Are you Psychologically Fit?

It’s the day you’ve dreamt of. The day that has caused your imagination to run like a stallion. You’ve watched others experience it many times over only wishing it was you in their place. This day, the day you’ve been working for is here.

Retirement!


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So, you’re good financially? Great! But, what about psychologically? Asking the question, “Do I have enough?” is not the only question that you should be asking. Although it is important and can be liberating, having enough is just one of many steps along the path of a having a successful retirement.

Think back to the very first day you began your career. The excitement, the newness, the possibilities. Retirement is like that! Now think back to the day you began your seventh year. The normalcy, yet you're filled with questions and new roles. Retirement is also like that.

Change occurs early and often. Unfortunately, many retirees do not think practically past the first day of retirement or even the first year. The questions of worth, purpose and identity may creep in. What you must realize is that you are a creature of habit and when change occurs, you deal with it differently than someone else. Below are some questions/strategies to spur thought as you begin that transition into retirement and if you're already to that point - start where you are now.

  • Do I have enough?
  • Am I ready to retire or am I just retiring because that is the natural progression?
  • Will I miss the relevancy that my job provided? If so, what can I get involved in to fill the void I may experience?
  • What will I be leaving behind?
  • What is my purpose in life? In what ways can I go about accomplishing that?
  • Realistically, what will my lifestyle look like? Have I put off activities or interests that I want to pursue?
  • Who has transitioned into retirement that I know? Call them and talk about the transition they had.
  • What tasks will I implement to stay active, healthy and keep my mind sharp?
  • Just like your career goals, formulate retirement goals. Set short-term, intermediate and long-term goals.
  • After the bucket list items are checked off and the grandkids have been visited, what will my day-to-day look like?
  • If I am social, what organizations or clubs are available for me to join?
  • What type of legacy do I want to leave?


Final Thought: There is no one-size-fits-all solution to retirement. Everyone has different desires and different circumstances. What everyone can do is take those desires and circumstances into consideration before and during retirement and apply serious thought to them. Each decision creates complexities. Keep in mind that life happens, so remain adaptable just like you are in your career. Keep an open mind and surround yourself with people you trust and can have tough ongoing conversations with. This is where we want to end up:

 

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Lessons Learned from Warren Buffett's $377 Million Ponzi Scheme Loss

Imagine coming home from work and telling your spouse that you lost $377 million dollars in a Ponzi Scheme. Now imagine that you are legendary investment guru Warren Buffett and admitting this to shareholders in his company, Berkshire Hathaway. #BadDayAtWork.

Mr. Buffett has more investment wins than losses. That's why he's known as the Sage of Omaha and Berkshire's annual shareholder meeting looks like a cult meeting. Buffett and his 95 year old Vice Chairman, Charlie Munger have decades of wisdom, experience and a vast team of corporate talent that provides research. This gives Berkshire a massive advantage in weeding out good opportunities from bad ones.

None of that mattered in this loss. He got swindled out of $377 million dollars!

Here's the scene when it all fell apart:





We need to learn from his loss to hopefully avoid some of our own. Let's look at his potential mistakes.

Mistake #1- The investment was in a new company with little financial history. As I write this, Uber just priced their initial public offering. Customers know the company and enjoy the transportation benefits. Uber has a limited financial history which consists of losing money not earning profits. This type of "investment" is for speculators only. Stick to investments that have been making money for a decade or more. This alone will dramatically reduce the potential for fraudulent outcomes.  

Mistake #2- His solar investment thesis apparently focused on tax-related benefits more than investment activity returns. We invest our money to earn a return from the investment activity of the business. If the company's business turns a profit, you have a strong chance of earning a positive return. Real estate limited partnerships in the 70's and 80's relied on complicated tax benefits to entice wealthy investors into parting with their cash. With a simple IRS tax law change, these benefits were wiped away over night and so were most LP's. Nowadays, insurance products are often marketed as tax savvy "investments" but at the end of the day, it's an indemnity policy that should insure you against some sort of specific loss (life, income, health etc.) period.    

Mistake #3 - He didn't recognize the problem soon enough. Berkshire made investment in DC Solar from 2015 all the way through 2018. At LeConte, we tend to be deep value investors which means we like to buy cheap investments. The trick is to differentiate when something is cheap (for a reason) and when it is worthless. After 3 years, Berkshire should have realized their solar play had issues. 

Mistake #4 - Buffett was a victim of his own hubris. Over time investors can fall victim to attribute their success to skill rather than good fortune. The Good Book reminds us that Pride comes before a fall. Stay humble or markets will make you humble. 

We are never too old (or too smart) to learn and improve. I suspect that Buffett will make adjustments after this loss. Don't feel sorry for him though. $377 million is a chunky loss but Berkshire has more than 100 Billion sitting in cash. Warren and Charlie will be fine. 

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Simple Advice That is Hard to Follow

Michael Burry is an eccentric but highly successful investment manager in California. He was depicted by Christian Bale in the screen adaptation of Michael Lewis's The Big Short. As we ramp into decision time for voters and the Fed. Dr. Burry offers sage advice on how to understand volatility from practical view rather than the typical emotional reaction.

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Groundhog Day - Making the Most of "Life Resets"



As we tire of winter, pine for warmer days and look to Pennsylvania for hope, I wanted to revisit the enduring theme from Bill Murray’s 1993 classic. To quickly recap for the 5% of society that hasn’t see Groundhog Day, Mr. Murray plays Phil Conners a misanthropic weatherman who loathes the monotony of the Groundhog Day remembrance but is forced to cover it for his local station. Through freak circumstance he finds himself stuck repeating, repeating the day and its events. Phil isn’t released from exile until he confronts and corrects his moral defects. As he triumphantly reinvents the worst day of his life into his best, he finds freedom and happiness.

Like Phil, we inevitably face moments where we have to it the reset button. In 2016 you may encounter something on your personal or professional life that requires a fresh perspective. It could be a financial or health issue that forces you to change courses. Each of these scenarios will require a different response to find a workable solution.

After a 5% loss on the S&P and a 7.8% loss on the NASDAQ, investors are looking at the worst January in memory. They need to discern if this is the start of really bad times or time to buy more. Here’s my decision tree for investment uncertainty:

  1. Understand where you are.
    1. How old are you?
    2. How much time do you have to invest before needing your funds?
    3. What caused the declines in your portfolio?
  2. What is the worst case scenario?
  3. Is there an opportunity for improvement in this?
  4. Who can help me get through this?

This list is helpful beyond investment problems and number 4 is the most critical advice to follow. Don’t go through it alone. You have people around you that can offer help and encouragement. A little hint, they are usually the folks who have already hit the “life reset” button a few times themselves.

Phil Conners learned that we are only destined to repeat mistakes if we fail to recognize that a change needs to happen. Use Life Resets as an opportunity for growth and stronger relationships.

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Can you Invest Like a Billionaire?

Let’s role play the part of a billionaire investor and see how good you would be at it. Here is the scenario: You own 61.5 million shares of this stock trading at $93. That puts your stake at 5.7 billion dollars. It’s an oil stock and in just the last two months it drops from $93 to $79/share. Your paper loss would be somewhere around 860 million dollars.

The outlook calls for oil to continue to drop and global supplies are growing each day.  You’re a billionaire so you could buy more if you wanted to. The wait for a turnaround won’t be immediate. What do you do?

Option 1

Do not dwell in the past, sell, cut your losses and look for something better.

Option 2

Despite being down, buy more shares now and even more if it goes lower.

Option 3

Keep what you have but dont add anymore to a losing position.



 

Warren Buffett’s company, Berkshire Hathaway owns this stock. Do you want to compare your decision with Buffett? He bought 759,000 more shares on January 6th when the stock closed at $78. The next day the stock dropped to $76, adding another 124 million dollars to a paper loss that is now almost one billion dollars on the whole position. What would you do at this point? How would you handle losing a billion dollars in a couple of months?

Buffett bought twice as much on the 7th when it dropped again. It dropped to $75 on the 8th. He bought another 1.74 million shares. He didn’t let the immediate pain of losing a billion dollars in 2 months cloud his judgement about the long term opportunity. He was following his own well-rehearsed advice. He was being “greedy when others were fearful”. Here’s the chart of his continued purchases in January as oil stocks were getting hammered.



You may be tempted to reply that it’s easier for billionaires to invest like this since they have such deep pockets and are in charge. Realize that Buffetts company stock, Berkshire Hathaway was also down 15% last year and his personal stake of 350,000 shares in the company dropped over 12 billion dollars!

The lesson for mere mortals is a behavioral one. Buffett has mastered the fear that prompts rash decisions. He uses situations where other investors are capitulating to their fears as an opportunity to buy solid long term assets “on sale”. To mimic his approach you will have to divorce your investment decision making from the emotions of near term moves which is easier said than done.



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