When they fall, I sell bonds to buy stocks. I don’t care what the stock market does today because I don’t need my money for another fifteen years or so. And, on some days, I can’t remember if the market was up or down.
  3. Don’t time the market. After the market correction in March, several investors sold stocks and parked their money in cash, missing a 50% rebound in stocks. Last week, I fielded a few calls to see if we should sell stocks before the election and repurchase them after it was over. I told them to stay invested, thankfully. Investing is not a binary event. Moving from stock to cash and back is a loser’s game.
  4. Save early and invest often. The amount of money you save will significantly impact your wealth more than trying to time the market. Investing $1,000 per month at 7% will be worth $1.2 million in thirty years. The more money you save today, the larger your account balance will be tomorrow; it’s simple math.
  5. Invest in a globally diversified portfolio of low-cost funds. Global exposure will give you access to large, small, and international companies. A diversified portfolio works well over time because you never know when, where, or why which markets will move.

Trying to predict the future is a waste of time and energy, so don’t do it. Rather than worrying about what will happen tomorrow, live for today, enjoy your life, love your neighbor, and count your blessings.

Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own. ~ Matthew 6:36

November 5, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management 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 aren’t suitable for every investor.


[1] https://www.history.com/news/7-failed-predictions-from-history

[2] https://www.boredpanda.com/bad-future-predictions-timeline-history/?utm_source=google&utm_medium=organic&utm_campaign=organic

[3] http://www.atchuup.com/famous-predictions-proven-wrong/

[4] Ibid

[5] https://fortune.com/2020/10/30/the-sp-500-could-easily-dip-into-a-correction-before-the-election-on-tuesday/, Anne Sraders, October 30, 2020

[6] YCharts – DJIA, 10/30/2020 – 11/4/2020

Expectations

At the beginning of each football season every NFL team has high hopes of winning the Super Bowl, even the Cleveland Browns. Enthusiasm and expectations are high.

During the 1970s the Minnesota Vikings were one of the most dominant football franchises in the NFL, winning 78% of their games from 1969 to 1977. Because of their stellar play they had the opportunity to participate in four Super Bowls. Despite their regular season success, they failed to win one title. They were the first team to lose four Super Bowls.

Not to be out done, the Buffalo Bills conquered their opponents in the early 90s. They won 76% of their games and appeared in four consecutive Super Bowl’s, the first team to do so. They lost all four.

These two teams had four chances to win a Super Bowl but failed to do so. Despite losing every title game, were their seasons successful? I’m sure there was disappointment, but they did win several games and play in multiple Super Bowls, an opportunity lost on most teams.

In January, investor hopes were high as the Dow Jones soared more than 5%, crossing 26,000 for the first time. In hindsight, we should’ve sold all our stocks in January and moved to cash. After it peaked, it promptly fell 10.3%.

As we approach the end of the year, most asset classes are trading in negative territory. U.S Stocks remain in positive territory, but bonds, international investments, emerging markets, real estate, and commodities have negative returns. A challenging year for diversified portfolios.

Dimensional Fund Advisors Global 60/40 (60% stocks, 40% bonds) Fund has generated an average annual return of 8.1% since 1984. This fund is diversified across multiple countries, several sectors, and thousands of securities. It has made money 78% of the time, a similar winning percentage to the Vikings and Bills during their Super Bowl runs.

The S&P 500 Index has posted positive annual returns 73% of the time and since the end of World War II it has averaged 11.3%.

Despite stellar winning percentages and generous annual returns, sometimes investments, all investments, fail to live up to expectations.

What should you do if your investment hopes and dreams have been dashed this year? Here are a few suggestions.

Be Patient. No trend lasts forever. Circumstances change. After the Dow Jones fell 10% in January, it rose 15% for the next eight months. In 1994, the S&P 500 gained a paltry 1.4% before rising 144% from 1995 to 1999. Long-term government bonds fell 14.9% in 2009. They appreciated 41% over the next three years.

Plan. During the volatile months of February and October, I was able to stress test client portfolios and no one’s goals were impacted due to the market’s downturn. The financial plan allowed me to review client goals and portfolios in real time. The analysis gave us comfort despite the lack of cooperation from the markets. A financial plan may help you with your long-term goals and give you peace of mind when markets fall.

Rebalance. As markets move around the world, it’s likely your asset allocation has changed. If your portfolio is off kilter, rebalance it back to its original state. The best time to reset your portfolio is in January after your year-end capital gains and dividend distributions have been credited to your account.

Nothing. If your goals have not changed and your asset allocation is normal, stay the course. Don’t trade. Let your portfolio find its footing. For example, if you purchased the Dimensional Global Portfolio in 2008, you lost 22.7%. However, if you did nothing and held it through the end of 2017, you made 6.1% per year.

Pursue. During market disruptions there’s always opportunities to find good investments. If you have cash to invest, look for investments you can add to your portfolio for future growth.

As we close out 2018, spend some time honing your goals and reviewing your portfolio. In a few weeks it will be a new year, a new season and hope springs eternal.

“Winning means being unafraid to lose” ~ Fran Tarkenton

November 19, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm 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.

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

 

 

 

 

Draft Picks

With the first pick in the NFL draft…

The kick off for the NFL draft is tonight and the lives of 253 young men will be forever changed. Fame and fortune awaits these newly minted professional athletes.

What are the odds for a college football player to make an NFL roster? According to the NCAA about 1.6% of eligible college athletes will make it to the next level.  During the 2016/2017 college football season there were 73,063 players, of which 16,236 were draft eligible.[1]

Does it matter what round a player is drafted? According to the data, the answer is yes. 60% of all starters were drafted in the first three rounds while players drafted in rounds six or seven accounted for 9%. 71% of players who made the all-pro team were drafted in the first three rounds; the last two rounds accounted for 4.7%.[2]

From 1994 to 2016 quarterbacks drafted in the first three rounds won 49% of their games. QB’s drafted in rounds 4, 5 & 7 won 40%. What about round 6? The data for this round is skewed because of Tom Brady, a 6th round pick in the 2000 draft – #199.  Because of Mr. Brady, he and his 6th round cohorts have won 55% of their games.[3]

In 1998 Ryan Leaf was considered a can’t miss pick and was drafted second behind Eli Manning. Leaf’s size, statistics, and potential were unparalleled.  He played for four seasons and is considered by many to be the biggest draft bust in NFL history.

How can you find the next Brady while avoiding the next Leaf? It’s not easy. Despite reams of data, hours of film, and several interviews the experts, at the end of the day, are making educated guesses.

Picking individual stocks is like drafting NFL players. Investors have access to company financials, research reports, and analyst opinions to help them select the best stocks. They must pick the right stock in the right industry at the right time to make significant money.  Amazon, Apple, Berkshire Hathaway, and Intel have rewarded shareholders for decades. However, purchasing stocks like Enron, Global Crossing, or Worldcom can wipe out years of savings.

To be diversified an investor should own more than 100 stocks.[4]  During my career I’ve noticed most individual investors own between 10 and 20. Morningstar tracks over 110,000 companies in their global data base so how is it possible to consistently pick the top 10 or 20?

A better alternative for most investors is to own a diversified portfolio of low-cost mutual funds. A portfolio of seven mutual funds managed by Dimensional Fund Advisors include 16,704 securities scattered around the globe. This all-world portfolio consists of the following funds:

  • Core Equity I – DFEOX
  • Small Cap – DFSTX
  • Micro Cap – DFSCX
  • International Core – DFIEX
  • Emerging Markets Core – DFCEX
  • Real Estate – DFREX
  • Intermediate Government Fixed Income – DFIGX

An equal weighted investment into each of these funds generated returns of 10.22%, 6.84%, 8.52% and 7.48% over 1, 3, 5 and 10 years, respectively.

As an investor you can avoid single stock risk by purchasing the entire market with low-cost mutual funds. Roger Goodell, the commissioner of the NFL, benefits from every player on every team. He wins regardless of when they’re drafted, how they play, or how many years they stay in the NFL because he knows that the collective power of the league is more powerful than a single player. Be like Roger and buy the whole market so you can harness the collective power of its long-term trend.

“Set your goals high, and don’t stop till you get there.” –Bo Jackson

April 26, 2018

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.  Our mission is to remove confusion, complexity, and worry from the financial planning and investment management process. For more information please visit www.parrottwealth.com.

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.  The returns don’t include taxes.

 

 

[1] http://www.ncaa.org/about/resources/research/football

[2] https://www.forbes.com/sites/prishe/2015/05/22/tracking-nfl-draft-efficiency-how-contingent-is-success-to-draft-position/#6a1b0f787495, Patrick Rishe, 5/22/2015

[3] https://www.footballoutsiders.com/stat-analysis/2017/nfl-draft-round-round-qb-study-1994-2016, by Scott Kacsmar, 3/21/2017

[4] http://www.aaii.com/journal/article/how-many-stocks-do-you-need-to-be-diversified-.touch, Daniel J. Burnside, July 2004