Diversification: Time Frames Matter

Posted by Tommy Mayes on 2/20/19 10:53 AM


As anyone who has read Blueprint insights over the last few years knows, we believe in two types of diversification.  First, asset diversification is a keystone of investing and we embrace the benefits.  Second, we add time diversification using trend following techniques to mitigate the vagaries and cycles of markets. Why? Because, historically, when given enough time (say 20 years), asset diversification (buy and hold) has been almost unbeatable. However, humans do not naturally invest or even think that long term and struggle with staying the course when the market inevitably course corrects either in a short-lived correction or sustained drawdown. This in turn reduces the probability of achieving their long-term financial objectives. Please allow me to elaborate.

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Topics: Systematic Investing

DO. YOUR. JOB.

Posted by Jon Robinson on 2/6/19 2:02 PM

Execution is everything

Do your job. This simple three-word phrase has served as the mantra for the New England Patriots and their long-time coach Bill Belichick during their incredible run since 2000. Being from North Carolina, I’m proudly a Panthers fan, but I have always respected and appreciated the ‘Patriot way.’ Six Super Bowl wins in nine appearances is a spectacular achievement, particularly in a sport theoretically geared to ensure parity and discourage dynasties.

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Topics: Advisor Practice Management

My Prediction About 2019 Market Predictions

Posted by Tommy Mayes on 1/23/19 2:18 PM

Here we go again. All the market analysts and prognosticators have been forced by convention to rub the old crystal ball and suggest they can predict the future for the next year.  They even make fun of themselves with clever art that illustrates the lunacy of the exercise – such as below. Given the fact that predictions are merely educated guesses, why does this ritual occur every year? Attention? Arrogance? Or is it a component of the human emotional bias that drives the markets overall?

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Topics: Behavioral Finance

Have We Reached Peak Passive?

Posted by Jon Robinson on 12/20/18 10:34 AM

 

The active vs. passive debate reached a fever pitch on Monday when Jeff Gundlach referred to passive investing as a ‘mania.’  As expected, Vanguard quickly defended passive index funds by saying that “the data simply does not support his claims.” There is certainly nothing new about this debate.  It’s been escalating since the first index funds were launched in the mid-70’s.  However, moments like this remind the Blueprint team why we utilize passive index funds in the first place –they are the tools we use to build portfolios on behalf of our clients.

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Topics: Systematic Investing, Behavioral Finance

You Can Sleep When You Are Dead

Posted by Tommy Mayes on 12/13/18 10:17 AM

 

Now that I have your attention - who really thinks they get enough sleep? Many CEOs now indicate adequate rest is critical to their success! Who prioritizes rest over work or even exercise?  For years, I have been obsessed by my sleep, or lack thereof.  Recently my wife and I had the privilege and the pleasure of hanging out over cocktails in Laguna Beach with our new friend Dr. Michael Breus, Ph.D., known internationally as The Sleep Doctor.  According to Dr. Breus, how you manage your sleep is as important as how long you sleep!  This is called sleep hygiene.  Read on to learn what else I discovered.

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Topics: Behavioral Finance, Advisor Practice Management

Our Latest White Paper: The 60/40 Problem

Posted by Jon Robinson on 11/28/18 11:01 AM

 

The movie “Moneyball” has an interesting scene in which General Manager Billy Beane is debating his scouts on how to best replace two key players lost in free agency given the team’s limited budget. The scene contains a back and forth between Beane and several scouts discussing and clearly disagreeing about “the problem.”

“You’re not even looking at the problem”, Beane declares. 

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Topics: Systematic Investing, Behavioral Finance

Forbes Interview: Systematic investing & the rise of emotional intelligence

Posted by Jason Varner on 11/16/18 11:00 AM

 

We at Blueprint are excited to share with our readers and friends a fantastic interview with Jon Robinson and Tommy Mayes by Forbes contributor Peter Hans.  In it, Jon, Tommy, and Peter discuss systematic investing, emotional intelligence, liquid alternatives, and more.  Blueprint's story and background is also explored, providing valuable insight into how and why we do what we do.  We are immensely grateful for the opportunity to have this discussion with Peter, and hope that you enjoy reading it as much as we enjoyed telling it. 

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Topics: Systematic Investing, Behavioral Finance

Clueless GM's and Stock Pickers

Posted by Joe Crawford on 10/16/18 10:17 PM

 

At Blueprint, we utilize tactics based on the fundamentals of Trend Following, attempting to smooth the investment ride and to keep compounding high for our advisor clients.  We generally do this using passive instruments such as index-based ETFs and Mutual Funds for two reasons:

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Topics: Behavioral Finance, Advisor Practice Management, Systematic Investing

What the Data (Still) Says About Market Crashes

Posted by Jon Robinson on 9/10/18 2:07 PM

 

Late last year, it was clear to us as we listened to our clients that a correction in the US markets was a primary concern.  There also seemed to be a prevailing wisdom that such a correction, if it occurred, could likely lead to a bear market.  While we do not allow the news or anyone’s feelings about markets to influence our investment decisions, we do use them to inform what we analyze and write about.  This led to a question.  (In my best Dwight K. Schrute voice) “Question: do sharp declines in US Equities act as a precursor to bear markets?  False!”  The data says they do not.

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Topics: Systematic Investing, Behavioral Finance

It's Time for the Shock Absorbers

Posted by Tommy Mayes on 8/27/18 11:08 AM

 

I returned from a nice long visit to Paris last week, relaxed and without a care in the world.  Then I read the news. Yesterday, an investment banker told me he was worried about the Four T’s - Trump, Tariffs, Trade and Turkey.  Blueprint is not a macro firm and makes no economic pronouncements, but if your investment portfolio has been riding the wave of up-vol and peak beta (yes, volatility goes in both directions), it is time to make sure that your portfolio includes strategies that will buffer the down-vol, because it is inevitable.  A former colleague likes to call these “shock absorbers”.  Have you ever ridden in a car without good shocks?  It is not comfortable.

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Topics: Systematic Investing, Advisor Practice Management, Behavioral Finance

Free Beta...Finally!

Posted by Jon Robinson on 8/5/18 11:00 AM

 

The announcement by Fidelity Investments on August 1st provided the culmination of a trend long in the making.  Coincidentally, it is also an idea we have discussed privately for many years, and publicly in this blog since last year – FREE BETA.  In what is being hailed as a shocking move, Fidelity has announced the unveiling of two new index funds with a ZERO expense ratio. Vanguard and Blackrock have been offering practically free beta through their ETFs and index funds for years now - but practically free is not free!

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Topics: Systematic Investing, Advisor Practice Management

Robo: Evolution, not Revolution - Just as We Thought

Posted by Tommy Mayes on 7/23/18 3:15 PM

 

Last May’s blog, in which I shared our observations about the Robo industry, if you can call it an industry, is proving to be on target. You cannot charge a fee for something that should already be free (Beta), and ignore the one thing that you can charge for, advice and a human touch! The list of robos in the graveyard is the proof.

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Topics: Advisor Practice Management, Systematic Investing

Grow Up and be a Fiduciary, Please!

Posted by Tommy Mayes on 7/9/18 4:49 PM

 

Like the networks in the summertime who replay their episodes to recycle good material, I thought a revisit of the much discussed and maligned DOL Fiduciary Rule was in order due to its recent vacating by the 5th Circuit Court in New Orleans.  With or without the rule, it is time for the industry to step up!

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Topics: Transparency, Advisor Practice Management

This is Insulting to our (Artificial) Intelligence!

Posted by Tommy Mayes on 6/25/18 2:43 PM

 

Ok, now we have seen it all.  Maybe.

Imagine if you will, it is again February 2009.  The market, perhaps the world, is in a freefall.  And you see an incoming call from your brokerage firm that you are relieved to receive, because you really need proactive advice and wise counsel.

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Topics: Advisor Practice Management, Behavioral Finance

Seeking Answers to Scary Questions

Posted by Jon Robinson on 6/12/18 3:26 PM

 

I am what some would call a nerd – but don’t feel bad for me, I wear this as a badge of honor.  As such, I am not normally afraid to work with data and perform deep analysis.  However, there was one time where the thought of diving deeper gave me pause for fear of what I might find.  In hindsight, my hesitation seems silly given the critical truth I was overlooking. Nevertheless the anxiety was real.  For fellow nerds, this is also known as Confirmation Bias, but I digress.

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Topics: Behavioral Finance, Systematic Investing, Advisor Practice Management

The Sundown Rule

Posted by Tommy Mayes on 5/17/18 2:24 PM

 

Back in the dark ages when I started my career in banking, the pace of work and communication was entirely different.  Imagine a world with no mail other than what came with a stamp on it or in an interoffice envelope (who remembers those?).  Your phone messages came on a pink slip of paper and you dictated your memos.  You could actually choose to leave your work at the office.  Of course, the biggest change today is that you literally carry your office around in your pocket or a backpack.  (Briefcases are gone as well.)

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Topics: Advisor Practice Management, Transparency

The Power of Simple Solutions

Posted by Jon Robinson on 4/23/18 2:47 PM

 

One hundred million users in the US, a market size of almost $70 billion, and growth rates ranging from 4.8% to almost 10% - these sound like the descriptive statistics of a thriving and successful industry[i].  Perhaps, but consider that the underlying problem this industry is trying to solve is getting worse, not better.  I’m talking about the weight loss and diet industry.

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Topics: Transparency, Advisor Practice Management

Continuous Improvement

Posted by Tommy Mayes on 3/26/18 3:24 PM

 

I have the benefit of an insider’s view of many different businesses associated with my family office and private equity work.  I sit on a few boards, spend significant time coaching and strategizing with executives, and actually have a few direct private investments myself where I am actively involved in business strategy and development.

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Topics: Advisor Practice Management, Transparency

Yes, Behavior Bubbles Do Exist

Posted by Tommy Mayes on 3/5/18 4:26 PM

 

The other day I was speaking with my brilliant friend Liam about the snap back in the market from the almost historic down move, and he reminded me of the question I asked in a blog last November:  Do Behavior Bubbles Exist?.  I think we have our answer, and in fact, we may have had the then-discussed Minsky Moment.  However, it was only a moment, and patient investors sidestepped the market shock and were reminded that a healthy stock market does include a version of volatility that is not always up.

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Topics: Behavioral Finance, Advisor Practice Management

What The Data Says About Market Crashes

Posted by Jon Robinson on 1/30/18 7:19 PM

 

With global equity markets continuing to trade at all-time highs, most astute advisors are seeking downside protection.  The recent bull market in U.S. stocks entered its 10th year and the concern over a large drawdown or even an overnight price shock is also reaching tangible levels.  As systematic managers, we rely on the data to cut through the emotional biases of such environments and provide context and balance to the situation.  After over a decade of examining data on many different assets from equities to bonds, metals to agricultural products and even used-auto prices, one of the constants is that we believe there are two distinct forms of market declines – sustained declines in value and temporary price shocks.   Sustained declines in value can take several months or years to develop before reaching an eventual trough. On the other hand, we define a shock to be a rapid decrease in the price of an asset, usually over a few days or, at most, a few weeks.

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Topics: Systematic Investing, Behavioral Finance

Goldman's Warning & Blueprint's Answer

Posted by Jon Robinson on 12/5/17 4:15 PM

Goldman Sounds A Warning

This seldom happens: Equities, bonds, and credit being similarly expensive at the same time. "A condition that is going to translate into pain for investors". (Full Article Here)

Major drawdowns in 60/40 portfolios averaged 26% in real terms, lasted about 19 months, and took almost two years to return to previous peaks.

 

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Topics: Systematic Investing, Advisor Practice Management

Do Behavior Bubbles Exist?

Posted by Tommy Mayes on 11/14/17 1:57 PM

 

A few weeks ago, I attended a family office conference on the West Coast that, as in the past, was comprised of a crowd of industry experts (writer excluded of course), including family office advisors, executives, and top minds from all corners of the investment universe.  Being a lifelong member of the East Coast clan, it is always refreshing to have the mix of more traditional thinkers with those far less constrained minds of California.

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Topics: Behavioral Finance

An Alternative to Liquid Alternatives

Posted by Jon Robinson and Joe Crawford on 10/2/17 8:55 PM

 

In the aftermath of the Great Recession investors have sought greater diversification for their portfolios. One set of instruments that investors have used to achieve this goal is liquid alternatives (aka ‘liquid alts’). Investors are seeking out these strategies in an effort to reap the potential portfolio benefits of:

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Topics: Systematic Investing, Behavioral Finance

Radical Transparency

Posted by Tommy Mayes on 8/11/17 4:32 PM

 

For the last several weeks I have been pondering the notion of radical transparency – personally, professionally, spiritually, etc.  Much is written about the notion of authenticity in terms of living a life that, in all respects, reflects who you are.  Yet we often live in different modes of life where the ‘authentic’ version of us is nuanced for the situation.  Transparency, on the other hand, might imply that no matter the place or time, we are sharing our true selves, the details of our lives, and allowing the trust and engagement to build with everyone around us.  Add the word radical as an adjective, and you imply that you want your level of transparency to be so thorough that it is transformative in all aspects of your life.

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Topics: Transparency, Advisor Practice Management

The Rise of the Machines (and how to retain your advantage) - Episode 3

Posted by Jon Robinson on 8/10/17 4:03 PM

Episode 3:  The Conclusion - Exploit Their Weakness

For the final episode of the Rise of the Machines trilogy, we will dig deeper and get a bit more technical to make our point – that elite advisors will see this evolution as an opportunity, not a threat. As you recall, in Episode 1 we discussed the power of objectives-based financial advice, and that embracing investment technology is a component of the path to successfully confronting the changing landscape and retaining the human advantage. In Episode 2 we defined advisor’s advantages over robots, what sets engaged human advisors apart, and what the advisor “deliverable” looks like.

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Topics: Advisor Practice Management, Behavioral Finance

The Rise of the Machines (and how to retain your advantage) - Episode 2

Posted by Jon Robinson on 7/24/17 11:41 AM

Episode 2: Define Your Superiority

In Episode 1, we discussed how elite Advisors are focused on achieving client goals while living in a rapidly changing environment – today many investment services that were once high value are now freely/cheaply available.  (To read Episode 1, click here.)

In Episode 2, we want to describe what sets Advisors apart from the robots, and highlight client motivations for investing (with people!).  Most importantly, we offer ideas for how Advisors can cement their advantage over the robots by improving the overall client experience.

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Topics: Advisor Practice Management, Behavioral Finance

The Rise of the Machines (and how to retain your advantage) - Episode 1

Posted by Jon Robinson on 6/27/17 1:00 AM

Episode 1: Understand Their Appeal

Elite Advisors focus on one thing – achieving their client’s financial goals.

Particularly now, when market returns and basic portfolio optimization techniques have become commoditized and are no longer competitive advantages, it is critical that Advisors deliver on this promise for their clients.  From a wealth management perspective, it is not good enough to simply buy and hold a portfolio of investments, whether expensive and actively-managed mutual funds, or cheap and passive ETFs.  If the average investor can achieve a market return for essentially nothing, then shouldn’t the elite advisor instead provide the highest probability of meeting or exceeding the financial goal as their investment deliverable?

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Topics: Advisor Practice Management, Behavioral Finance

Growing Up to be a Fiduciary

Posted by Tommy Mayes on 6/17/17 11:50 AM

 

After more than 25 years in the financial advice world it appears to me our industry is finally growing into adulthood.  For the first time, all financial advisors must now conduct business in a manner appropriate to the incredible responsibility allowed us by our clients.  Simply put, the industry will require itself (thanks for the nudge Uncle Sam!) to put a client’s interests first in the recommendation and implementation of financial strategies and plans.  Seems pretty straightforward right?  Apparently only if this level of diligence DOES NOT get in the way of the advisor making his Mercedes lease payment (name your indulgence here).  I have been asked many times by friends and clients – ‘hasn’t this always been a rule?’  Well no, but it should have been.

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Topics: Advisor Practice Management, Transparency

Robo: Existential Threat or Necessary Evolution?

Posted by Tommy Mayes on 5/23/17 7:15 PM

 

In 1998, during the peak of the dot com boom and only a few short years after Al Gore invented the internet, I was an executive in the private bank of a large financial institution in the Southeast.  We were staring at the opportunity to begin to utilize technology as part of our client service delivery, and at the same time intimidated by the change that would lie ahead.  I led a team that created one of the first integrated wealth management strategies in the industry, and our business model has been replicated many times over in the last 20 years or so.

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Topics: Advisor Practice Management, Transparency, Systematic Investing

60/40, Landlines, and 8-tracks

Posted by Jon Robinson and Joe Crawford on 4/27/17 11:33 AM

 

The investment industry is facing a “60/40 problem”. Over the past several decades, advisors have leaned on the 60/40 portfolio to deliver a less-volatile, but still relatively reliable return for balanced investors due to their lack of tolerance for the volatility and drawdowns of a pure equity allocation. While the addition of bonds to an otherwise non-diversified portfolio of equities does indeed reduce the beta of the overall portfolio, the correlation to equities remains high given that “the 60” has been 3 times as volatile as “the 40.”  In our view, the 60/40 problem boils down to an underestimation of future risks for both bonds and stocks. Rather than solving a new problem with an old solution, Blueprint has considerable evidence of a better way.

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Topics: Systematic Investing, Behavioral Finance

The Value of Stopping

Posted by Jon Robinson on 1/18/17 8:15 AM

 

In November, The Ringer’s Danny Chau published an article about the unique abilities of NBA superstar James Harden, whose absurd level of play this season has made him an MVP favorite. In the piece, Chau recounts a conversation with Dr. Marcus Elliott of P3 Applied Sports Science, a performance facility that uses advanced technology to test the physical capabilities of athletes. According to Elliott, “Harden is barely average in almost every metric we look at related to athleticism, except for deceleration metrics. And in those he’s one of the best athletes we’ve ever measured in any sport — in soccer, football, or basketball.” In other words, Harden is world-class at slowing down. The Houston Rockets’ All-Star guard does not need to out-run, out-lift, or out-jump his opponents to beat them off the dribble- Harden’s preternatural ability to stop on a dime allows him to create the space he needs to score while his defenders fly into the first row of the stands.

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Topics: Behavioral Finance

Trend Follow Everything: Actively Managed Funds

Posted by Jon Robinson on 11/1/16 9:02 AM

 

The Wall Street Journal recently published a profile piece about Will Danoff, the manager of Fidelity’s Contrafund (FCNTX), which got us thinking. As stated in the piece, the $108 billion Contrafund has averaged a 12.7% annual return since Danoff took over the fund in September 1990, outperforming the S&P 500 index by 2.9 percentage points per year. Contrafund’s performance has indeed been tremendous, as shown in the following graph when compared to the S&P 500:

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Topics: Systematic Investing

Trend Follow Everything: Bank Woes and Risk Management

Posted by Jon Robinson on 10/7/16 8:47 AM

 

As media outlets, governments and markets react to the continuing troubles of Deutsche Bank (NYTBBCBloombergAtlantic), our research staff was both eager and curious to examine the potential impact of adding a trend following system to DB’s stock, as well as to those of fellow sector firms Credit Suisse and Citigroup. The recent woes of these companies should come as a surprise to few – consider the following graph of cumulative returns since September of 1997, paying particular attention to the last 3 years:

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Topics: Systematic Investing

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