A Wealth Advisory Practice


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Why Smart People Do Stupid Things with Money Overcoming Financial Dysfunction In today’s off the beaten path book review, I’m taking a look at Why Smart People Do Stupid Things with Money by Bert Whitehead, MBA, JD. This review is based on the 3rd edition published in 2007 and not the current 4th edition. As part of my series of off the beaten path book reviews, I’ve scoured the internet for books that might not be found at the local bookshop where we might find a new nugget of information or some fresh new way of seeing things.

The Value in Factor Investing I have always found factor investing to make intuitive sense. When it comes to individual company valuations, the concept of Economic Value Add or EVA has always been important to me. Stewart’s The Quest for Value and Copeland’s Valuation are cornerstones of my approach to company valuations. The traditional value “risk” factor is based on a corporation’s relative equity value to book equity value while EVA is focused on the corporation’s enterprise value, which considers all sources of funding corporate activities, and the capital used to earn economic rents.

Off the Beaten Path Book Reviews: The Funny Money Game by Andrew Tobias I have found a growing interest in researching past periods in our financial and economic history and what has laid the groundwork for what we know (and don’t know) today. Such interest has led me on some fascinating journeys that I would consider fruitful in developing a latticework model of thinking about the world. Who knew that starting with an interest in investing could uncover tales that weave between the history of statistics and probability, evolutionary biology, game theory, let alone the birth of financial economics.

This marks the beginning of what will become the body of the Investor Manifesto series that I have wanted to write for sometime now. A manifesto is essentially a written statement available to the public that describes in our case my views on investing. This will cover what Meir Statman has described as four lessons: Know your wants Know financial facts Know human behavior Know the trade-offs between wants and balance them

Investing is a wonderful pursuit that can be tackled as an extension of a liberal arts education or from a more pure scientific approach. Either way, the pursuit is about finding mispricings in the market that can be exploited. That can be done as a value investor utilizing fundamental analysis to the creation of quantitative models that follow Stephen Ross’s general arbitrage pricing theory (APT). The key to being successful with either approach is about making smart decisions and smart decisions are based on what information is relied upon.


Book Title Reference Expectations Investing Alfred Rappaport, Michael Mauboussin. Expectations Investing. Massachusetts: Harvard Business School Press, 2001. Valuing Wall Street Andrew Smithers, Stephen Wright. Valuing Wall Street. New York: McGraw-Hill, 2000. Aswath Damodaran. Investment Fables. New York: Financial Times Prentice Hall, 2004. Aswath Damodaran. Investment Valuation. New York: John Wiley & Sons, Inc. 1996. Aswath Damodaran. The Dark Side of Valuation.

John Bogle, founder of Vanguard Group, passed away last Wednesday at 89. It is safe to say that his vision of low-cost, passive index oriented investing, made available to the general public was realized. Index oriented investing is now a common practice among both personal and institutional investors. Intended or not, he was a champion of the individual investor. How he became such a champion is an interesting tale. Mr. Bogle started in the industry with the Wellington Management Company in 1951, straight from college and became president of the firm in 1967.

I’ve avoided discussions in general regarding Bitcoin given that I have not viewed Bitcoin as investable option for a long-term investor’s portfolio. Saying that, there has been a wave of interest, one might call a bubble, in Bitcoin. A year ago, Bitcoin was priced at approximately $1,150. In late December 2017, the price of Bitcoin topped at $19,206. Bitcoin is priced approximately at $9,950 as of the time of writing.


Welcome from Smith Patrick Financial Advisors. This is our new home on the web. We have moved from a more complex web design to a hopefully much simpler creation. The goal will be to be able to deliver the usual information like «who we are» and «how to contact us» while also providing our views on current events and more timeless topics. Enjoy and keep checking back for new content.

Estimating future returns on equities has been somewhat vexing in recent times given the impact of share buybacks. Share buybacks by companies in the S&P 500 have exceed the payout in dividends for 12 of the past 16 years (2000-2016). The challenge is separating what cash return is received now and what the growth of those cash returns will be in the future. If we were to only to use historical returns it wouldn’t matter the mix, but when forecasting based on projected payouts, growth in payouts, and current valuation levels, it becomes very valuable to estimate the different drivers of returns.

Bitcoin and associated blockchain technology has been a growing topic of interest for several years. This year it has become more in focus as the price of a Bitcoin (BTC) in US dollars has both risen and fallen dramatically this year stirring up conversations of a Bitcoin bubble and whether Bitcoin can be viewed as an investable asset. (For the record we do not currently believe Bitcoin is something to invest in for prudent investors.

In 2015 I worked on a risk questionnaire that was designed to expand on the more simplistic risk scale that I use as well as is the industry standard. The idea came from a journal article co-written by Dean LeBaron from Batterymarch and published in 1989 in the Financial Analyst Journal.1 As part of introducing the questionnaire, I used what was called the Litterer Perception Formation Model. The idea being that it is important to understand how we process information and make decisions, rational or otherwise.

Here at Smith Patrick we have migrated our financial planning process to MoneyGuidePro. A major reason is the ability to be more interactive with clients in the planning process. This interactive and iterative process is very beneficial in our opinion. Which brings me to this blog post. One of the first changes to our past method is switching from a cash-flow method to planning using a goal-based method. The reality is that when discussing financial planning based on cash flow analysis or by setting goals, it is more about selecting an appropriate method to achieve a plan.

Market Observations for March 2017 After strong post-election moves, the financial markets continue to tread water. For instance as discussed in our November observations that the US 10-year treasury yield jumped to 2.37% at the end of November. The yield was 2.40% at the end of March. This is clear evidence of how informational efficient the capital markets are as they adjusted expectations given the US election results in November.

We do not prescribe to the idea of Evidence Based Investing (EBI) as it is typically marketed. This is not because we think investors should be passive or active in their portfolio management decisions, but rather because it’s underpinnings are not backed by economic fundamentals nor fully represent the entire wealth of evidence generated over the years. It is our view that EBI is typically centered around the idea that markets are informationally efficient and it is very difficult to beat the market.

Market Observations for December 2016 November was a very active month. The biggest movement came from the jump in interest rates. The 10-year US Treasury jumped from 1.83% to 2.37% in the month. This was a trend that had begun back in July when the 10-year dropped below 1.4%. Much of the movement however was post presidential election. The US dollar index also jumped in November, which makes imports cheaper, but is a headwind for overseas investments.

When we look at developing a financial plan or investment strategy, we are interested in determining a household’s savings and spending profile. This in turn helps us generate a cash flow profile which along with current savings is one of the major cornerstones of developing client investment strategies. We find however that client’s often need some help with determining their budgets and more importantly – how to structure a budget.

Evidenced based investing (EBI) comes from the medical profession and evidence-based medicine (EBM). EBM is a way to practice medicine based on processes and guidelines that have been developed using sound research. EBM term was popularized in the late 1980s and early 1990s. As for investing, the term is focused on investment best practices based on financial research. It is about designing investment strategies (remember – processes and guidelines) based on empirical research.