Newsletter Volume 8, No. 5 - November 2015November 19, 2015by Harold Evensky

of Evensky & Katz / Foldes Financial Wealth ManagementAMAZING AND VERY COOL! From my friend Peter: The French restaurant «Le Petit Chef» (The Little Chef) came up with anoriginal way to entertain guests while waiting for their orders — using a projector on the ceiling,animation appears on the table. Click Here to View Video

Also, from my friend Judie, some amazing kids… Click Here to View Video

A FOOL AND HIS MONEY ARE EASILY PARTED That’s the quote that sprang to mind when myfriend John shared with me a marketing piece he recently received.

Clearly a win/win as the sales commission is 9%!

I’m not against annuities, but I am against some of the products and how they are sold.

MORE DAVID VS. GOLAITH From Investment News: Industry groups opposed to the DOL’s fiduciary rule proposal are spending many times more onlobbying than the rule’s supporters. During the first half of 2015, funds paid to lobbyists were asfollows:

Opponents of the DOL’s rule: The National Association of Insurance and Financial Advisors $1.36 million The Investment Company Institute $2.47 million The American Council of Life Insurers $2.52 million

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SIMFA $3.72 million Financial Services Institute $428,876

This magnitude of money doesn’t just talk; it screams!

Proponents of the DOL’s rule: AARP, a lobbying group for retired people $3.75 million The Financial Planning Association $15,000 Financial Planning Coalition $20,000

STREET ART A must-see…Click Here to View Video.

SOBERING From David Laster’s most excellent Merrill Lynch research paper “Tackling Retirement Risks.”

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HOLDING FORTH Here I am, trying to look and sound important during my presentation to the South Florida FinancialPlanning Association Annual Seminar:

OH MY Kids can be expensive. Here are typical costs of back-to-school items from Money.Parents of elementary school students $630 Parents of high school students $662

Total back-to-school spending in the U.S. $68,000,000,000

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WHO OWNS WHAT According to CBS News, “[t]he richest 1 percent now own half the world’s assets, the rest of theincome distribution isn’t coming out ahead. The bottom 71 percent of the world’s population controlsjust 3 percent of the globe’s wealth, giving each person in that lowest level less than $10,000 perperson in assets. The middle 21 percent own 12.5 percent of the world’s wealth, or less than $100,000per person.”

WANT A REASON TO WORRY ABOUT THE STOCK MARKET? • June 1948 to June 1949. Stocks decline 20.6%. A world still trying to figure out what a post-wareconomy looks like causes a second U.S. recession with more demobilization. Inflation surges as theeconomy adjusts. The Korean conflict heats up. • June 1950 to July 1950. Stocks fall 14%. North Korean troops attack points along the South Koreanborder. The U.N Security Council calls the invasion “a breach of peace.” U.S. involvement in theKorean War begins. • July 1957 to October 1957. Stocks fall 20.7%. There’s the Suez Canal crisis and Soviet launch ofSputnik, plus the U.S. slips into recession. • January 1962 to June 1962. Stocks fall 26.4%. Stocks plunge after a decade of solid economicgrowth and market boom, the first “bubble” environment since 1929. In a classic 1962 interview,Warren Buffett says, “For some time, stocks have been rising at rather rapid rates, but corporateearnings have not been rising, dividends have not been increasing, and it’s not to be unexpected that acorrection of some of those factors on the upside might occur on the downside.” • February 1966 to October 1966. Stocks fall 22.2%. The Vietnam War and Great Society socialprograms push government spending up 45% in five years. Inflation gathers steam. The FederalReserve responds by tightening interest rates. No recession occurred. • November 1968 to May 1970. Stocks fall 36.1%. Inflation really starts to pick up, hitting 6.2% in 1969up from an average of 1.6% over the previous eight years. The Vietnam War escalates. Interest ratessurge; Ten-year Treasury rates rise from 4.7% to nearly 8%. • April 1973 to October 1974. Stocks fall 48%. Inflation breaks double-digits for the first time in threedecades. There’s the start of a deep recession; unemployment hits 9%. • September 1976 to March 1978. Stocks fall 19.4%. The economy stagnates as high inflation meetsdismal earnings growth. Adjusted for inflation, corporate profits haven’t grown for eight years. • February 1980 to March 1980. Stocks fall 17.1%. Interest rates approach 20%, the highest inmodern history. The economy grinds to a halt; unemployment tops 10%. There’s the Iran hostagecrisis. • November 1980 to August 1982. Stocks fall 27.1%. Inflation has risen 42% in the previous threeyears. Consumer confidence plunges, unemployment surges, and we see the largest budget deficitssince World War II. Corporate profits are 25% below where they were a decade prior. • August 1987 to December 1987. Stocks fall 33.5%. The crash of ’87 pushes stocks down 23% inone day. There is no notable news that day; historians still argue about the cause. A likely contributorwas a growing fad of “portfolio insurance” that automatically sold stocks on declines, causing selling tobeget more selling — the precursor to the fragility of a technology-driven marketplace. • July 1990 to October 1990. Stocks fall 19.9%. The Gulf War causes an oil price spike. A shortrecession follows. The unemployment rate jumps to 7.8%. • July 1998 to August 1998. Stocks fall 19.3%. Russia defaults on its debt, emerging marketcurrencies collapse, and the world’s largest hedge fund goes bankrupt, nearly taking Wall Street banksdown with it. Strangely, this occurs during a period most people remember as one of the most

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prosperous periods to invest in history. • March 2000 to October 2002. Stocks fall 49.1%. The dot-com bubble bursts and 9/11 sends theworld economy into recession. • November 2002 to March 2003. Stocks fall 14.7%. The U.S. economy puts itself back together afterits first recession in a decade. The military preps for the Iraq war. Oil prices spike. • October 2007 to March 2009. Stocks fall 56.8%. The global housing bubble bursts, sending theworld’s largest banks to the brink of collapse. It is the worst financial crisis since the Great Depression.• April 2010 to July 2010. Stocks fall 16%. Europe hits a debt crisis while the U.S. economy weakens.Double-dip recession fears are raised. • April 2011 to October 2011. Stocks fall 19.4%. The U.S. government experiences a debt ceilingshowdown, U.S. credit is downgraded, and oil prices surge. • June 2015 to August 2015. Stocks fall 11.9%. China’s economy grinds to a halt; the Fed prepares toraise interest rates.

The Motley Fool. Click Here for Article.

THE REST OF THE STORY As the Motley Fool noted, the real story was “constant mayhem amid long prosperity.” The S&P 500rose 1,100-fold over the last 70 years, including dividends.

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The moral — investing is long term and if you want to make money in the market, you need to stay inthe market.

WORTH REMEMBERING From Money Magazine, “Be a Boring Investor” “Most millionaires don’t rely on complicated strategies toattain wealth. More than three-quarters of a typical millionaire’s portfolio is held in a basic mix ofstocks, bonds, and cash — with some real estate and annuities mixed in.” I agree.

MIGHTY PROUD! My little brother Jerry is an ace Professor of Economics at Syracuse University. One of the world’sforemost authorities on Adam Smith, Cambridge University Press just published his Adam Smith'sWealth of Nations: A Reader’s Guide. As described by Cambridge Press, “…this landmark book walksthe reader through the five “Books” of The Wealth of Nations… and in doing so Evensky sets hisexamination of The Wealth of Nations into a larger, holistic analysis of Smith’s moral philosophy.” Ifyou’re up to an intellectual challenge, Click Here to Check It Out.

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MIGHTY PROUD OF OUR PARTNER TAYLOR AS WELL… MAKE-A-WISH NAMES TAYLOR GANG CHAIR-ELECT OF ITS BOARD OF DIRECTORS “Taylor M.Gang, a principal at the Coral Gables-based wealth management firm Evensky & Katz/Foldes, hasbeen elevated to chair-elect of Make-A-Wish Southern Florida’s Board of Directors for the nonprofit’s2014-15 fiscal year.”

…AND OF OUR ASSOCIATE KRISTIN FPA Announces Diversity Awards Two women from China and Columbia received the FinancialPlanning Association Diversity Scholarships, which recognize professionals who are working toencourage diversity in the financial planning profession, FPA announced. Danqin (Kristin) Fang wasborn in China and came to Lubbock, Texas, to pursue a career in financial planning. Since arriving inthe United States, she has obtained a master’s degree in personal finance from Texas Tech University,earned the certified financial planner (CFP) certification and has been working toward her charteredfinancial analyst (CFA) designation. She is a senior financial analyst at Evensky & Katz/FoldesFinancial Wealth Management in Coral Gables, Fla.

HOW THE MIGHTY FALL U.S. News reports “Harvard’s prestigious debate team loses to group of N.Y. inmates taking college courses. Months afterwinning a national title, Harvard’s debate team has fallen to a group of New York inmates.

The showdown took place at the Eastern New York Correctional Facility, a maximum-security prisonwhere convicts can take courses taught by faculty from nearby Bard College, and where inmates haveformed a popular debate club. Last month, they invited the Ivy League undergraduates and this year’snational debate champions over for a friendly competition.

The Harvard debate team also was crowned world champions in 2014. But the inmates are building areputation of their own. In the two years since they started a debate club, the prisoners have beatenteams from the U.S. Military Academy at West Point and the University of Vermont. The competition

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with West Point, which is now an annual affair, has grown into a rivalry.”

THIS IS COOL Did you know that there is only ONE factory mostly run by ladies that makes all the footballs for theNFL? Just one, and they’ve been doing it for over 40 years. Click Here to Check It Out.

DID YOU KNOW? I didn’t, but now I do and my phone is updated. You can set up something called a “Medical ID” on your iPhone. This can be accessed even while thephone is locked by clicking on the emergency options and can display things like name, DOB,emergency contacts, medical conditions, and even blood type! It can be managed by clicking on thelittle “Health” app that comes by default on the phone. Here’s what it will look like.

THIS IS PREPOSTEROUS The headline in InvestmentNews read “SEC’s split decision helps appeal.” It seems that an investmentadvisor was fined and banned from the industry for misrepresenting a retirement investment strategy.Although the SEC voted to uphold the decision of an in-house judge, two commissioners dissented.According to the article, the advisor used inflation rates to back-test the strategy. However, “[t]he SECsaid [the advisor] used inflation rates to back-test that did not reflect historical rates ofinflation for the time periods to which he referred” [my emphasis].

According to Investopedia, back-testing is “[t]he process of testing a trading strategy on prior timeperiods. Instead of applying a strategy for the time period forward, which could take years, a trader cando a simulation of his or her trading strategy on relevant past data in order to gauge the itseffectiveness” [my emphasis]. I would add that this is the definition any professional would provide.

Well, the dissenters seem to believe that “given the clear disclosure of the inflation rate assumptions inthe slide show presentation, we find that a reasonable investor would not have believed that actualhistorical rates of inflation were used in the back-test.” I guess an advisor can “back-test” for any past

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historical period using any numbers he or she would like to make up as long as the “back-test” isclearly labeled to note that the data bears no relationship to reality. ABSURD!

WISE THOUGHTS FROM A WISE MAN Jack Bogle is one of my all-time favorite investment professionals. He blends common sense with anastute knowledge of the financial markets and “tells it like it is.” Here are some excerpts from aMarketWatch interview.

“… [C]orporate finance — the reason Wall Street exists — is just a tiny slice of the total business. Thenation's big investment banks probably could work for less than a week and take the rest of the year offwith no real effect on the economy.”

“The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year inIPOs and secondary offerings,” Bogle told Time in an interview. “What else do we do? We encourageinvestors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industryis people trading with one another, with a gain only to the middleman. It’s a waste of resources.”

“Research shows, over and over, that stock brokers can’t do much of anything demonstrably valuable.They don’t know which stocks will go up or down and when. They don’t know which asset classes willoutperform this year or next.

“Nobody knows. That’s the point. If you’re among that small cadre of extremely high-level traders whocan throw loads of cash at a short-term fluke, fantastic. If you have a mind for numbers like WarrenBuffett that allows you to buy companies on the cheap and hold them forever, excellent.

“If you’re a normal retirement investor trying to get from A to B and retire on time, well, you have areally big problem to face: The toll-taker wants your money.

“So he needs you to trade — a lot. Because that’s how stock brokers make money. Not by doling outretirement advice, but by ensuring that your account is active and churning commissions on behalf ofthem and their employers.”

From MarketWatch.

CREDIT RATINGS If you are into foreign credits you might find this U.S. News prognostication of interest.

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WORTH WATCHING 30 Photos from HistoryNature Beauty & Gratitude8 Year Ago – The Announcement of the iPhone

CHECK OUT THE TIE

TRUE COST OF FINANCIAL ADVICE Excerpts from an article from Financial Advisor IG. “Investors are often unaware how much they pay for financial advice, but the difference over 30 yearsof investing among different brokerages can amount to close to half a million dollars, according to asurvey cited by WealthManagement.com.

“The most expensive advice comes from Merrill Lynch, which charges an average combined total of1.98% split between its 1.3% average advisor fee — the third highest among the 11 brokeragessurveyed — and its 0.68% average expense ratio on mutual funds and ETFs. This is the highest in theindustry, reveals an examination of anonymous data from more than 150,000 users of online adviceprovider Personal Capital, cited in WealthManagement.com.” To read the full article Click Here.

THIS IS SOME IMPRESSIVE EXPRESSWAY (?)

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A view of a modest traffic jam from a drone on the Beijing-Hong Kong-Macau Expressway.

WHY AM I NOT SURPRISED? Michael Sincere, MarketWatch (Click Here to Read) wrote a piece about a contest David O. England, aretired finance professor from Carbondale, Ill., established to test financial pornographer Jim Cramer.Here’s a summary of the story (Click Here to Read).

“On April 6, 2015, ‘Jim Cramer’s Picks — Here are 49 Stocks to Buy Right Now,’ was published onTheStreet.com. In the article, Cramer makes a strong case for these 49 stocks.

“‘Every single one of these companies reported excellent last quarters, and with no exceptions theircharts are pretty much perfectly made for this downturn,’ Cramer wrote. Even if there is a correction orpullback, Cramer says these stocks will do well. Cramer writes, ‘This is THE list. Go forth andconquer.’

“The final result? Even after the most recent 1,000-point Dow Jones Industrial Average rally, Cramergot a failing grade. Although Cramer promised his picks could survive any downturn, these stocksdidn’t survive during the market’s brutal third quarter. Only 14 of Cramer’s 49 stock picks closed higherafter six months than their April trading price, a paltry 28% success rate.”

ARE YOU OLDER THAN DIRT? Well, you are if you can remember these items from my friend Fred

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STILL, THERE’S HOPE YET

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INFLATION IS REAL From my friend David:

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I THOUGHT THIS WAS A NICE SENTIMENT TO END WITH

All my best, Harold R. Evensky, CFP®, AIF® Chairman Evensky & Katz / Foldes Financial Wealth Management

© Evensky & Katz / Foldes Financial Wealth Management

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