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Blue Ocean Blog

The Blue Ocean Portfolios blog covers various financial and investing topics such as retirement, investing, indexing, financial advising, and more.

Trump & the Markets

Value Index Graph
Indexes Table
Idexes Table 2

For better or worse, most of us felt the world change on the early morning of November 9th. Against all odds, Trump pulled off the biggest political upset in our life time.The world stock markets immediately dropped; in Europe the US Dow Jones Industrial Index lost over 900 points in two hours. This was a prime example of how the markets can behave and react to new information; not on anticipated information but on unanticipated and truly new information.

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Another Big Short?

The Big Short Book Cover
Monetary Base Chart
Wall Street Journal Article

Last night while browsing through our family’s Netflix account, I stumbled across a movie called “The Big Short,” the movie rendition of Michael Lewis’s bestselling book of the same name. As typical with our modern society, the film is laced with needless vulgarity but no nudity or violence. This movie is based on true events leading up to the collapse of the housing market, Bear Sterns and Lehman Brothers back in 2008, and how only a few investment managers had the foresight, guts and intelligence to figure out how to short (or to bet against) the housing market. For two years leading up to the 2008 financial crisis, these fund managers were wrong, dead wrong. Many of their clients and investors were bailing out on them because of their bet against the US housing market. This movie depicted how difficult it is for any fund manager to maintain their conviction when the market keeps moving to the contrary. It can be maddening!

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TD Ameritrade to Acquire Scottrade

Jim Signature

October 24, 2016

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The Smartest Investment Managers in The World?

Ivy League Schools
Yale Tops the Ivies

Many people believe that the smartest people in the world attend, teach and run the Ivy League Schools. The professionals running the mega endowments at Harvard, Princeton, Yale, etc. are some of the smartest and best investment managers. Unfortunately, for the fiscal year ending September 30th, the investment results are anything but remarkable.

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Will the 2016 Elections Impact Your Portfolio?

Trump vs. Clinton Portfolio Implications
Investor in Chief

About half the country will be scared and the other half elated come November 9th. However, there will be no reason to make any major changes to your investment policy. If anything, we should think about more ways to diversify.

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Indy 500 v S&P 500: Similarities and Differences

indy 500
Indy 500 Race

This weekend is the 100th running of the Indianapolis 500. This is one sporting event that you need to attend at least once in your life. The engines are started every year at 11:00 AM on the Sunday before Memorial Day.

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SPAM or iPhone?

Apple and Hormel Graph Results

Assume five years ago you had a choice between putting $10,000 into Hormel - the makers of SPAM, or Apple - the makers of the iPhone, iMac, iPad, iPod and more.

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Déjà Vu All Over Again?

Yogi Berra
Investment Policy Allocation Targets

Both Yogi Berra and I graduated from St. Mary’s High School here in St. Louis; Yogi in 1943 and me a "few" years later in 1976. When Yogi was a student, the school was called “South Side Catholic.” I thought of Yogi the other day when I was reviewing the behavior of the capital markets the past couple of months, especially the emerging markets and commodity indexes. Could this be 2009 all over again?

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Should You Be Seeing Double?

Woman Seeing Double Stay Diversified
Whimsical Funds with Overlapping Holdings
Index Funds with No Overlap of Holdings

Being diversified does not mean owning different mutual funds. It means owning different securities inside the funds that you own. Besides the obvious and much lower cost, index funds are a better choice over mutual funds because it is easier to avoid overlapping holdings. Mutual funds may have different names but that does not mean they have different stocks or bonds.

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What’s in An Index Fund?

Index Funds

Well this, of course, depends on the index. Below is an overview of the top holdings of some of the more popular index funds. These top holdings can, and will change depending on the relevance of market prices to other holdings.

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Deflation Blues - What is normal?


Deflation Blues 

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Is Diversification Terrible?

45 Year Look Back
We will always be worse than the best performing asset class (and will always compare performance to the best asset class, because our brain is terribly designed for investing). For this reason, portfolio’s performance will always seem mediocre.There will always be something that you hate in your portfolio. Really, really hate. Emerging markets and commodities have been a drag on a diversified portfolio for years now. Who is happy that they have owned emerging markets and commodities for the last five years? Who is happy they owned REITs in 2013? Who is happy that they have small value stocks?  There will never be enough of the good stuff. US large cap stocks are the place to be? Tech is shooting up? Long-term bonds keep doing well? Why didn’t we own more of that? Maybe because the future is not predictable; as if anyone can predict or control what happens in the markets.The part of your portfolio that you love will turn on you in a flash. You’ll hate it, and you won’t ever remember loving it. International stocks led the charge for years leading up to the financial crisis, and have since been lackluster. Us human beings are fickle and almost never satisfied. We expect good performance and we don’t want to be around for the bad times. 

This is why investing is not easy; why successful investors know they have to remain focused on the long term. Owning a diversified portfolio of index funds sounds simple enough, but is prone to get in its own way. Hear this: the single worst thing you can do for yourself in an environment like this is to start making changes to your investment policy. (By the way, changing your investment policy based on market performance really means that you didn’t actually have an investment policy to begin with). You don’t need to have the “right” asset allocation (such a thing does not exist), you need to KEEP THE ONE YOU HAVE. If you have thoughtfully constructed a diversified portfolio of investments, nothing is wrong with it. If there is a way to improve it by eliminating duplicative holdings or adding meaningful and additional asset class, then it should be done. The only thing you can do to make things worse for yourself in the long run is to change your allocation in response to weak performance from certain assets or chase the outcomes of over performing assets. Don’t do it. Yesterday’s winners can easily become tomorrow’s losers. Do not chase outcomes. Remember that the consensus thinking is more likely to be wrong than right. Contact us now to learn more about true diversification. Take a look here at a 45 year perspective on returns:

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In Search Of: The Optimal Portfolio Allocation

Bar Charts
Pie Charts

One of my favorite shows back in the 1970’s was In Search Of, hosted by Leonard Nimoy. This show sought to conclude investigations relating to mysterious phenomena, such as UFO’s, Big Foot, Amelia Earhart, The Next Ice Age, etc. – most of these episodes are available on YouTube.

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Backbone of Retirement Funding

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The National Financial Educators Council recently quoted Jim’s thorough analysis of key investment tactics to abide by when planning your retirement. Jim advises retirees to methodically analyze their cash inflows and outflows, and stresses the fact that investment outcomes will always be random and unpredictable; the only predictable factor when investing are the fees that will be incurred. Click here to view the full article. 

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Mathematics and Investing



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Rule #1: Stick to Your Plan!


Investors who fail to establish a specific investment plan (or fail to stick with it) assume the risk of making impulsive and irrational decisions based on market speculation, fear, or greed. A thoughtful and diversified investment policy will never be perfect, but it is very important to stick with it. The facts don't change; you will retire at some point in the future, and upon retirement, you will need an alternative source of income. That being said, it would be illogical to stray-away from your established investment policy in search of higher returns or in fear of unpredictable economic events.

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Don't be Fooled by Random Outcomes


When investing in the various market components remembering not to be fooled by random outcomes is extremely important.   In their December 2010 issue, Forbes Magazine released a survey completed by Wall Street’s top minds who had come up with a list of 10 stocks to hold for the year ahead. We thought that this was ridiculous; so, we arranged for a "monkey" (actually an intern in a gorilla suit) to randomly pick 10 stocks from the S&P 500.  One of the stocks that the monkey randomly selected was Intuitive Surgical, the maker of the robotic DaVinci surgical system.  At the end of year our monkey's portfolio had increased over 22%, handily beating the smartest guys on Wall Street, who's 10 stocks had actually lost a total of 6% - the S&P that year was up about 7%.  Would you consider hiring the monkey?   From this experiment, you can see how easily it may be to become fooled by a random outcome.

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2014 Market Recap

2014 Market Recap

The large US stock market (S&P 500 and Dow Jones) hogged most of the returns for the 2014 calendar year as well as the most recent headlines. However, in the first half of the year the commodity price indexes were pulling up returns for diversified portfolios.  Gold, copper and even oil were providing better returns than the stock markets through June – up about 10%! Then without any warning the bottom fell out of the oil market and prices dropped over 50% which pulled down the rest of the commodity market. In September and October, the large US stock market was also taking a beating, and this dramatic drop in stock prices was very scary. Here is an interesting and relative look at the returns of the various asset classes over the course of the 2014 calendar year.    

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Why You Should Avoid Target Date Funds in Your 401(k)


About 20 years ago someone at a major investment firm came up with the idea of target date funds. A target date fund is actually a fund of other funds that adjust overtime as you approach retirement age by systematically moving the allocation away from more volatile stock funds and into the "safer" bond funds. With these target date funds a 401k participant can select the target date for retirement – say the year 2020 – and over the next six years the portfolio will automatically adjust. What could possibly be better than this?

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The Downfall of Fund Managers



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