Welcome to the Coffeehouse

This non-commercial web site is for investors across the nation and around the world who recognize and embrace the sophistication of simplicity in their investment portfolios as well as their personal lives.

The Coffeehouse Investor does not provide financial advice - our purpose is to provide creative education for investors who want to build wealth, ignore Wall Street and get on with their lives by making informed, intelligent investment decisions.

From the Blog

Breaking Up Is Hard To Do

Published February 24th, 2010 | Comments (0)

One of the biggest obstacles standing between you and your financial well-being might just be your stockbroker.

It is no secret that many stockbrokers and financial advisors continue to get compensated through a commission-based structure, encouraging them to conduct business in a manner that is not aligned with your financial well-being.

But forget about the compensation issue a moment. The biggest beef I have with stockbrokers and financial advisors is that most of them spend the majority of time on the one issue that is irrelevant (and I would argue counterproductive) to your financial success; beating the stock market average.

Ninety nine out of 100 investors don’t want to beat the stock market average. They want a game plan that allows them some clarity on their financial future. They want to know if they are on track to reach their financial goals. Why do I know this? Because I ask them, and they tell me.

Nevertheless, many investors find it hard to break off a business relationship with their stockbroker. Why is breaking up hard to do? To answer this question, I put in a call to someone who successfully dealt with this very struggle, Dr. Charles Pilcher, recently retired from Evergreen Hospital in Kirkland. Here is what he had to say.

Divorce sucks. Something like 50% of marriages in the US end in divorce. Almost always the reason given is some sort of “incompatibility.” Money and finances often play a role. Infidelity is another major factor. Whatever the reason, people find it all too easy to dump their partner of many years for what may appear to be greener pastures.

If this can happen so readily in a once committed marriage relationship, why is it so hard to “divorce” a financial partner with whom one has far less commitment, a strictly business relationship, no children, no extended family? The only thing involved is money. Why are we so committed to our financial planners, our banks, our investment brokers? When you think of your financial advisor, how often have you said to yourself, “This just isn’t working the way I expected,” and dreamed about something better? How many people have worried for years about breaking up a long-standing relationship with their broker, when they are likely to (or might already have done so) spend less time dissolving a marriage? Why is it so hard to leave?

In my own case, I had built up a relationship over many years with a broker from a major financial firm. My father had used this firm himself. I truly liked, and still like, the broker and his staff. But each year, with few exceptions, I would look at the performance of my portfolio and realize that the goals we had set were not being met. We tried a wide range of investment options. I was in almost weekly contact with my broker, year after year. We would meet in person a couple times a year, or maybe even play golf together. It was a wonderful relationship on a personal level, but I wasn’t getting any closer to achieving my financial goals.

The problem came down to this: The lure of investing is the fantasy that “I’m smarter than the market.” I’m not a big risk-taker who invested in speculative companies. But owning the “right” companies seemed to be the primary focus in dealing with my broker.

(Dr. Pilcher)

I had been reading a column in a local paper called “The Coffeehouse Investor,” by Bill Schultheis, who continually emphasized three principles. In fact he would reiterate them so much in his columns that I have them memorized.

• Create a financial plan.

• Allocate your assets to reflect your need and ability to take risk.

• Capture the entire return of each asset class.

It sounded so simple. Annually I would compare the performance of my portfolio against that of the “Coffeehouse” portfolio, and each year I became more disillusioned with mine. I would have been elated to have just kept up with the averages.

After one particularly dismal year, I finally committed to “getting a divorce.” That’s exactly what it felt like. “How am I going to explain this to my broker?” I wondered. We had spent so much time and energy and emotion together. But it was necessary. It was painful for both of us.

But I got the divorce. Had I made the switch earlier, I would have added nearly 50% to the value of my portfolio.

I realize that the reason my divorce took so long is the egotistical sense that “I’m smarter than the other guy,” or even “I’m smarter than the market.” But I’m not.

Now that I have embraced the “Coffeehouse” philosophy for several years, we review my portfolio maybe once or twice a year. This allows me time to focus on other activities that are a lot more fun, including my wife and family. The “Coffeehouse” approach is simple, straightforward, and most of all, successful.

Perhaps your current financial guru is a college buddy, a family friend, or just someone you like. Perhaps you have contemplated divorce, looking for greener financial pastures. Perhaps you’ve stayed in a dysfunctional financial relationship too long, and for the wrong reasons. Now may be the time to get a divorce. It’s neither easy nor fun. But sometimes staying in a costly, underperforming investment program makes it necessary.

Breaking up is hard to do. It took me years, but I’ve never looked back.

“Lost Decade” of Investing? Not at the Coffeehouse!

Published December 31st, 2009 | Comments (0)

2009 is history, and of course the financial media is writing a lot about the “lost decade” of investing. That may be the case for blue chip stocks of the S&P 500 index, which generated a ten-year negative annualized return of -1.03 percent.

For investors who embraced a diversified portfolio beyond domestic blue chip stocks, long advocated at the Coffeehouse (first suggested in 1999), the decade was anything but “lost.”

Below are the numbers that show the returns over various time periods, with the 10-year annualized number coming in at 5.74%.

Investors who completely ignored the daily ups and downs of the market, completely ignored the empty daily chatter of Wall Street, and instead embraced this simple portfolio and got on with their lives, came out ahead once again.

Is it time for you to finally embrace the Coffeehouse investment philosophy in your life and in your portfolio?

Don’t let the next decade be another “lost decade” of investing.

Remember, when it comes to investing, “time” is the most precious asset class of all.

		ANNUALIZED
		RETURN

	1991	23.55%
	1992	9.57%
	1993	15.65%
	1994	-0.58%
	1995	22.90%
	1996	14.53%
	1997	17.95%
	1998	6.89%
	1999	8.30%
	2000	7.25%
	2001	1.88%
	2002	-5.56%
	2003	23.54%
	2004	13.80%
	2005	6.24%
	2006	15.15%
	2007	2.63%
	2008	-20.21%
	2009	20.26%


19 YEARS		9.10%

10 YEARS		5.74%

5 YEARS		3.79%

2 YEARS		-2.04%

Merry Christmas from the Coffeehouse

Published December 24th, 2009 | Comments (1)

I want to wish you a Merry Christmas, and hope that you and your families have a fun and relaxing holiday season, and all the best to you in the New Year.

I am always drawn to folks who take the time to share their gifts, no matter how great or small, with the world around us.

On Monday, I rushed in to the local post office to mail some last minute Christmas cards. Much to my surprise and delight, a postman was standing off to the side, playing some Holiday tunes on his Kamaka Ukulele. It was a wonderful experience to enjoy his incredible talent, while waiting in line and getting ready to celebrate the winter solstice that evening.

Mr. Postman, thank you for touching the lives and bringing cheer to all of us - and Merry Christmas to you.

Coffeehouse Ponderings

Published December 9th, 2009 | Comments (7)

I have always admired folks who can take a rational look at, and clearly articulate, an opposite viewpoint, while still embracing their own beliefs.

Charles Kirk is the creator of “The Kirk Report” one of the nation’s most popular financial web-sites aimed at providing stock market analysis and individual stock recommendations to individual investors.

He has been successful by diligently following the stock market and makes a living through the frequent buying and selling of individual stocks.

Investors who embrace The Coffeehouse Investor approach to building wealth know that our philosophy is very much the opposite – the best way to maximize long-term returns in common stocks is to buy and hold a globally diversified portfolio of low-cost index funds.

However, I am well-aware that many investors who embrace the Coffeehouse philosophy with the majority of their portfolios at the same time enjoy the challenge of trying to beat the stock market by purchasing individual common stocks. In fact in my book I wrote one chapter addressing this issue, titled, “Let’s Have Some Fun.” I encourage those investors who do want to trade stocks to allocate a maximum of 5 to 10 percent of their portfolios to active stock selection.

In the book, I write, “And who knows? Somewhere among the millions and millions of stock pickers you might be the next Warren Buffett. But I am not sure it is worth risking your entire portfolio to find out you aren’t.”

Charles Kirk recognizes that following the stock market and actively buying and selling stocks is not for most investors. As such, he is also a big proponent of the same investment philosophy embraced by Coffeehouse Investors. Recently he interviewed me and my thoughts on investing, and graciously allowed me to re-print the interview on my web-site.

A big thank-you Charles, for allowing me to highlight the Coffeehouse message to all your faithful followers . . .