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The Coffeehouse Book

The New Coffeehouse Investor Book

The Coffeehouse Investor

How to Build Wealth, Ignore Wall Street & Get On With Your life by Bill Schultheis

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I have always been a big fan of keeping things simple. 

One of my favorite quotes on this topic was shared by someone who, in an interview upon being hired to a high-level position at Microsoft a few years back, said, “Complexity kills.” 

I try to live by that philosophy in my daily life, especially while working at Soundmark Wealth Management

For instance I don’t ever discuss things like Monte Carlo, Beta, Standard Deviation or Risk Adjusted Returns. 

Risk Adjust Returns?  What’s that?  In my opinion that is something that has been created by somebody with way too much time on their hands that serves no useful purpose in helping investors reach their financial goals.  And yet the Wall Street crowd uses it all the time. 

The simpler I keep things, the more our clients understand all dimensions of their portfolio and financial plan.  The more they understand it, the more they take ownership of it. The more they take ownership of it, the more they stay committed to the Coffeehouse philosophy in both up and down markets. 

The payoff, or reward?  Investors who have stayed committed over the past ten years have generated Coffeehouse-like portfolio returns in a most challenging investment climate.   For them, it wasn’t a “lost decade,” experienced by so many other investors.  It was quite the opposite. 

Speaking of keeping things simple, this past weekend a friend of mine forwarded to me an article that greatly simplifies an investment owned by many people in their 401k retirement plans.  Stay tuned.


“I need a plan!” 

Somehow, that deep-down desire, that basic need that is at the core of so much financial anxiety in our society today, gets drowned out by Gold and Greece.

Last week I met with a young couple for the first time, a husband and wife who are immersed in successful careers.  They were sitting across from me at the table, and I could sense exactly why they came calling, and where they were at. 

They needed a plan. When the meeting was over, they had a plan. 

And yet, one of the first questions that was asked at the beginning of the meeting was, “What do you think about Gold?” 

Now, I have my opinions on Gold, and I shared it with them. 

But then we discussed it a little more; why they were so interested in Gold.  I think, in the end, they came to their own conclusion that “Gold” should be completely irrelevant to their financial picture and financial future.   

The way I look at Gold or Greece, is that if my retirement is dependent on me predicting the outcome of Gold or Greece, I am in a world of hurt.

And you are too.    

Create your plan. Focus on things you can control.  You will be glad you did. 

 


There seems to be quite a bit of handwringing over the economy and markets these days. 

Just this morning I read where some pundits are already recognizing the arrival of another recession. 

Whether or not we are in a recession is secondary to the realization that our country, and maybe the world economy, is in for a prolonged period of slower growth.  Even China is showing signs of a slowdown in economic activity. 

The stock market seems to be admitting the same, with a sharp downturn this past week suggesting a readjustment to lowered expectations of economic activity. 

I have long suggested that you do the same – lower your own expectations of future returns on asset classes. 

But lowering ones expectations doesn’t mean a capitulation, or liquidating of stock market investments to protect one’s portfolio from the possibility of future market declines.

What it does mean is you need to sharpen your pencil in reviewing your own financial plan for two reasons.

First, your financial plan creates clarity on the amount of portfolio risk you can absorb without a market decline negatively impacting your lifestyle.

Second, your financial plan should encourage a heightened awareness of your burn rate – specifically your saving levels (if you are working), or spending levels (if you are retired).

Yesterday I had an experience that drive homes the importance of the financial plan that I want to share with you, but am running out of time and running out the door, so will save for next time.

In the meantime, if you are struggling to put together your own financial plan, drop me a note and we’ll discuss.  Others might be able to benefit the same.


 

Yesterday, the Fed announced it will sell approximately $400 billion of its short term government bonds in the coming months, and with the proceeds purchase long term bonds, in an attempt to drive down long term rates to stimulate the economy. 

Some financial pundits are labeling this “the Twist.”    

What does that mean for investors?  For now, yields on virtually all fixed income (bond) investments are at or near long term lows, and uncertainty on when rates will start to rise. 

As with common stocks, it is also important to stay diversified across your bond holdings and especially the yield curve, owning both short and intermediate bonds. 

When rates do go back up, your bond portfolio will certainly endure temporary declines.  It is essential to recognize this, and stay committed to the design of your bond portfolio.  This is explained in an excellent report prepared by Vanguard, specifically the chart on page 3.  Although I have referenced this report in the past, in light of recent activity in the bond market, it is worth reviewing.


I came across an article the other day discussing the merits of index funds, and whether or not those of us who embrace the simple and successful approach to capturing asset
class returns get carried away in our “zealotry” of advocating the philosophy.

Interesting point to ponder, but I look at our “zealotry” in a different way.

In all the years I have worked on The Coffeehouse Investor, writing the book, writing a weekly column for eight years, writing this blog, working with clients at Soundmark Wealth Management, my intention has never been to convince, or persuade someone that the Coffeehouse way is better than the alternative – that of trying to beat the market through individual stock selection or active mutual fund management.

My goal has simply been to provide creative education, so that investors can make up their own mind after looking at the evidence, and applying a little common sense to their decision.

I am convinced that most investors, while they may be a little irrational at times with their money (hey, who isn’t?), are intelligent human beings who want to make the right decisions with their investment choices.

The Coffeehouse Investor is for them.  Take a moment to share our philosophy with someone you know.

Remember, it isn’t my philosophy.  It isn’t John Bogle’s philosophy, it is EVERYONE’S philosophy, to the extent they want to build wealth, ignore Wall Street, and get on with their lives.