MONEY investing strategy

16 Facts You Never Would Have Believed Before They Happened

"History never looks like history when you are living through it." — John W. Gardner

A reminder for those making predictions.

You would have never believed it if, in the mid-1980s, someone told you that in the next two decades the Soviet Union would collapse, Japan’s economy would stagnate for 20 years, China would become a superpower, and North Dakota would be ground zero for global energy growth.

You would have never believed it if, in 1930, someone told you there would be a surge in the birthrate from 1945 to 1965, creating a massive generation that would have all kinds of impacts on the economy and society.

You would have never believed it if, in 2004, someone told you a website run by a 19-year-old college dropout on which you look at pictures of your friends would be worth nearly a quarter-trillion dollars in less than a decade. (Nice job, Facebook.)

You would never have believed it if, in 1900, as your horse and buggy got stuck in the mud, someone pointed to the moon and said, “We’ll be walking on that during our lifetime.”

You would have never believed it if, in late 1945, someone told you that after Hiroshima and Nagasaki no country would use a nuclear weapon in war for at least seven decades.

You would have never believed it if, eight years ago, someone told you the Federal Reserve would print $3 trillion and what followed would be some of the lowest inflation in decades.

You would have never believed it if, in 2000, someone told you Enron was about to go bankrupt and Apple would become the most innovative, valuable company in the world. (The opposite looked highly likely.)

You would have never believed it if, in 1910, when forecasts predicted the United States would deplete its oil within 10 years, that a century later we’d be pumping 8.6 million barrels of oil a day.

You would have never believed it if, three years ago, someone told you that Uber, an app connecting you with a stranger in a Honda Civic, would be worth almost as much as General Motors.

You would have never believed it if, 15 years ago, someone told you that you’d be able to watch high-definition movies and simultaneously do your taxes on a 4-inch piece of glass and metal.

You would have never believed it if, in 2000, someone said the biggest news story of the next decade — economically, politically, socially, and militarily — would be a group of guys with box cutters.

You would have never believed it if, in 2002, someone told you we’d go at least 11 years without another major terrorist attack in America.

You would have never believed it if, in 1997, someone told you that the biggest threat to Microsoft were two Stanford students working out of a garage on a search engine with an odd, misspelled name.

You would have never believed it if, just a few years ago, someone told you investors would be buying government debt with negative interest rates.

You would have never believed it if, in 2008, as U.S. “peak oil” arguments were everywhere, that within six years America would be pumping more oil than Saudi Arabia.

You would have never believed it if, after the lessons of World War I, someone told you there’d be an even bigger war 25 years later.

But all of that stuff happened. And they were some of the most important stories of the last 100 years. The next 100 years will be the same.

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3 Companies Hoping the Apple Watch Fails

Stephen Lam—Reuters

Apple's new gadget will shrink a few stocks if it's a hit.

Investors are gearing up for this month’s rollout of Apple’s APPLE INC. AAPL 0.88% new smartwatch. There will be plenty of winners outside of the Cupertino-based tastemaker of consumer tech when the Apple Watch hits the market. The companies making the components will naturally benefit from the incremental sales, and one analyst even showed traditional retailers some love on the thesis that springtime mall sales will get a boost from folks buying the high-tech wristwatches at local Apple Store locations.

However, you don’t introduce a pricey gadget without disrupting the business models of others. Let’s take a look at three publicly traded companies that aren’t going to be too happy about the Apple Watch arrival.

1. Garmin GARMIN LTD. GRMN 0.02%

Citi downgraded shares of Garmin to sell on Monday, slapping a bleak $42 price target on the shares that suggests the stock will be moving lower in the year ahead.

The Apple Watch debut was cited as a primary reason for the downgrade, eating into Garmin’s fitness trackers. Garmin is a company that most of us still associate with GPS devices that helped drivers get around a decade ago, but obviously that market’s been drying up over the years. The connected car has made it easier to get around using Bluetooth-enabled smartphones to make it happen.

Garmin’s been able to hold itself up by pushing into the great outdoors, arming hikers and runners with devices to help them know where they are and track their activities. Automotive devices now make up less than half of its revenue.

Apple Watch will naturally make it harder for Garmin to stand out in the fitness market. Yes, the Apple Watch surprisingly doesn’t offer GPS. It relies on the iPhone to provide that feature, and that’s going to be a deal breaker for marathon enthusiasts that don’t want to be weighed down by smartphones as they train and compete. However, future Apple Watch generations will likely embrace built-in GPS to compete in this niche of active consumers. Merely waiting for this to happen could be enough to freeze near-term Garmin gadgetry sales to iPhone owners.

2. Google GOOGLE INC. GOOG -0.4%

There are some arguments to be made that Apple Watch will actually benefit Google’s globally dominant Android operating system. If the Apple Watch does for smartwatches what the iPhone did for smartphones and the iPad did for tablets, then it will help educate the market that will eventually flock to cheaper Android-fueled wrist huggers. This hasn’t happened so far with most of the Android smartwatches failing to generate material buzz.

Making smartwatches popular would also benefit Google’s market leadership in online advertising. The smartwatch may be small, but it still represents a new screen for Google to serve up sponsored missives as some app makers try to monetize their programs.

However, things can also go the other way for Google. The Apple Watch, after all, is a way to keep iPhone owners loyal. Folks investing at least $349 for an Apple Watch later this month aren’t likely to migrate to Android when it’s time to upgrade their iPhones. The Apple Watch — for now, and possibly forever — works exclusively with the iPhone. Every person spending $349 or more is making a commitment to the Apple ecosystem. The same can be argued the moment that the first hot Android-exclusive smartwatch becomes available, but that may take time.

3. Fossil FOSSIL INC. FOSL -0.13%

Apple has put out plenty of gadgetry over the years, but this is its first push into wearable computing.

“The Apple Watch is the most personal device we’ve ever created,” CEO Tim Cook said during last month’s media event. “It’s not just on you, it’s with you.”

This is high-tech jewelry, and that’s going to take a bite out of the premium wristwatch makers. Fossil could be easy pickings. We’re not wearing traditional wristwatches the way that we used to. It doesn’t make sense to own a watch when the smartphone in your pocket does that and so much more. Fossil has held up considerably better than its peers, largely on the fashionable merits of its timepieces. Apple Watch’s success could change that, especially given the many,many, many reports that paint iPhone owners as more affluent and likely to spend money than Android users.

Fossil is already feeling the pinch. It’s probably not a coincidence that earnings fell short of expectations during the holiday quarter — just after Apple officially announced that it would be entering the smartwatch market — after several quarters of beating the market. Analysts see sales and earnings declining at Fossil in 2015.

It could get uglier than that if Apple Watch becomes the new trendy wristwatch. A wrist occupied by an Apple Watch isn’t going to have room for a Fossil or a Rolex. These will be challenging times for an industry that may have peaked.

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MONEY shoes

The 107-Year-Old Hipster Sneaker That’s Saving Nike

Red converse sneakers
Jens Mortensen—Gallery Stock

Chuck Taylor would be proud.

When Nike Inc NIKE INC. NKE 0.03% announced mixed quarterly results two weeks ago, I suggested at the time that investors were right to celebrate. Even though Nike’s 7% revenue growth missed expectations thanks to foreign currency headwinds, shares of the footwear and athletic apparel behemoth climbed more than 4% to a new all-time high that day.

Excluding the effects of foreign exchange, however, Nike’s revenue would have climbed 13%, including 11% growth in Nike brand revenue to $6.9 billion. Nike also exceeded estimates for earnings, which grew 19% to $0.89 per share.

But the fact that Nike’s overall growth outpaced that of its namesake brand indicates that it had another smaller, faster-growing source of revenue to make up for the difference — a secret weapon, perhaps, operating under the radar and bolstering the rest of the business.

Chuck Taylor for the win

For that, look no further than Nike subsidiary Converse, sales from which grew an impressive 28% (33% excluding currencies) last quarter to $538 million. For perspective on that growth, Nike acquired Converse for just $305 million back in July 2003, when the smaller brand had annual sales of just $205 million.

So after nearly 12 years under Nike’s wing, why is growth at Converse accelerating now?

According to Nike CFO Don Blair in the company’s follow-up conference call, Converse’s performance was “boosted by the acceleration of Q4 shipments in advance of a major systems go live.” Meanwhile, Blair elaborated, “The balance of the growth was driven by continued strength in North America, the conversion of several European markets to direct distribution, and strong growth in [direct-to-consumer].”

That’s fair enough. After all, three months earlier, Blair cited similar factors as driving Converse’s 21% growth in the previous quarter. And at the same time, he noted that Converse’s earnings before interest and taxes fell 12% because of “investments infrastructure, demand creation, and DTC to enable long-term growth.” It would appear, then, that we’re beginning to see the fruits of those investments.

The legal factor

But we also shouldn’t forget the more difficult-to-measure impact of Nike’s decision to finally crack down on Chuck Taylor lookalikes last October. Specifically, that’s when Converse filed 22 separate trademark infringement lawsuits against 31 companies for their alleged illegal use of core design elements of Converse Chuck Taylor shoes.

To be fair, Nike tried to avoid the courts, saying it had served around 180 cease-and-desist letters to the defendants since 2008. But when nothing else stopped the accelerating flow of Chuck Taylor knockoffs into the market, the courts became Nike’s primary avenue for defending the iconic Converse brand.

As it turns out, the lawsuits are proving extremely effective so far. According to a report from Fashionista in February, Converse has already voluntarily dismissed a number of the cases after coming to agreements with prominent defendants including H&M, Tory Burch, Zulily, andRalph Lauren.

And while the exact terms weren’t disclosed, U.S. International Trade Commission documents a few weeks earlier confirmed that the ITC had found 36 Ralph Lauren shoe styles in violation of Converse trademarks. As a result, Ralph Lauren agreed not only to pay Converse monetary damages, but it also would be required to destroy all infringing shoes, as well as any associated molds, tools, and marketing material.

Of course, it’s hard to tell just how much of a positive effect this has had, especially since Converse was growing nicely before its legal actions. But if one thing seems sure, it’s that Converse is more popular than ever before. In the end, with its competition effectively neutralized and Nike piling cash into marketing, infrastructure, and direct-to-consumer channels, Converse appears poised to play an increasingly important role dictating the fortunes of Nike shareholders for the foreseeable future.

TIME Startups

Here’s the Major Downside of So Many $1-Billion ‘Unicorn’ Startups

Getty Images

Billion-dollar startups aren't rare. They're practically a dime a dozen these day—and that's not an entirely good thing

We live in a magical age of unicorns, those pre-IPO tech startups valued at $1 billion or more. And unlike the dot-com bubble, most of these startups are for real. They are companies whose services–like Uber, Spotify or Pinterest–we use every day. You could even say we consumers are the ones that are helping these unicorns to fly.

There is only one problem: Most of us consumers, as individual investors, are being shut out of the party.

These days, you hear a lot of people in the tech-investing world talk about how this is not 1999. The red ink has been washed away by the black at the strongest startups. A confluence of new technologies–the cloud, social networks, smartphones–are creating the mega-brands of the future. As one CEO memorably put it, “It’s the biggest wave of innovation in the history of the world.”

This is more or less true, but another big difference between today’s tech market and the tech market of 1999 is often overlooked: During the dot-com bubble–when most of the IPOs were pipe dreams waiting to crash–individual investors were able to buy their shares freely. Today, by contrast, most of the investments in the hottest tech startups are happening behind the velvet ropes of private financing.

US securities laws set up last century ensured that only accredited investors—currently, people earning at least $200,000 a year or with a net worth of more than $1 million—could buy stocks in private offerings. Those laws were intended to protect smaller investments from the risks of traditional private investments, and they worked for a long time. But recent changes, such as the JOBS Act, allowed private companies to more easily avoid IPOs if they so desired. And most of them have so desired.

The result is that tech companies that would have been open to ownership by everyday people in earlier decades are now open only to the elite. Hedge funds and other institutional investors jockey for access to occasional venture rounds rather than the daily battle of public markets. Corporate insiders have greater control in setting valuations, while executives escape the scrutiny of quarterly disclosures.

And so, unsurprisingly, the tech IPO has become as rare as, well, a unicorn. According to Renaissance Capital, 35% of the companies that went public in 2011 were technology startups. By last year, only 20% of the 273 IPOs were in the tech industry, and most were in the enterprise space rather than the brand names consumers knew. In the first quarter of 2015, only four tech companies went public. And none of them were exactly unicorns.

Three of those four tech IPOs have a history of losses–cloud-storage company Box, online-ad platform MaxPoint Interactive, and domain registrar GoDaddy. Only Inovalon, which runs cloud services for health-care companies, went public with a profit. In the wake of the recession, it was all but impossible for companies to go public with a history of losses but that changed starting last year, when according to Renaissance, 64% of large tech IPOs debuted with net losses, the highest ratio since 2000.

The companies that are choosing to go public aren’t the cream of the crop. Box may have a bright future, but like GoDaddy it went public at the behest of its investors and did so only after months of delays. Box also priced its IPO below its last private round, following late 2014 IPOs like New Relic and Hortonworks that took so-called “haircuts.”

Which brings up another reason for other companies to avoid IPOs–why do it when you can get better valuations in illiquid private markets? True, liquidation preferences and other private perks justify some of that premium, but private valuations are often more art than science.

The pace of tech IPOs are likely to pick up, but few of the candidates in the current pipeline are the highly coveted unicorns. Next week, Chinese e-commerce platform Wowo is expected to raise $45 million. Craft marketplace Etsy is also hoping to raise $250 million in the coming weeks. And mobile software Good Technology aims to list soon as well. All three have steady histories of net losses.

When it comes to the companies with the brightest futures, they are conspicuously absent from the pipeline. Long before the term “unicorn” became popular, CB Insights compiled a list of hot startups expected to go public in 2014. A year later, their list of hot startups expected to go public in 2015 looked suspiciously similar. And now that we’re into the second quarter, there’s little sign that many of them are planning to go public.

Ride-sharing giant Uber, lodging disruptor Airbnb, online-storage pioneer Dropbox, social-ephemeralist Snapchat, social-pin star Pinterest, music-streaming king Spotify, mobile-payments upstart Square–all have been sought after and well funded in private rounds. All have intimate connections to consumers, and would be broke without them. All couldn’t care less, it seems, when it comes to sharing their success with those consumers.

Maybe that’s why they’re called unicorns. Not because billion-dollar startups are rare–they’re practically a dime a dozen these days–but because, for most investors, they might as well be myths frolicking on the far end some of some rainbow.

Read next: Why This Apple Watch Rival Is Very Important

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4 Retirement Mistakes That Can Cost You $250,000 Or More

Sometimes the costliest errors are ones we make ourselves, often without realizing how much damage we're doing.

We tend to think the mistakes that derail retirement are the ones that are inflicted on us: an investment that implodes; an adviser who dupes us; a market crash that decimates our nest egg. In fact, the costliest errors are ones we make ourselves, often without realizing how much damage we’re doing. Here are four of the biggest, plus tips on how to avoid them.

Mistake #1: Stinting on saving. Asked by researchers for TIAA-Cref’s Ready-to-Retire survey what they could have done differently to better prepare for retirement, nearly half of the near-retirees polled said they wished they’d saved more. Good answer. Because over the course of a career, failing to push yourself to save can cost you big time.

To see just how much, let’s take the case of a 25-year-old who earns $40,000 a year, gets 2% annual raises and contributes 10% of salary to a 401(k) or similar plan each year—a good effort, but hardly Herculean. Assuming our hypothetical 25-year-old folows that regimen over a 40-year career and his investments earn 7% a year before fees of 1.5% a year for a 5.5% net return, he would end up with a nest egg of just under $740,000.

That’s a tidy sum to be sure. But look how much more he could have with a more diligent savings effort. By stashing away just two additional percentage points of pay each year—12% vs. 10%—his nest egg at retirement would total just under $890,000. That’s an extra $150,000. And if he can pushes himself to save 15%—the target recommended by many pros—he would be sitting on a nest egg of roughly $1.1 million, fully $360,000 more than its value with a 10% savings rate.

Of course, some people are so squeezed financially that they simply can’t save more than they already are, or for that matter save at all. But unless you’re one them, then you may be effectively giving up hundreds of thousands of dollars in future retirement spending by not pushing yourself to be a more committed saver. To avoid that, look for as many ways as you can to save at least 15% of your income consistently.

Mistake #2. Getting a late start. Call this mistake “the price of procrastination.” It’s the potential savings balance you give up by failing to get going early with your savings regimen. To put a dollar figure on this error, let’s assume that our fictive Millennial above takes the advice of retirement pros, saves 15% a year, earns 5.5% after expenses annually on his savings and ends up with that $1.1 million nest egg at 65.

But look how much that nest egg shrinks if he postpones his savings regimen. For example, if he puts off contributing to his 401(k) for five years until he hits age 30, his age-65 nest egg would total about $875,000 instead of $1.1 million. So procrastination cost him $225,000. If he waits 10 years to age 35 to begin saving for retirement, his nest egg would weigh in at roughly $680,000, putting the cost of a late start at $420,000.

The way to avoid or at least cut the cost of procrastination is to start your savings regimen as soon as possible—and do your best to maintain that regimen despite the inevitable ups and downs you’ll experience during your career.

Mistake #3. Overpaying for investments. Many investors are simply unaware of how much high costs can dramatically reduce a nest egg’s growth. Consider: By getting an early start and saving 15% of income a year, the 25-year-old builds a $1.1 million nest egg. But that assumes he earns 7% a year before investing costs, and 5.5% a year net after annual expenses. If he cuts his annual expenses by half a percentage point to 1% a year, his nest egg would total just over $1.2 million at retirement. And if manages to whittle investing costs down to 0.5% a year, he’s looking at an eventual nest egg of $1.4 million. In short, higher-cost investing options are effectively costing him as much as $300,000 in potential retirement savings.

Granted, your potential savings from cutting costs may be limited if you do most of your savings through a 401(k) that’s short on investment options. Still, you can at least reduce the cost of this mistake by sticking as much as possible to inexpensive index funds and ETFs (some of which charge as little as 0.05% a year) in your 401(k), IRAs and taxable accounts.

Mistake #4. Grabbing Social Security without a plan. Many people put more thought into which breakfast special to order at Denny’s than when to claim their Social Security benefits. That’s a shame, because taking the money at age 62 (still the most popular age for claiming, according to a recent GAO study) or shortly thereafter can cost you tens or even hundreds of thousands of dollars. Each year you postpone claiming benefits between age 62 and 70, your payment rises roughly 7% to 8%, which can significantly increase the total amount you collect throughout a long retirement. Married couples have the biggest opportunity to boost their potential lifetime benefit by coordinating when they claim.

For example, if a 62-year-old man and his 59-year-old wife earning $75,000 and $50,000 respectively each take benefits at 62, they stand to collect just over $1 million in joint benefits, according to estimates by Financial Engines’ Social Security calculator. But if the wife takes the benefit based on her earnings at age 63, her husband files at age 66 for spousal benefits based on his wife’s work record and then switches to his own benefit at age 70, their projected lifetime benefit jumps to roughly $1,250,000. Or to put it another way, by taking benefits as soon as possible, this couple may be giving up $250,000 in lifetime benefits.

The potential increase for singles isn’t quite as impressive, as the benefit for only one person rather than two is at stake. But the upshot is the same: Whether you’re single or married, taking benefits without a well-thought-out plan can be a costly error. And, as with the other mistakes above, it’s one you can likely minimize or avoid with a little advance planning.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at

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MONEY 3D printing

The Future of 3D Printing Just Arrived

Visitors view a 3-D printed bust of U.S. President Barack Obama on display at the Smithsonian National Portrait Gallery in Washington, D.C., U.S. on Friday, Feb. 13, 2015. The portrait, printed using 3D Systems Inc.'s selective laser sintering printers, will be on display until Sunday, Feb. 15.
Andrew Harrer—Bloomberg via Getty Images

And leading 3D printing companies hate it.

With the 3D printing industry expected to grow by more than 31% per year between 2013 and 2020, and eventually generate more than $21 billion in annual revenue worldwide, there’s currently a high incentive for industry players and new entrants alike to improve upon the technology’s many shortcomings. After all, compared to many conventional manufacturing processes, 3D printing remains inferior in terms of speed, surface quality, and running costs.

Combine these two dynamics — bright industry prospects and technological shortcomings — and it creates an environment in which lots of resources are being focused toward making technological breakthroughs that could push 3D printing further into the realm of larger-scale manufacturing. Depending on what side a 3D printing company sits on when a breakthrough occurs, it can either be viewed as a threat or a competitive advantage.

Unfortunately, 3D Systems 3D SYSTEMS DDD -1.17% was on the wrong end of a recent 3D printing breakthrough that claims to drastically improve printing speeds over current technologies by orders of magnitude and produce parts with unparalleled smoothness.

Meet Carbon3D, a 3D printer inspired by T-1000 from the movie Terminator 2 that’s expected to be available within the next year:

The rise of disruption

Carbon3D leverages a proprietary technology called continuous liquid interface production, or CLIP, which is similar to stereolithography, or SLA, in that a pool of UV-light-sensitive resin is selectively cured with a UV laser to build objects one layer at a time. But instead of pausing between layers like SLA does, which creates rougher surface finishes and reduces printing speed, CLIP controls the flow of oxygen to the resin, enabling it to continuously “grow” objects with an “animation” sequence that the UV laser follows during the printing process.

To put it simply, CLIP uses UV light to solidify some parts of the resin and oxygen to keep other parts of the resin from solidifying, which lays the foundation for a revolutionary continuous 3D printing process. The result is a technology that claims to be 25 to 100 times faster than leading 3D printing technologies and features part qualities that resemble injection molding in terms of smoothness.

Staggering implications

If CLIP delivers on its promise of being able to rapidly produce commercial-quality parts, which seems likely, it could fundamentally change the common belief that 3D printing is a technology primarily reserved for prototyping applications and isn’t well suited for larger-volume manufacturing needs.

Consequently, the market opportunity for CLIP could be significantly greater than for other 3D printing technologies that were originally designed for prototyping and often struggle with producing a high volume of parts, or parts that end up inside finished products.

In other words, 3D Systems and other 3D printing companies could have much to lose against a technology that’s likely to make a host of existing plastic 3D printing technologies seem inferior.

To be fair, the potential fallout that Carbon3D poses to competing 3D printing technologies would likely be small at first, considering the printer currently features a relatively small build volume, limiting the size and versatility of parts it can create. However, as CLIP technology matures and scales, it could become a growing business risk for 3D Systems, should the company fail to match Carbon3D’s technological capability.

Putting it all together

Carbon3D has raised a total of $41 million from private equity firms including Sequoia Capital and a division of Silver Lake, giving the start-up plenty of resources to continue developing its breakthrough CLIP technology. With this kind of backing, acquiring Carbon3D is probably out of the question for 3D Systems — and it wouldn’t likely come cheap.

Conversely, investors may find it reassuring that 3D Systems remains the most diversified 3D printing company in the industry — thanks to having seven distinct technologies in its portfolio. This level of diversification could potentially help 3D Systems mitigate the degree to which breakthrough 3D printing technologies threaten its business prospects.

Still, investors shouldn’t dismiss the threat that Carbon3D poses simply because 3D Systems is diversified. After all, Carbon3D appears to have the right elements to become a formidable competitor in the 3D printing space.

MONEY Financial Planning

Why I Want Clients to Get Emotional About Retirement

Chutima Chaochaiya—Shutterstock

Digging deep into clients' emotions helps one planner uncover what they're really thinking.

I like to delve into clients’ emotions and feelings. People may tell me one thing initially, but upon further questioning may see that their first response wasn’t emotionally true.

One example of that came up in a recent meeting with a couple who were getting ready to retire. Of course, they had worries about what they should do.

They wondered if they should move all their money into conservative investments. They floated the idea of moving everything into an annuity — an option they believed carried no risk.

When I asked them about longevity in their blood lines, I learned they each had at least one parent in their mid-90s. I then explained to them how we are in a low-rate environment and talked about the danger that their annuities would be capped at very low rates of return that likely would not keep pace with inflation or taxes.

That’s where my emotional questioning began. Let me summarize our conversation:

Question: The chance of your living another 30 to 40 years is extremely possible. How do you feel about that?

Answer: That we won’t have enough money.

Q: How does that make you feel?

A: Afraid and very uncertain.

Q: When you started work and got married, what were the rules?

A: Save money in a retirement account, have children, and make sure they get good education.

Q: What are the rules in retirement?

A: We don’t know of any other than just making your money last.

Q: If all of us are living longer, and you know that certain health care costs and taxes are going up, why would you not want to grow your money? Why would you want to buy this financial product that is not designed to keep pace?

A: That’s just what we were told. And that’s what we thought you did as an adviser.

Q: Well now that you are here, how do you feel about this happening?

A: We are very uncertain and really don’t know what to do!

Q: Has anyone worked with you to put together a plan that is balanced with investments and also has an income component that is adjustable for you?

A: No

Q: If you could become more educated on a balanced plan and how that may help you navigate the next 30 years, how would that make you feel?

A: It would make us feel like we have a chance to succeed.

When clients say that they do not want to lose any money, my response is, “Okay, but how do you feel about not making any money?” They don’t like that idea either.

In today’s marketplace, “no risk” equals minimal return and loss of purchasing power.

It is very important to educate clients on current economic conditions and teach them that calculated risk is worth taking. The average retiree who has a net worth of, say, $500,000 to $1 million either falls prey to annuity salesman or is so shell-shocked from 2009 that he or she only trusts CDs.

There is a real need to educate clients on how rates work and why the market have been the place to be for the past six years. Retirees also need greater clarification on annuities in order to understand their income and growth restrictions.

Asking questions to gauge risk is key to financial success. More importantly, it is key to building a sound relationship between adviser and client.

I always ask my clients, “In the next one to two years, what do I need to make happen to assure you that you have made a good choice in working with me?” These answers vary, but generally speaking, clients want to know that they are staying on the right path and are not falling behind. Keeping in touch with clients and knowing how they feel emotionally is paramount to them feeling good about their adviser.


Matt Jehn, CFP, is managing partner of Royal Oak Financial Group, which offers small businesses and individuals in Columbus and Lancaster, Ohio a complete financial solution through professional accounting, tax and wealth management services. Jehn, who earned a degree in family financial planning from The Ohio State University, enjoys helping his clients grow their businesses by educating them on the meaning behind the numbers.

MONEY investing strategy

The Dark Secret Behind Most Popular Investing Strategies

money splitting into different directions
C.J. Burton—Corbis

Investing gurus scrap their advice all the time.

Like countless others, I read Benjamin Graham’s book The Intelligent Investor when I was young. It totally changed how I looked at investing.

Graham’s book was more than theory. He gave directions — actual formulas — investors could use to find cheap stocks. The formulas were simple and they made sense. This appealed to me, as I had no idea what I was doing.

But something became clear once I started putting his formulas to use. None of them worked.

Graham advocated purchasing stocks trading for less than their net working assets — basically cash in the bank minus all debts. This sounded great, but no stocks actually trade that cheaply anymore — other than, say, a Chinese pharmaceutical company accused of accounting fraud, or a shell company run out of a garage in Toledo. No thanks.

One of Graham’s criteria suggested that defensive investors should avoid stocks trading for more than 1.5 times book value. Following this rule in recent years would have led an investor to own almost nothing but banks and insurance stocks. In no world is this possibly OK.

The Intelligent Investor is one of the greatest investing books of all time. But I don’t know a single person who has invested successfully implementing Graham’s formulas exactly as they’re printed. The book is chock-full of wisdom — more than any other investment book ever published. But as a how-to guide, success is elusive.

This bothered me for years. Then, a year ago, I had lunch with Wall Street journalist Jason Zweig, who explained what was happening.

Graham was as practical as he was brilliant. This is probably because in addition to being an academic he was an actual money manager, running what we’d now call a hedge fund. He had no desire to stick with antiquated strategies that other investors had caught on to and become too competitive, rendering them less effective.

“In each revised edition of The Intelligent Investor,” Zweig once wrote, “Graham discarded the formulas he presented in the previous edition and replaced them with new ones, declaring, in a sense, ‘that those do not work any more, or they do not work as well as they used to; these are the formulas that seem to work better now.”

The most recent edition of The Intelligent Investor was published 42 years ago. Who knows what Graham’s strategies would look like today if he were alive to update them?

The cornerstones of successful investing are timeless. Patience, contrarian thinking, and tax efficiency will be as important 50 years from now as they were 50 years ago.

But among specific investing strategies, things change.

Every strategy to outperform the market must be based on the logic of, “The market disagrees with me today, but it will agree with me in the future, and when it does share prices will rise and I’ll profit.” But what investors believe today, and what they’re likely to believe tomorrow, changes. Since the prevalence of data, social norms, and company disclosures change over time, what worked in one era might not work in another. As an investor, you have to adapt.

Just before his death in 1976, Graham was asked whether detailed analysis of individual stocks — the kind of stuff he became famous for — was still a strategy he believed in. He answered:

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a great deal since then.

What he believed, he continued, was buying a portfolio of stocks based on a few criteria — maybe low P/E ratios, or high dividend yields. But what matters — and what so many overlook when studying Graham — was that he changed his mind. He adapted.

In his great book Investing, Robert Hagstrom compares financial markets to biological evolution. There’s a tendency to think of markets as something that are established and rigid — a set of numbers that get jumbled around. But they’re not. Markets evolve over time. Successful strategies are selected, while those that are no longer effective — usually because investors gain access to better information than they had before — get pushed out.

Hagstrom looked at the last 100 years, and found that four popular investing strategies have come and gone.

“In the 1930s and 1940s, the discount-to-hard-book-value strategy … was dominant. After World War II and into the 1950s, the second major strategy that dominated finance was the dividend model … By the 1960s … investors exchanged stocks paying high dividends for companies expected to grow earnings. By the 1980s a fourth strategy took over. Investors began to favor cash-flow models over earnings models. Today … it appears that a fifth strategy is emerging: cash return on invested capital.”

If you don’t know that markets have evolved and some strategies are no longer valid, you’ll end up making terrible decisions.

“If you are still picking stocks using a discount-to-hard-book-value model or relying on dividend models to tell you when the stock market is over or under-valued, it is unlikely you have enjoyed even average investment returns,” Hagstrom writes. There is no reason to expect this strategy will lead to outperformance because so few investors pay attention to it anymore. Even if you find stocks trading at a discount to book value, there’s no reason to believe that anyone else will agree with you … later.

So many investors today put tremendous faith in investing metrics showing, say, that this stock is overvalued, or that the overall market is undervalued. They back it up with a century worth of historic data, showing how well the metric has worked in the past.

I often wonder: Have things changed? Have so many people caught onto a popular metric that they’re less effective than they were in the past? Should we, like Graham, be constantly tinkering with our metrics, discarding what’s unlikely to work anymore?

The S&P 500 did not include financial stocks until 1976; today, financials make up 16% of the index. Technology stocks were virtually nonexistent 50 years ago. Today, they’re almost one-fifth of the index. Accounting rules have changed over time. So have disclosures, auditing, and market liquidity. 401(k)s and IRAs — which hold trillions of dollars — didn’t exist until 40 years ago. Comparing today’s market to the past isn’t apples to apples.

There’s a mocking statement that “it’s different this time” are the four most costly words in investing. And sure, investors fall for some of the same traps again and again. But for many things, it’s always different this time. Things change. So should you.

MONEY Warren Buffett

The One Thing Warren Buffett is Wrong About

Warren Buffett, CEO of Berkshire Hathaway
CNBC—NBCU Photo Bank via Getty Images Warren Buffett, CEO of Berkshire Hathaway

Buffett's personal bias seems to be interfering with his judgment in food stocks.

Warren Buffett cannonballed through the food industry once again this past week, orchestrating a merger of Heinz and Kraft Foods KRAFT FOODS GROUP INC. KRFT -0.87% to create the world’s third-largest food company.

Buffett’s Berkshire Hathaway conglomerate and partner 3G Capital, a Brazilian investment firm, will pay a special dividend to Kraft shareholders worth $10 billion, and Kraft shareholders will own 49% of the new company while Heinz, which was acquired by Buffett and 3G Capital in 2013, will hold 51%.

This is far from Buffett’s first foray into the food business, but the deal seems questionable at a time when more Americans are shunning the packaged processed foods that Kraft is known for such as Velveeta and Lunchables, and its sales have been flat in recent years. Still, Kraft is a typical Buffett target with its portfolio of well-known brands and easy-to-understand business model. Berkshire is also a major holder of Coca-Cola COCA-COLA COMPANY KO -0.05% , and owns Dairy Queen, after acquiring it in 1997.

Buffett is a big personal fan of these brands, and readily admits that he eats “like a six-year old.” He has said he’s a regular consumer of Heinz ketchup, and Dairy Queen. He drinks at least five Cokes a day, regularly munches on Potato Stix, and told Fortune he had a bowl of chocolate chip ice cream for breakfast the day of the interview. Perhaps the octogenarian’s tastes may be clouding his judgement when it comes to his investments in the food world.

Coca-Cola COCA-COLA COMPANY KO -0.05% , for example, was one of the best performing stocks of the 20th century, but as soda consumption has fallen in the last decade, the stock has languished in recent years. Over the last five years, it’s returned 44%, against the S&P 500’s 74%, while in the last two years Coke is down 1%, compared to a 32% gain for the broad-market index. As long as people are turning away from soda, Coke’s prospects look poor.

In 1997, Buffett bought Dairy Queen for $585 million. At the time, it had 6,200 restaurants under its banner. Nearly 20 years later in 2014, it has only grown to about 6,500. As a minor subsidiary, Berkshire doesn’t break down Dairy Queen’s financial performance, but its average sales per store was just $659,000 in 2013, below most major fast-food competitors. Growth in individual stores has also significantly trailed the industry. In that time, McDonald’s, for example, has grown from about 23,000 restaurants worldwide to over 35,000. Fast casual chains have boomed as Chipotle Mexican Grill went from a handful of stores in 1997 to a valuation north of $20 billion today. Buffett may have gotten a good price for Dairy Queen, but the business is past its prime.

Heinz has only been under Buffett’s auspices for less than two years, but sales have been falling recently.

Like the recent Duracell deal, Kraft is yet another low-growth company with a strong brand. 3G has shown a knack with such businesses before, applying its playbook of cost-cutting and international expansion to ramp up profits. It worked with Anheuser Busch-InBev, and Heinz managed to grow profits last year. The group is now trying to pull the same trick with Restaurant Brands International, the result of the merger of Burger King and Tim Horton’s.

That may be the saving grace in the deal for Kraft, but the $10 billion dividend still seems like a generous gift for a company with flat sales that was valued at $35 billion before the deal was announced. If 3G can wring more profits out of Kraft, then perhaps the deal will pay off, but the business itself — with its products losing shelf space to organic competitors — looks weak. For a master of the deal like Buffett, the merger may pay off, but a Heinz-Kraft stock looks unappetizing for the average investor.

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