Transcript
Welcome to The Investor Coaching Show, a podcast to help you get an insider’s view of the financial world and escape common investment drafts. We look at the financial news of the day and help you make sense of it. So you can relax about money and here’s your host, Paul Winkler.
Paul Winkler: And we’re back here on The Investor Coaching Show, Paul Winkler, along with Anne Sawasky and Arlene Brown, talking about the world of money and investing. Okay. So when you’re thinking of hiring an investment firm, you know, a lot of people just got investment. They’re all the same. Aren’t they? I’ve got a video that I’m going to do in the near future. I’m going to do it. I’ve got, it’s a picture too, but I’m going to do a video. And I think it’ll be fun because I’ve got all of us, And I’m going to have you, I’m going to call on you Anne, you need to bring in, cause we all have so many different degrees, you know, financial planning, designation, designations degrees, and then the amount of stack of books that come with these degrees.
Degrees and Designations
I mean, it’s, you know, somebody said, Oh, I don’t know. One of my buddies at his radio station made the comment. He’s probably listening, but he says, I don’t know if you want, Is that a retirement income certified professional degree in your list of degrees? Because there was some company that had the retirement income in their name. And I said, no, no. It took me two to three years to get it. You’re using it in my list of designations. And he goes, good point, go ahead. Use it. But when I get a designation, it isn’t, you know, we’re not talking about designation, light material here. I mean, you know, charter financial consultant and, and charter advisor for senior living that took a long time to go through that designation, retirement income certified professional wealth management, certified professional life on a rider training council, fellow chartered, life underwriter, you know, all of these designations take a long time to go through.
If somebody said, Oh, there’s, there’s somebody that is their financial planner, just like you. And I’m like, ah, yeah, let me look at their website. And I noticed that they had a series 65, which is that’s the bare minimum that you need to get to call yourself a financial, a retirement, or an investment advisor representative. I mean, you know, so yeah. And one of our guys finished that whole program in two to three weeks studying. And it’d be a great video to have his book that he studied from right in my left hand, and then have the stack of books on my right hand of all the ones that, you know, go into all the financial planning degrees. I mean, I just think that would be really, really good to know that.
So number one, I think that’s really important to know about a financial firm is what’s the level of education behind number one. The other thing that you can do is this, and this information is actually in this, in this form that we’re going to talk about right now, but it is called a form ADV. And I want you to talk a little bit about that, an ADV, what is it? Where do you find it? What do you look for when you’re reading them? Because your job in a previous life was writing prospectuses for investment vehicles and doing legal work tight like this and writing these types of documents. Yeah.
The Form ADV
Anne Sawasky: So any investment advisory firm is required by law to have a form ADV, or you might call it your brochure. That’s sort of the nickname for it. But, the securities exchange commission requires that they be filed and they’re public information. And many of the firms actually we’ll just have it right as a link on their website. If you go into the disclosure section, some of them don’t, but everyone should be giving you one when you start working with them and then it’s annually updated. And what the ADV does is, it’s basically kind of like everything you wanted to know about this from who owns it? What do they do? What do they not do? How do they charge? What is the background and experience of the people working for the firm? What are some of the conflicts of interests at the firm may have and philosophies?
Paul Winkler: Where did they get information about, you know, for example, if were they getting information, when they make recommendations, what are their sources of information,
Anne Sawasky: Do they get those from other people for free, but then they are more inclined to use them, even if they cost more. That’s why they ask about that one. Sure. But, and, and you know, what they will recommend to you, for example, as an investment also, you know, there’s a whole big list of what they do and what the risks are. And that’s something where I think it’s really good, I know ADVs are like super boring. It’s something that will probably make you fall asleep at night if you read it before bed.
Paul Winkler: But it’s not that bad when it’s in brochure form, you know, I don’t want to dissuade anybody because it’s really important that you get this.
Anne Sawasky: Yeah. They try to make them readable. And I mean, they’re pretty readable, really. Yeah. But, there’s a couple of things that are really important to look at when you look at a firm that you’re going to invest in because the firm has to talk about what their investment philosophy is. And the firm also has to talk about conflicts of interest. And it also has to talk about disciplinary action. All those are three very important things. Now you can, again, many firms will have it on their website, but you can always get it from sec.gov by just going there and just Googling that firm, then you can pull up that from, and then there will be an option for you to click on, to get there from ADV. And it’s always gotta be updated every year, at least once a year. And it also has to be updated whenever there’s something material that happens and that’s could be things like a disciplinary thing or a major change in the firm might be different ownership might be they’re bought out, could be all different things are material
Paul Winkler: Disciplinary actions drop off after a certain period of time.
Anne Sawasky: It depends. Generally speaking, if it’s a federally registered firm, it’s about 10 years, but with state firms very often, they don’t drop off. Depends, but, but that’s a really, and speaking of that, by the way, you can always look up the person that you’re talking about working with as well on the Fenris site on something called broker check, you can go and put in, you know, anyone, you can put Paul Winkler, you can put Arlene, you can put me.
Paul Winkler: To make sure you cover that because the reality of it is we don’t sell anything. We’re not brokers, but we’re still on broker check.
Anne Sawasky: You can look up anyone who is licensed to do securities advisory work. And you can see if they have securities disciplinary actions. And that can be that they committed fraud. That could be that they were sued. That could be that they stole client funds. I mean, you’d be surprised what’s out there.
Paul Winkler: They can still operate. You know, that’s the amazing thing to you. You know, you go wait a minute. How is this person still in business? But if they file for bankruptcy, that’s another one. That’s a good one, Arlene. Yeah. I didn’t even think about that. You’re right.
Anne Sawasky: Cause do you really want someone who filed bankruptcy handling your money? Probably not.
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You Want an Advisor You Can Trust
Paul Winkler: Just saying, you know, that’s it, I want, he looks like I got one. Yeah. I want the auto mechanic that has to walk to work every day. Can’t get his car to run. So you know, some of the things that you look for and you know, when we’re talking about investment philosophy, we often talk about, you know, don’t try to pick stocks, don’t try to time the market. Don’t try to figure out where things are going to go. If the market is overvalued, undervalued. So some of the things that you look for when you’re reading the ADV, I would look for, if they’re talking about maybe investing in defensive strategies where they’re going to protect you from market downturns of market downturns occur, maybe that might be put options or something like that, you know, that they might be talking about in code, right.
There it is. It’s a nice term, but it’s, you know, anytime that you have those types of options going in there, you’re increasing the expense and you’re decreasing upside potential. And you’re basically gambling on future market returns and where markets are going to go. You might need to, but they don’t have to use the word gambling. So that’s the one that’s why we have to tell you.
Anne Sawasky: Yeah. So I mean, if you see again, task tactical asset allocation, that’s another, that’s another one you’ll kind of want
Paul Winkler: The market timing in disguise because basically what it is is, you know, market timing, fear, market timing is where I say, Hey, you know, I think the market’s going to go down. So I moved my money to cash. And then I go, well, I think the market’s going to go up. I think I’m going to move my money to stocks. So that would be pure market timing. Tactical asset allocation is a nice term. That doesn’t sound like market timing, but it is in essence saying, I don’t think, you know what large growth stocks are going to go down. But I think small values are about to go up because it’s their time. I think it’s a good time to be in value. I think it’s a good time to be on an international small notice. I said the N word. Every single time it’s market timing, you know?
So yeah. Tactical asset allocation. What else? Ah, short sales short. And we’re not talking about closing here. We’re talking about short sales where you actually go and this, this is crazy. You borrow a stock from somebody and you sell it. I’m going to my next door neighbor. And I’m going to say, Hey, can I borrow your lawn mower and sell your lawnmower? And then I go, I scramble and find a lawnmower just like it.
Anne Sawasky: Yeah. And hopefully you’re going to make money, but what if you don’t so cover your shorts, right. And there’s really an unlimited amount of loss that can occur with short sales and derivatives. Derivatives are another one that I’d really watch for derivatives are kind of what they say caused the 2008 meltdown. Right. So there’s been a lot of regulators since then. Who’ve been trying to do things to address that. So yeah.
You Can Lose Money and Sound Smart in the Process
Paul Winkler: Your investment is derived from the value of underlying stocks, possibly calls on poets. And those types of things might be derivatives. You know, so options, contracts, and then you also have, you know, you’ll see people use qualitative and quantitative tools to analyze markets. Those terms I do. They sound really good, don’t they? Yeah. It just sounds really, really sophisticated revenue sharing. You can lose money and sound really smart in the process, but it is qualitative when you’re looking at the quality of the company as if you have information that nobody else has.
You’re looking at the quantity of, you know, maybe their earnings are looking at their quantity of their cash holdings or, you know, you’re doing quantitative analysis and, and you’re looking at their sales. And, but you know, the reality of it is you don’t have information that everybody doesn’t have. And you know, CEOs of the companies, they have as good information as anybody and studies of their trades of their own stocks show an abysmal pattern that they don’t have markets, Oslo exchange, Iceland, Norway. They actually did a study and it was known for insider trading known for insider trading. And they found that they couldn’t beat markets.
You had this study of congressmen making laws on companies, literally making laws and the companies they’re going to affect these companies through the laws they’re making. So they’re buying and selling stocks. They looked at the buys, the sells, these kinds of, you think this should be, they shouldn’t be able to do this. And it was funny because I remember talking about this years ago and go look at this. They bought and sold companies. They were making laws on it and they still couldn’t beat the market. You know, these congresspeople, you know, so the reality of it is this type of stuff is, you know, you see like forward looking views on markets or you’ll see, you know, that we’re, we’re doing these put options as structured and exchange traded notes and tactical multipurpose models.
And, and you know, so all of this stuff, when you read this, it’s all code for, we’re going to bet on the direction of the market and which companies are going to be better than others, right?
Yeah. It’s really important stuff. So you don’t want to ignore this, these types of disclosures. They’re out there for your protection, protect yourself.
The Playbook for Relaxing About Money
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Hey, this is Paul Winkler. Hope you enjoyed today’s edition of The Investor Coaching Show. You want to learn more about what we do go to our website paulwinkler.com. You can watch some of the videos there, and if you’re not already a client, you can set up a free initial consultation until next time. I’m Paul Winkler reminding you that I believe that more educated investors are more competent investors and confident investors are more successful investors. Have a great one.
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