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Category: Bob Veres’ Blog

The Wrong–and Right–Candidate

My first instinct, when I saw that Elisse Walter had been nominated to replace outgoing SEC chairperson Mary Schapiro, was to go into a long and angry rant. I think it was obvious to everybody but the current Administration that Schapiro's primary focus at the SEC was to advance the causes that she had pursued when she was CEO of FINRA: protect the brokerage regulatory model, make sure nobody went to jail after visible accounting fraud in the brokerage world in 2008, and transfer regulatory oversight of RIAs from the SEC to FINRA–because, well, that's what the brokerage industry was asking for. Walter, of course, was Schapiro's chief assistant at FINRA before following her over to the SEC to sit on the Board of Governors. It would be hard to find any policy differences between them, which means that once again the fiduciary RIA community has an enemy sitting in the SEC's top chair. I think history will record that Schapiro was, of all SEC commissioners, the least interested in meaningful consumer protection, but it is possible that Walter will become, in time, her chief rival. If, that is, she is nominated to take over the SEC chair for a full term. It is still possible that the Obama Administration–which seems clueless about fiduciary issues and strangely beholden to a Wall Street community that offered little support for his candidacy–will nominate somebody else. Bloomberg Press wants Sallie Krawcheck, currently employed at Merrill Lynch, to take over that role–which sounds like Wall Street offering the president a choice of cronies who are cozy with the brokerage industry. What I find myself wondering, though, is why we keep hiring people from the nonfiduciary world to run the regulator of fiduciary advisors? If we ask that question, posed in that way, it becomes obvious that Wall Street is controlling the selection process–the same Wall Street that fears being held to a consumer-focused strict fiduciary standard because, well, how can you make an obscene profit by putting the clients' best interests first? This is, of course, the same Wall Street that Congressional leaders declared would be reined in after they precipitated the 2008 meltdown. I think the RIA world should get behind another candidate, and I think I see a plausible one: David Tittsworth, who currently serves as executive director and executive vice president of the Investment Adviser Association. I finally met Tittsworth in person recently, and of course have followed his work for years. He's thoughtful, smart, he knows the RIA industry better than anybody Wall Street is likely to recommend, and my impression from dozens of communications and the personal contact is that he is a genuinely good person–something I cannot imagine myself saying about Schapiro and Walter. They are great organizational infighters, terrific politicians, sly, shrewd and very smart. But "good" is not the first word that comes to mind about either of them. Tittsworth may not want the job, but it seems to me that if we can pull top executives from the brokerage industry's primary organization to run the SEC, it makes a hell of a lot more sense to do the same thing from the RIA world's. Do you agree?

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The Next 2008?

Before I get too deeply into my commentary, please take a look at the chart to the right, which shows the monthly mutual fund flows, in billions of dollars, into/out of bond funds (green bars) and stock funds (blue bars) since the end of July, 2008–measured in billions of dollars as per the scale on the left. Take your time; I'll be here when you get back. Welcome back. I think it's pretty clear that, after everybody sold all their investments like lemmings during the 2008 disaster, an enormous amount of money has poured into the bond side of the stock/bond allocation over the past four years, and a corresponding tidal wave of consumer investment dollars has continued to flow out of stocks. Seeing the actual dollar flows in graphical form–taken from the Investment Company Institute website–makes one wonder how we managed to sustain a mini-bull market in stocks since March of 2009. It also suggests that an awful lot of people have parked their money in what they believe are the safe haven of fixed-income investments, and are safely divested out of those risky stocks. There may once have been some logic to this–at least short-term. The Fed, with its QE3 program and ongoing Operation Twist, has been driving interest rates lower in two of the major components of the Barclay's Capital Aggregate Bond Index using the simple expedient of buying everything in sight with newly-created money. As David Schawel points out on the Advisor Perspectives forum (http://advisorperspectives.com/newsletters12/Will_Bonds_Be_Burnt_to_a_Crisp.php#) roughly 18% of the index is represented by Treasury bonds, which, as a result of the greater demand manufactured by the Fed, have generated a total return of 3.77% so far this year as 10-year rates have fallen to (at this writing) about 1.625%. Rates on corporates have fallen in synch, and prices have accordingly appreciated. But how long will that continue? If we look at the risk/reward profile for this massive bond component of consumer portfolios going forward, it becomes clear that above-yield returns are not the most likely scenario. If the rate on 10-year Treasuries were to fall dramatically, down to 1.25%, investors would reap an annual gain of about 3.5%. If yields were to rise to 2.5%, investors would lose 8% on the year. You can draw a similar picture for mortgage-backed securities and corporate issues. In fact, the most likely scenario for the future is that someday soon, the U.S. economy will start growing at levels the Fed finds acceptable, at which point all the twisting and QE activity will cease, pulling the rug out from under the bond market and sending rates back up to where market conditions probably would have led them on their own. Investors will be spooked by the losses, and you'll see that graph suddenly turn around, driving rates up further as demand suddenly becomes oversupply. If there is a predictable rush to the exits, I wouldn't be surprised if rates rise much faster than any economist today is predicting. To me, this is reminiscent of 1987, when there was a long accelerating increase in money flowing into bond funds, followed by a catastrophic rise in interest rates in the early spring. Money poured back out of bond funds into stocks, locking in losses and creating the next bubble which burst spectacularly on Black Monday. I think everybody who communicates with the investing public–including, of course, advisors–has an obligation to sound a warning: specifically, to tell anybody who will listen that the prices of fixed income investments have been distorted by the Fed at the same time that record amounts of investor dollars have tipped the supply-demand see-saw dangerously over to one side. This is a classic bubble, and when it bursts, you're going to see people blindsided with losses which might eventually be comparable to what they experienced in 2008–only this time in the (ever-expanding) part of their investment nest egg that they believed were safe and conservative. It's going to be a shock. I hope you're preparing now.

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Goodbye to Marv

I'm sure by now you've heard the news: Marv Tuttle has unexpectedly announced his retirement as CEO of the Financial Planning Association, effective in October. Several people contacted me, including a member of the press, to remind me of what I have no trouble remembering: that I had recommended that the FPA look for new leadership. Was I pleased by the news? Pleased? No. Whatever our differences, it has always been clear that Marv Tuttle is a good man, a good citizen of the financial planning community, a champion of what's right and a stalwart opponent of what's wrong. More than that, he is one of the few people in this business who has a clear idea about what the planning community needs to do in order to become a true profession. I became increasingly critical because the results at the FPA are not good. Membership is falling, services are less robust than they had been, and more than that, I saw instances where Marv would identify a service initiative for the FPA to implement, and then, somehow, the staff would veto the idea and the organization would go back to business as usual. In our last meeting, I urged Marv to take firmer control of the organization, but I have a feeling that he was never quite able to overrule the internal decisions or impose his vision on the staff's work activities. In the end, I think the truest thing I can say about Marv as a leader and manager is that he was too nice a guy. So, first of all, I'm sorry to see one of the profession's best friends and allies retire to the sideline. Second of all, I'm wondering why the FPA decided, suddenly, to cancel the idea of doing a full-scale job search. There's nothing wrong with deciding to promote from inside, but why not explore your options first? The way it is now, the very people who felt empowered to overrule Marv's ideas and initiatives are now running the organization. How did the resignation come about, more than 18 months in advance of the date when Marv had expected to retire? I have no inside information here and haven't asked for any, but the timing is certainly interesting, coming right as the FPA Board was meeting. What matters going forward is whether the FPA staff can resurrect the vitality that the organization carried with it when the ICFP and IAFP–both strong, viable organizations–gave it birth. How? I think new FPA CEO Lauren Schadle was on the right track when she suggested that the FPA will become more CFP-centric. She ran into immediate flak from the American College, whose agenda is to make sure insurance agents have a seat at the table, but I think this actually highlighted the problem. Currently, a lot of salespeople are able to quietly tout their FPA membership, while the credentialed professionals have been leaving the fold. You can see this in the simple chart I've created here, which divides the total number of FPA members by the total number of CFP designees each year since the FPA's formation through the end of last year. This probably understates the case, because I strongly suspect that the percentage of FPA members with the CFP designation has been declining. If we were talking purely about CFP advisors, the graph would actually look steeper than what you see here. The American College rifted from its own alumni organization when NAIFA decided to become less insurance sales-oriented. Now the American College is clearly alarmed that the FPA might follow the same course. I hope Schadle decides to face this criticism head-on, and make the FPA stand for professionalism, and find ways to serve professionals with a richer, expanded, more sophisticated member benefits package. The FPA has long been concerned that this might cost it members–and, of course, it will. But the chart shows us that there is a lot of growth opportunity right there in the CFP world, among advisors who–like the ICFP members–want to belong to an organization that stands for the same things they do. Meanwhile, I hope that Marv Tuttle remains involved in the planning community, to help steer us toward increased professionalism.

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Trapped In The Cloud

If you've been living on the moon these past couple of years, you may have missed the profession's wholesale rush to get on The Cloud–that is, having your software and data hosted and stored remotely, so you can access it from any web-connected computer. You no longer have to update software, you can say goodbye to the expensive servers, and the security risks posed by your office's cleaning personnel has been transferred to large server farms protected by barbed wire and armed guards. It's the future! Right? Recently, I've been trading emails with an advisor who has suddenly been confronted by the dark gray lining of The Cloud. She has been a cloud-based user of a prominent financial planning program (which one doesn't matter for now), and one day she discovered that she no longer had online access to the program OR her data. She was working on a case for her largest client. Alarmed, she contacted the company, which told her that she hadn't paid renewal fees. She later discovered that she had ignored what she believes were cryptic renewal notices. The short version of the story is that the company demanded that she pay a significant price hike and sign a five-year contract before it would renew her site license. The interesting part of the story, to me, is that unless the contract was renewed on the terms of the vendor, all the client information stored on The Cloud was held hostage. No longer could her clients go to their web portals and check out the latest version of their financial plans–or, for that matter, ANY version. Meanwhile, if the advisor decided to pack up and go to another vendor, days of casework for her largest client would be flushed down the drain. In theory, the advisor owns that client data. But without the program that interprets the data, and stores it in the right fields, the raw numbers and letters are meaningless. And since all this data is somewhere out there on remote servers, what if the advisor wants to switch to some other planning program? How could she extract years of accumulated client data and move it over? Hearing this story, it looks to me like all the advantages of The Cloud come with one very big disadvantage: the software company has total control over access to the information you need to run your practice. Because of that, it might be able to raise its rates or dictate its terms without worrying about losing your business. As nearly as I can tell, you're trapped, a prisoner in the murky gray part of The Cloud. The lesson? I would discuss this exact scenario with any Cloud-based vendor you plan to work with–and, of course, any you happen to be working with now. More broadly, I think the profession and the software companies who service it need to have a dialogue about how to resolve this issue. In the past, you were free to migrate from one program to another, which is what people do in a free market. Is it possible to recover that freedom in a Cloud-based software environment? Is it possible that as the profession rapidly moves into the much-hyped Cloud-based future, it is also, without realizing it, becoming trapped in The Cloud?

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Where’s the Problem?

Most of us have read articles and weighty analyses about The Problem with current advisor regulation–which is, simply stated, that RIA offices are not currently examined nearly often enough for the protection and security of the general public. I think the current figure is that some advisors have to wait 11 years before an SEC examiner pays them a visit, and some of the analyses have suggested that every four years would be a more palatable schedule. What you never hear, in any of the discussions about advisor regulation, is a more basic question: why, exactly, do we need these examinations at all? If you're sitting there in shocked silence, please hear me out. The current SEC examination system asks a lot of questions, but what part of the examination would have uncovered the very scandals that have provoked all this hand-wringing about 11 years versus four? We know these issues are not rigorously pursued by the current SEC examination process because Bernie Madoff managed to survive several examinations, as did Allen Stanford. In fact, I have not heard of a single instance where an SEC examination uncovered a Ponzi schemer. People whose trade blotter is not signed within 30 days, yes. People who are actively stealing money, no. The regulators typically find out about fraud and consumer abuse through consumer complaints or an internal whistle-blower. So why aren't THOSE the areas where everybody calls for improvement at the SEC? Law offices are not routinely examined by regulators. Nor are accounting offices. Why should RIA offices undergo regular visits? You could argue that they handle client money, but if the money is at a large, recognized custodian, this really isn't true. Lawyers serve as trustees of trust assets, but the money is housed elsewhere, and nobody is calling for routine inspections of their offices. Somehow, along the way, it became an accepted article of faith that a certain number of regulatory inspections would protect the public, and Congress is attempting to rectify The Problem, with generous support from the brokerage firms and FINRA. But before we all jump on this bandwagon, shouldn't we ask for the evidence that demonstrates the effectiveness of this proposed solution?

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Shattering the Crystal Ball

Nothing drives real financial professionals crazier than seeing somebody on TV blithely predicting which stocks will go up or down tomorrow or next week. The reckless chutzpah of investment gurus who venture into the realm of soothsayers and gypsy palm readers is bad enough; worse is the fact that clients will hang on their every word and ask you about it the next morning. Worse still is the fact that you, yourself, are, at this moment, confidently holding a number of beliefs that will be proven wrong. Ariel Funds president Mellody Hobson recently offered a fresh take on this thing that drives all of us crazy. If you can manage to systematically shatter the crystal ball, it not only helps your clients avoid cable TV's bad advice; it also helps you communicate more effectively with clients, build trust, and, as a byproduct, make you a better investor. "Experts are people, and therefore fallible," Hobson told an audience at the FPA NorCal conference in San Francisco. "They will be wrong, so will you, and you know that. So how do you use that information? How can you become appropriately suspect of certainty, and teach this skill to your clients?" Hobson's first recommendation is to get in the habit of holding your ideas and opinions lightly. "Try not to get rooted in the notion of being right, and hold the ability to change your mind," she said. Constantly defending your positions, she added, is not a great way to pick investments when there is a constant flow of new information that can change your view. You can try this out when clients ask a hard question, like what you expect for long-term U.S. stock market returns. Instead of stating a point of view, communicate your thought process. In general, you believe in mean reversion. In general, you expect the longer-term time series to be more predictive of future returns than the shorter term. The median PE over the past 85 years is 16.4, but currently it is 14.6. Over the past 85 years, the market has returned 9.9% a year, but over the last five years the annual returns have been closer to 4.5%. The tentative conclusion: If mean reversion does take effect, as it often has in the past, that suggests that stocks will average double-digit gains this decade. What about gold? The 25-year average return is 5.7%, compared with 22.0% average annual returns over the past three years. If you have a healthy respect for mean reversion, gold looks like a short rather than a buying opportunity. If clients ask for your view on the housing market, you start with the consensus view: that the housing double-dip will last for the next decade at least. Then you note that shelter is still an essential part of people's lives, and housing is currently affordable. Overall, you believe home-building should generally track household formation, and household formation in the past year has outpaced housing starts. If this logic holds, it would suggest that the housing market will recover sooner than expected. This is very different from proclaiming the next roaring bull market, a collapse in gold prices, or the end of the housing crisis. Your clients are free to disagree with your conclusions, and you, yourself, can be appropriately wary of drawing too firm a conclusion. You can hold these opinions even more lightly by considering (and expressing) the possibility that your conclusion will be wrong. Hobson said that when you are humble about your conclusions, it actually enhances your credibility with clients. At the same time, it helps you mentally respond more flexibly to unexpected circumstances as they (inevitably) unfold. "When analysts give us their views," said Hobson, "we ask them to include a statement like: if I end up being wrong, it will probably be because of…" So, for example, the U.S. market could experience unusual volatility as a result of those well-publicized recessionary winds in Europe. If the U.S. catches the European banking illnesses, credit markets could freeze up, making it harder for people to buy houses even at affordable prices. Gold could benefit, at least temporarily, from all this uncertainty. Finally, Hobson recommends that whenever one of your expectations turns out to be wrong, say so clearly. "We never like to admit we got something wrong," she said. "But we think it is important to overtly state that we were wrong, and to talk about why. The 'why' is the key to it," she added. "It gives investors a sense that you are reevaluating your own thinking, it reinforces humility and it demonstrates honesty." What did Ariel get wrong? In 2011, Hobson told the group, Ariel's investment team thought stocks would beat bonds. "We never thought the U.S. downgrade would ever happen," she admitted. "We were expecting more job growth than what we have seen. We thought housing would pick up and raise overall hiring. And," she said, "we have been wrong about merger and acquisition activity. With some companies getting so much cheaper, having so much money on the balance sheets, we thought people would buy growth on the cheap. We underestimated the amount of fear the corporate titans were feeling, and the need to be cautious in light of what they had done in the past." Let's stop and count the benefits here: when you break the crystal ball, your client communications get better and more authentic, you help your clients set more realistic expectations of what you (and those cable TV soothsayers) can know and do, and you become a better, more flexible, more humble investor as you navigate the treacherous investment markets. You often hear about the virtues of humility, but Hobson is the first person I have ever seen who can explain how to systematically put this advice into practice, give you a variety of advantages in the advice marketplace.

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If we want a fiduciary standard around investment advice, why stop at advisors?

Everywhere you look in the financial world, you see conflicted advice that is (at least potentially; I would say inevitably) harmful to consumers. In the quaint old days of the late 1980s and early 1990s, advisors used to complain about the conflicts of interest at Money magazine and the other financial publications, which would breathlessly report on "the best mutual funds to buy now" every six months or so. Innocent clients would ask their advisors why they were selecting inferior funds. Money's editors were acting on the obvious conflict of advertising dollars; you need to be touting the products whose sponsors pay the bills. Less obvious was the fact that Money needed, as a matter of business survival, to be seen as the key source of financial information. So its writers had to denigrate the advice of advisors and keep everybody excited about changing their portfolio and continuing to read about what to buy next. Today, the cable financial channels have taken this investment pornography to striking new levels. Jim Cramer screams at the audience, and nobody ever checks the track record of his predictions. Men in business suits predict the future with a straight face. Stock touts used to be marginal members of the criminal underclass, on a par with touts at the racetrack. Now they're celebrities and media personalities. Meanwhile, investors are bombarded with cynical advertising from the large discount brokerage firms, who straightforwardly tell them they can beat the market if they will sign on to self-churn their portfolios. Full-service brokerage firms pretend to give you objective advice while they slyly siphon off as many of your retirement dollars as they can into their bloated bonus pools. Large insurance companies tell their agents to sell you the policy regardless of your actual financial needs. There are sleazy bucket shops that manipulate penny stocks and sell whatever they're paid to push that day, and it seems like we will always have a handful of Ponzi schemers among us. I've just defined a hierarchy of sorts, from least to most sleazy. You can debate the actual rankings. The point is that except for some of the activities of the bucket shops and the occasional Ponzi frauds, everything else on this list is not only legal, but tolerated in our society. In fact, I would argue that they are actually favored in the marketplace over the professionals who operate at the top of the spectrum. These various frauds and subtle dishonesties get far more attention, individually and collectively, than the honest advisors who try to give their clients the best advice available without compromise, and who, for the most part, are far better trained to do so. Consider that in our society, the magazines and cable financial shows are considered respectable members of the journalistic profession, and the nonsense they put out reaches millions of consumers every day–which is millions more than you do in your daily practice routine. The self-churn advertising efforts reach millions more, and they act symbiotically with the cable programs to co-create the dangerous illusion that what happened ten minutes ago is relevant to your retirement portfolio. Brokerage and insurance companies have somehow positioned themselves as the adults in the room, and the regulators believe they're the good guys because, even though the wirehouse structure provides incentives for brokers to bend the rules and slyly give self-serving (or company-serving) advice, even though a broker's success is defined by the money he extracts from his customers, the wirehouses, unlike the bucket shops, have compliance people who try to control the sleazier behaviors. We are currently starting up another round of debate about how financial advice should be regulated, with FINRA stepping out of the lower end of my spectrum and claiming to be the solution. I think it might be helpful if, this time around, we all took a step back and looked hard at all sources of investment advice in America, and asked ourselves if the net result of each provider's advice is helpful or harmful in light of even the most basic research. Should cable stock touts be required to disclose the track record of their prior predictions on a disclaimer that scrolls across the bottom of the screen as they're confidently telling us where the markets will go next? When Jim Cramer is screaming that he loves this or that stock, should there be a superimposition on the screen next to his reddening face that shows the subsequent performance of other stocks he has screamed about in the past? Should the discount brokerage messages saying that you can day-trade your way to owning a tropical island be investigated for blatantly false advertising? Or should they be required to show a bold disclaimer, similar to what we now see on packs of cigarettes, showing the normal result of a novice investor self-churning his own portfolio, perhaps with the help of Jim Cramer's image on the TV screen? As you move deeper into the realm of cynically conflicted advice, does it make sense for any agent of a product manufacturer–in our world, brokers and insurance agents–to be allowed to pose as a provider of objective advice? Or should they, too, carry a disclaimer? My point is that the current regulatory debate is far too narrowly focused. Protecting the public is not really a matter of bringing in a new bureaucratic organization that pays its executives millions of dollars a year. It should be about evaluating the objectivity and effectiveness of all forms of advice that are provided to consumers, and deciding whether it is in our society's best interests to impose some sensible guidelines. We have similar guidelines in place for medical advice, so we know that a broader system can work. If nothing else, this more encompassing evaluation, and more awareness of the full spectrum of bad advice, would expose FINRA not as the good guys, but as an organization that actually fits somewhere toward the bottom of an unpleasant cohort. This would make it all the clearer how ridiculous it is that FINRA should be striving to regulate the professionals who live and work at the top of the financial advice hierarchy.

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What to say when clients lose hope in the future

I heard the same basic lament at the FPA Retreat and NAPFA National Conference, at the FPA NorCal Conference, at the TradePMR conference and the AICPA's PFP meeting in Las Vegas. It was widely discussed at the TD Ameritrade Conference. Everywhere, these days, advisor clients are suffering from what might be called a loss of hope. A growing number of clients seem to believe that the world is coming apart, and therefore have no enthusiasm in investing in anything that depends on an optimistic view of the future. The specifics vary. It may be despair that the Democrats or Republicans are ruining the country, or that the political system is so badly broken that our country will careen into some future catastrophe. The debt burden is so large that we cannot possibly dig out, and therefore we all face a dark future. Other countries are overtaking the U.S. for global economic supremacy. Most often, it seems to be linked to the scaremongering we see in the media, either for political purposes or because scaring people out of their wits has recently become a surprisingly attractive viable business model. So too is depressing people with unrelentingly gloomy prognoses of the future. I want to hear what clients are telling you, and I want to find out what clients are saying to the advisors who attend these two national meetings. But I also want to know what you (and they) are saying in response. Have you found an effective way to lead them away from the mental cliff of despair about the future? All of this brings back vividly my earliest days in the financial planning profession, when an individual named Howard Ruff published a newsletter called "Ruff Times." Howard Ruff believed that the world was going to hell, the economy was about to come apart, the markets were on the verge of collapse, and everybody should stock up on gold coins, canned food and water and plenty of ammo. He preached that his followers, who numbered in the tens of thousands, should avoid stocks altogether, and those who followed his advice missed the entire bull market of the 1980s and 1990s, when it was throwing off the most generous investment returns in world history. I think Howard Ruff would admire the doomsayers of our more modern era, for their ability to muster remarkable statistics and carefully select their facts and arguments. Recently, I looked at the Harry Dent materials, curious to see what the man who thought the bull market would rage on even after the collapse in 2001 had to say today, and of course now he's a raging bear. He robbed people of perspective as they went over the top of the bursting bubble; now he will rob them on the way back up. By giving a one-sided, misleading vision of the future, Dent and Howard and the others will pocket more than you and I are likely to earn giving more nuanced, honest and less self-serving advice. Against that backdrop of well-paid pessimists, it may be hard to notice the bigger picture. Suppose somebody had taken your clients aside in 1925 and shown them a highlight video of the future, of all the years leading up to 2012. There would be scenes of a major stock market crash, years of depression with unemployment reaching 25%, soup lines, bread lines, the dust bowl. Then they would see the horrors of a second global war, the unleashing of the atom bomb, a cold war that constantly threatened unspeakable nuclear armageddon, a presidential assassination, a nasty war in Vietnam. The movie would show an alarming rise of global terrorism and the demolition of America's largest, tallest building, flashpoint wars in the Middle East and the Balkans, numerous oil crises, the bursting of a major tech bubble, and the world taken right to the brink of economic collapse before Wall Street firms were handed the keys to the national treasury. Chances are, they would watch the video, then uncurl themselves from a fetal ball, and sell everything. The money would be stuffed safely in a mattress–and they would have missed 6-7% real returns a year over a bumpy ride that led to higher and higher levels of wealth. The point here is that we pay far too much attention to politics, geopolitical events and the latest headlines when we shape our view of the future. Extrapolating from our dysfunctions leads us down the road of pessimism, and there are many well-paid enablers who are happy to point us in that direction. But this obscures the true dynamics of our economy and our culture, which never takes place in the headlines. The real work of building the future is done by the millions of people who get up in the morning and go to work and get things done–who invent things, and build things, and figure things out, bit by bit, until one day we look around and realize that people no longer ride horses to get from one coast to the other. The real story of the past 90 years would never make the highlight reel. It is the story of incremental improvements in our lives, of more efficient food production, the advent of radio and television and powerful computational and communication devices, the ability to fly anywhere in the world, longer lifespans, more wealth and more interesting things to do with our free time. Progress and increasing prosperity–and future stock market returns–are the sum of all the effort that ordinary people make every day to build a slightly better world tomorrow than we have today. If you lose faith in the future, it seems to me, you are losing faith that all that energy and effort and creativity of all those people, not just here but all over the world, will have a beneficial effect on the world going forward. Catch me on a good day, and I'll readily concede that our elected representatives are not contributing very much to that long-term growth. I expect that there will be wars and downturns and excitingly negative headlines on the highlight reel of the next 50 years. I think our job, in the profession, is increasingly to focus attention away from the highlights to the bigger, less visible picture, to counteract the pernicious effect of the press, the gurus and soothsayers and professional pessimists. If your clients have lost faith in the future, I think it is important to remind them of exactly what they have lost faith IN–the hard work that they and their colleagues and neighbors and fellow citizens are contributing to the future every day, the talent and creativity of the human mind, the diligence with which we apply it. These things carried us through fearful challenges, all the way from squatting in caves to private space launches. Investing is a bet that the obstacles before us now, even the self-created ones, will not stop that progress, and it seems like a pretty good bet to me.

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