Holly

Holly

I’m Lori Brillhart, your new Coffeehouse blogger, the newest member of the Coffeehouse Investor team. I am married, with a fourteen year-old son, and a precious Lab/English Spaniel mix. While I am a lifelong learner, and enjoy new and challenging experiences, my passions include spending time with family and friends (and beloved dog); I also have a passion for tennis, serving on the Board of Tennis Outreach Programs, and I love to golf, hike, get out on the water, read, and watch movies. A little known fact about me is that I am in search of the perfect dark chocolate bar; the research is relentless!!

For the past fifteen years, I have had a fantastic time as a tennis professional in the Greater Seattle area. Having coached kids as young as three and as young-at-heart as eighty-five, it has been a pleasure helping clients learn and grow, which has helped me grow some very deep relationships along the way. Additionally, I have enjoyed coaching high school and adult teams, and planning tennis events.

Somewhere along the way – about five or six years ago – I started to become interested in the world of investing, and, over time, began contemplating a career as a “financial coach,” using many of the same fundamentals and life-lessons I share with others when coaching tennis. These thoughts became dreams became actions, sparking a career in the financial services industry.

Having read The Coffeehouse Investor book years ago, the three principles resonated with me; a philosophy that continues to be a sustainable investment style in both good and bad markets. Lucky for me – I live in the Seattle area, close to where the Coffeehouse Investor was created twelve years ago.

My objective in writing this blog and sharing the Coffeehouse message with the world is simple: I feel energized when helping others reach their goals. Together I am going to work with Bill Schultheis (the creator of The Coffeehouse Investor), and most importantly, YOU, to accentuate its simple message to help all investors build wealth, ignore Wall Street, and get on with your lives.

If there are questions you wish to have answered, or you have ideas for a blog, please feel free to contact me, and I will do my best to address your requests. I look forward to your questions and comments as we embark on a very prosperous journey together.

Stay tuned, there is lots more to come.


This past week was one of the most volatile weeks ever in the history of the stock market, with the Dow Jones Industrial Average declining about 5 percent for the week. 

 

I want to share a few thoughts with you on Thursday’s events, which saw the popular index decline close to 1000 points before recovering most of that within the span of about 20 minutes.

 

The day started off for me with a morning meeting in Bellevue, about 10 miles south of our offices in Kirkland, and before I headed back to the office, I stopped at the local bookstore to pick up a book and educate myself on the updated software I had purchased for my new laptop.  (That experience is a different story for a different day)

 

I love browsing bookstores, in fact when I first decided to write a book about 13 years ago, I would spend hours in bookstores, reviewing all the different investment and finance books. Much to my surprise, other than Bogle’s and Malkiel’s books, there were few, if any books available on the simple wisdom of index funds at that time, which gave me lots of energy to move forward with my project.

 

On Thursday morning, I took a quick peek at the finance/investing section in the bookstore, and was taken aback at the large quantity of books written on how to survive and thrive in a “new” era of investing.  These books were obviously written as a result of the nasty bear market we endured the past couple of years, promoting a new spin on how to become a better investor through new and improved economic analysis and investing strategies. 

 

Later that day, I had a luncheon meeting, and walked out of the office with the Dow down about 340 points.  An hour later, with the market about to close, I caught CNBC blaring in the background, and noticed that the Dow was still down about 340 points, with the commentators yakking it up about whatever I wasn’t quite sure. 

 

Only later did I realize that in that one hour the Dow Jones Average plummeted 1000 points, and it got me to thinking . . .

 

In today’s day of broadcast news and bookstores littered with authoritative “experts, it is a daunting challenge to ignore Wall Street and get on with your life. 

 

 

 

 

I don’t say this lightly.  I share this with you from personal experience, not only in working with our clients at Soundmark Wealth Management, but in my own experiences with own portfolio.  Amid all the chaos of the past ten years, I probably haven’t spent more than 15 minutes a year reflecting on my portfolio, and yet I suspect my returns have significantly out-performed almost all investors with similar (stock/bond) allocations. Why?  Because I don’t let short term events impact my investment decisions.

 

This doesn’t mean I stick my head in the sand and ignore what is going on.  I am acutely aware of my financial plan, and what I need to be doing in my personal life to reach my financial goals.  It all starts with a commitment to integrate the three simple Coffeehouse principles into your life.

 

1. Develop a financial Plan

2. Allocate your assets accordingly

3. Capture the entire return of each asset class through low cost index fund. 

 

I know one thing is certain – If I am to reach my short and long term financial goals, it won’t have anything to do with what is going on in Greece this week, and whether or not someone on a trading desk made a gigantic trade error.  All that stuff is irrelevant to me.  What is relevant, is that my allocation broadly reflects where I am at in my life, and I know what I need to be doing with my burn rate (expenses) to reach my financial goals.   

 


Last week I received an e mail from someone who wanted to discuss a possible career in the investment advisory arena. He’d had a successful career in some other industry, and, because he enjoyed the process of managing his own portfolio (and apparently was successful at it), felt a “calling” to help other people reach their financial goals as well.

In the ensuing phone conversation, I could tell within two minutes that his approach to investing was far different than the “Coffeehouse” approach to wealth management. He explained to me that he had done significant research on one sector of global investing, and felt he had a special knack for picking the top-performing stocks and industries within this sector, and wanted others to be able to benefit from his wisdom.

After pressing him a little, specifically asking him what his clients should do in the event he happened to be wrong with his future predictions, he admitted that he embraces the “Coffeehouse” philosophy of broad based index funds, but felt that part of a client’s portfolio warranted his insights.

His approach toward providing financial advice comes as no surprise to me. In the world of stockbrokers and financial advisors, this is more commonly referred to as “core and explore.” The sales pitch goes something like this: “We are going to invest three quarters of your common stock investments in low-cost index funds, and try to beat the market with one-quarter of your holdings.”

Although advisors in the financial industry talk a good line – about diversification, about market efficiencies, and the need for financial planning, most of them still spend the vast majority of their time analyzing and trying to beat the market, even if it is with only a portion of your portfolio.

The downside to a core and explore approach is two-fold. First, any attempt to “beat” the market, even with a small portion of your portfolio, is likely to have a disastrous impact on the long term performance of your holdings. Don’t believe me? Check out your returns over the past ten years compared to the Coffeehouse portfolio, and that is proof enough.

Second, and more important, when your stockbroker turns his attention to beating the market, either through individual stocks, actively managed funds, or exchange-traded sector index funds, there is a natural tendency for you to shirk responsibility for your own financial well-being, because you are now relying on someone to predict the future.

To put it bluntly, if reaching your financial goals is dependant on someone’s ability to predict the future with the “explore” part of your portfolio, you are in big trouble.

Most of the stockbrokers and financial advisors just don’t get it. The reality is that the vast majority of investors couldn’t care less about beating the market, even with a fraction of their portfolios. The only reason they might think it is important is because some salesman has convinced them that it is important.

What investors do care about is whether or not they are on track to reach their financial goals, what they need to do to reach their goals, and whether they have a portfolio that broadly reflects where they are at in life in relation to their goals.

The next time a stockbroker or financial advisor starts talking about his favorite “core and explore” portfolio, run the other way. He is looking out for his own interests a lot more than he is looking out for yours.


 

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.

 

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, I 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.

 

 


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%

 

 


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.  


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 . . .
 

Read the rest of this entry »


This past week I fielded a phone call from a 55 year old woman who spent quite a bit of time with me on the phone, expressing her bewilderment at what to do with her investment portfolio. 

 

She is a physician and an artist, and throughout the course of our discussion, it became clear that a lot of her mental energy that could be better spent in her career and her passion for art was being spent on questions like,

 

“I am so frustrated, what in the world am I going to do with my portfolio?”  and,

 

“Can I retire on time?” 

 

Which got me to thinking . . .

 

One of the primary benefits of building a “Coffeehouse” type portfolio is that it puts the pursuit of “performance” in perspective.  There will always be another fund, another stockpicker, another trading strategy, that outperforms the one you currently embrace. 

 

At what point do you say, “enough is enough.”  At what point do you quit chasing performance? 

 

I have highlighted this decision in a unique little game I devised 12 years ago called “Outfox the Box.”  It is a simple exercise that drives this point home.  Although it is possible to choose the $10,000 box, why do participants always stick with the $8,000 box?  Inevitably they respond, “It isn’t worth the risk!” 

 

In five words, they sum up why it makes sense to own a globally diversified portfolio of low cost index funds, instead of pursuing active management in an attempt to beat the market. 

 

In my opinion, when someone chooses the $8,000 box, or in our case, a benchmark average, they maximize their return potential in the stock market. 

 

 

On top of that, I have long felt that another significant benefit of building a “Coffeehouse” type of portfolio of low cost index funds is the peace-of-mind it offers you that you are doing the right thing with your investments, especially in down markets. 

 

I witnessed this firsthand in my own portfolio (and the clients I work with), during the market decline of 2000-2002, when the S&P 500 index dropped over 43% during that stretch. 

 

During that time period, I didn’t change a thing in my portfolio.  Not only did I not change anything in my portfolio, I didn’t even think about changing anything.  During those three years, even during the market’s steep decline, I knew my investments were positioned as good as they could be. 

 

In light of the fact that I work as a financial advisor, and am constantly fielding calls from investors all over the nation, confused and bewildered, wondering what to do next with their portfolios, in my opinion, this “peace of mind” is priceless. 

 

This “peace-of-mind” has been especially gratifying during the past two years, when we all have had to endure one of the more grueling bear markets in the past 70 years.  During this period we have managed to survive two full blown bull and bear markets.  I can hardly imagine trying to manage a portfolio, and the emotions that are attached, during this time period while trying to stay one step ahead of the thousands of different opinions put forth by financial pundits and stock market gurus.

 

It is a Friday morning, and I am finally catching up from my two-week trip to China.  In the next week, I am going to be offering some reflections on that wonderful trip, both from an investing and non-investing standpoint (and maybe a few pictures!).

 

I am also going to share more reflections on the physician and artist who is still stewing over what to do with her portfolio . . .

 

so stay tuned.  


When it comes to investing, one of my favorite quotes is by John F. Kennedy, who once said “The greatest enemy of truth is very often no the lie – deliberate, contrived and deceitful, it is the myth – persistent, persuasive and unrealistic.”

In my opinion, the two greatest myths of investing are,

 1) great companies make great investments (great companies can also result in  horrible investments), and

 2) stockpicking professionals can consitently pick enough good companies and avoid enough bad companies to outperform the stock market average, which is made up of all the good and not so good companies combined.   

Speaking of investing myths, recently I put in a call to a friend of mine, financial advisor and author Jack Calhoun,  who wrote a great little book on the myriad of investment myths investors have to deal with in trying to build portfolios and reach financial goals. (While you are at it, check out is great web site and learn more about investment myths by reading his recently published book, The 12 Investment Myths)    

This is what he had to say . . .

A few years ago I was meeting with a prospective client of our investment firm in my office. He was a businessman, but he had been a fighter pilot several decades earlier, and he was still possessed of the same sense of confidence and bravado that had served him so well in the days when he was flying F-14s. Unfortunately, his ego was not serving him well when it came to his investments.

“You’re paying way too much in fees for your mutual funds,” I told him, which was an understatement. He had his money with a brokerage firm, and all the funds in his portfolio had management fees of between 2.5% and 3%.

 “I don’t care what the fees are as long as the performance is good!” said the fighter pilot. And indeed the performance of all the funds in his portfolio had been good – just not for him. He had been sold those five-star funds by the broker after they had generated all those gaudy returns, and he was convinced it was his turn to jump on the money train.

“Fees are directly correlated to performance,” I told him. “You can’t expect good performance if you’re paying ridiculously high fees.”

“Then what about the Legg Mason Value Trust Fund?” he challenged me. “They’ve beaten the S&P 500 every year for ten years! Why would I worry about fees if I can get performance like that?”

He looked at me as if he had won the debate. And in a way, he had, but not for the reason he thought. It wasn’t that he had stumped me for an explanation – it was that I knew he was a lost cause. I could tell he hadn’t had enough painful experiences yet to believe me when I told him past performance was the easiest sell in the investment business but was, in fact, completely irrelevant to how a fund would perform going forward. (Suffice it to say, after the Legg Mason fund’s 65% drop in 2008, he knows it now.)

Sadly, I have found this man’s mindset to be more the rule than the exception when it comes to individual investors. And it’s not just the singular misconception that past performance is a good way to pick investments – it is, in fact, a variety of wrong ideas that plague investors and cause them to experience all of the downside and very little of the upside of stock investing. Complicit in this are Wall Street and the media, both of which have a vested interest in perpetuating these misconceptions.

After being confronted with these mistaken beliefs – these myths – enough times, I finally had an epiphany of sorts. I wrote down all the wrong ideas that investors had challenged me with over the years, in all their variations and forms. And I realized that, when you boiled it down, there was really a core group of a dozen of these myths that really were the main culprits in locking investors into the never ending cycle of buying high and selling low.

Thus was born “The 12 Investment Myths.”

 

 

The thing about these mistaken ideas that makes them so compelling is that they seem so right. It seems like just good ol’ commonsense that the best and brightest minds in finance should be able to beat the market on a regular basis. Or that “buying good companies” is the best way to invest. Or that “staying on the sidelines until things calm down” is not really market timing, just being sensible in a volatile market.

For the investment advisor, this is where the road diverges. The path of least resistance – the one taken by the transactional side of the investment industry – is to sell these myths to investors. It is easy to do – just run a screen in Morningstar for five-star funds over a five- or ten-year time horizon and, there you have it: Your sales story. “Advisors” who take this path will no doubt watch the money roll in as investors clamor to get in on the five-star fund action. And then those “advisors” will watch that money roll right back out again once those investors realize they’ve been sold a bill of goods that “advisor” can’t deliver.

The much harder path is the one that involves preaching against these myths –  that a small minority of financial advisors in the industry endeavor to do. It isn’t easy, because you have to convince people to put aside the notion that investing is exciting, in favor of an unemotional, zen-like approach to investing that just isn’t as fun as watching Jim Cramer on CNBC’s Mad Money.  You have to promote the fruit-and-vegetables to CNBC’s cotton candy, and you have to do it everyday.

What happens to the cotton candy crowd? They are the ones who likely locked in their losses in March, and then watched the market gain 50% these past five months before they even realized it, while they were earning 0.5% in cash. They are the ones who perpetually buy into all those myths that Wall Street and the media keep telling them to believe.

In short, they are the folks who experience the downside and little of the upside of investing in the stock market.


 

 

“Target-Date” mutual funds are a natural progression in the Coffeehouse world of bringing simple investment ideas to investors across the country. 

 

Along with index mutual funds and exchange traded funds, “Target-Date” mutual funds are one of the more intriguing investing innovations to appear in a long time.  

 

These investments are “all-in-one funds” that consist of a broadly diversified holding of common stocks and bonds. What makes these investments so unique is that the bond allocation automatically increases over time as the investor’s need and ability to take market risk diminishes. 

 

The upside to these funds is that it is incredibly easy to have a diversified portfolio with one simple mutual fund, with an allocation that automatically changes over time. 

 

 

 

The downside is that the fund might have an allocation different than what you expected, or is appropriate for the risk you want to take, as many investors who invested in these funds have found out over the past two years. 

 

To get a better understanding of the issues surrounding Target-Date funds, Mel Lindauer, a founding member of the Vanguard “Diehards” discussion board wrote an excellent column on Morningstar’s web site to shed some light on these controversial mutual funds.