What are the chances?

We were all 12 and group games were our default. In this particular game, one of us was blindfolded in the middle of the room. The rest of us had ten seconds to pick a corner of the room to stand in, but we had to move quietly. The kid in the middle would then point to a corner. Anyone in that corner was out. That was one round. We would repeat until only one kid was left standing. That kid got to go in the middle and get blindfolded.

The boy starting in the middle on one occasion, Nat, had been a good friend of mine. I happened to survive the first three rounds. Everyone in the room, including myself, concluded that I knew the best corner to stand in, owing to my friendship with Nat. In the fourth round, everyone left standing piled into my corner.

Nat pointed straight at me.

What did I learn? Kids make noise.

What can you learn? The chances that an action which repeats itself will keep on happening are dependent on the chances that the action occurs once. If that is anything but 100%, the chances of the activity continuing gets smaller as it is repeated. Let me illustrate and prove that.

Hypothetically, we will assume the probability of a portfolio manager beating the market average in any given year is 0.5 or 50%. It is lower in reality. What are the chances that a portfolio manager beats the market two years in a row? Multiply the chances of doing it in a single year by itself for each year: 0.5 x 0.5 = 0.25 or 25%. How about three years in a row? 12.5%. Fifteen years? 0.098% or one chance out of 1,000 managers. Now you just have to find that one.

Here is an ugly truth: if it so happens that any manager will beat the market over the next ten years, you have no idea who they are.

Here is a beautiful truth: you do not need an advisor or a manager with a record of beating the market in order to succeed at investing. You need coaching.

Simon Joshua is a licensed investment advisor representative at Cornerstone Wealth Partners in Michigan. He has structured his practice around investor coaching and committed himself to leading communities in establishing a legacy of fulfillment.

What is the meaning of it all?

This morning, along with others across the nation, I stopped to reflect in silence for those lost in the terrorist attacks of 9/11/2001. I thought of those four moments in New York City: the first plane strike, the second plane strike, the first tower collapse, the second tower collapse. All the aftermath plays over again.

Following moments like that one, all the world seems to come into hyperreal focus: my daily routines, frustrations, and concerns, the friends near me, a family that loves me, my friends and family who have passed on. I have to ask the right questions in order to put all of this into perspective.

How did we get here?

“The word of the Lord came to me: I chose you before I formed you in the womb; I set you apart before you were born.” Jeremiah 1:4, 5

What is the purpose of our lives?

“Dear friends, we are God’s children now, and what we will be has not yet been revealed. We know that when he appears, we will be like him because we will see him as he is.” I John 3:2

“At the name of Jesus, every knee will bow” Philippians 2:10

How do we know what is good?

“Taste and see that the Lord is good. How happy is the person who takes refuge in Him!” Psalms 34:8

Where will we all end up?

“All the nations will be gathered before Him, and He will separate them one from another, just as a shepherd separates the sheep from the goats … And [the wicked] will go away into eternal punishment, but the righteous into eternal life.” Matthew 25:32, 46

The remaining question is tough, but I would not love you if I refused to ask it.

Which side will you be on?

“Let the one who is thirsty come. Let the one who desires take the water of life freely. ” Revelation 22:17

Email, call, text. I’m here.

What is the right price?

It seems like restaurant food costs too much. It seems like too many people pay too much for not enough. In Ann Arbor, one bowl of chili can cost more than a week of chili would cost if I made it myself every day. That is too expensive, right?

Stock pickers tell us that some stocks cost too much. They tell us that too many people are irrationally buying up what they should leave alone. Just check your news feed. They have to know what they are talking about, right?

In the stock market, shares of companies are being bought and sold every day. If one person thinks the price of a stock is too high, they will sell it. And if someone else thinks it will cost more in the future, they will buy it. This exchange of ownership goes back and forth millions of times every second of every trading day. Hundreds of thousands of professionals worldwide search for new information about every publicly traded company and buy or sell it based on their judgement. Each buy or sell order from every trader incorporates all the knowledge that individual has about that company, as well as their instincts, emotions, and perceptions.

How does the restaurant market work? Each patron decides every time they go out whether to pay the price for the meal they want and whether to return next week. The price of restaurant food incorporates every past patron’s experiences, tastes, and desires. We can make the claim that as consumers with good taste, we are qualified to make judgments about restaurant food.

But are you (or is anyone) smarter and faster than all other traders currently examining a stock? The stock pickers say they are. The data says no one is. The truth is that stock prices move randomly, and that the best guess as to the value of a stock is its current trading price. The price incorporates all available information. This principle is called the Efficient Market Hypothesis.

Here is an ugly truth: no one can tell you whether the trading price of a stock is higher or lower than its real value; the current price of a stock is its current value.

Here is a beautiful truth: you do not need to know the price or forecast of any stocks in order to invest for the future. You need coaching.

A quick tip: never buy an initial public offering: zero trading history is incorporated into the price. This can be counter-intuitive when it comes to restaurants: once upon a time, some friends of mine went to a restaurant grand opening together and got free food. They told me later how good it was. Thanks, guys.

What will happen next?

Meteorologists have the job of interpreting weather data and telling us what we can expect the weather to do the rest of the week. Usually we need to know whether to take an umbrella to work, but sometimes we need to know whether to pack up what we can carry and leave our home. When it comes to the weather, we need to know the future. As a direct result of this need, we tend to believe what the meteorologists tell us, despite our frequent dashes through the rain.

Market chartists have the job of interpreting trading data and telling us what we can expect the markets to do over the next few months. They tell us that we need their market predictions in order to have proper involvement with our portfolios. We also tend to believe what they tell us.

In both weather and investing, we need informative and motivational communication: people need to evacuate disaster-prone areas in time, and investors need to know how to behave based on how the market really works. In investing, unlike in weather, we do not really need predictions. So why do market experts try to tell us what the market is about to do? Because the more we indulge our desire for predictions, the more experts will try to feed them to us.

Here is an ugly truth: no one knows the future; our want of a prediction can never be truly satisfied.

Here is a beautiful truth: you do not need market predictions in order to have dependable investing success. What you need is coaching.