Introducing the Liberty Portfolios: Financial Freedom for Conservative Investors

Posted: Jun 29, 2016 12:01 AM
Introducing the Liberty Portfolios: Financial Freedom for Conservative Investors

The world has gone mad.  Partisan politics is at its worst. There is a feeling of instability that is spreading through America.  You are concerned about your financial positioning. What will the future bring economically?  What effects might world events bring about to your own financial future?

I’m launching a series of weekly articles called The Liberty Portfolios to help you navigate these uncertain waters.  The Liberty Portfolios will be articles that cover all aspects of American financial life, but ultimately will have a focus on investments.

You deserve financial freedom and The Liberty Portfolios is here to help.

What do I mean by “financial freedom”?  I refer to freedom from noise.  The dirty little secret of the financial media is that it needs one thing to stay alive: content.  Without constantly refreshing content, they have no audience.  Without an audience, they have no advertisers.  Without advertisers, they have no business.

So the content directive of every traditional and online media outlet is publish publish publish.  That means there is tons and tons of useless information being thrown at you.  Nobody cares what Analyst X from Oompa-Loompa Securities thinks about Apple.  You shouldn’t care, either.  In the end, if you surveyed all the financial media, you’d probably end up with completely opposing views on every stock, every market, and every financial plan.  Everyone would cancel each other out.

But the financial media needs content, so everyone gets a voice.  That’s not a good thing.

There are some great financial professionals out there, but their voices are being drowned out.  The Liberty Portfolios will give them a platform, because I know them, I know they are reliable, and most of all, they know that one size does not fit all when it comes to investing.

The Liberty Portfolios will be directly relevant to surviving financially in our uncertain world.

What do I mean by “Conservative Investors”? “Conservative Investors” refers to Americans who are not gamblers.  They are investors. It means they appreciate research on investment and do not just blindly follow the crowd.  They do not take unnecessary risks, and those risks that they do take have a commensurate reward attached.  They slowly build a portfolio, and tend to it as they would a garden.  

Here’s an example of what I mean, and the kind of lessons I hope The Liberty Portfolios will deliver: the difference between gambling and investing

When you go to a casino, you are betting money on games that are all designed to give an advantage to the casino.  You may have heard the term “house edge”, which refers to the ratio of the average loss to the initial bet.  What does that mean exactly?

Roulette has a house edge of 5.26%.  That means that, over time, you will likely lose $5.26 of every $100 you bet.  Those words, “over time”, is what’s important.  You may walk up to a roulette wheel, put $100 on a number, that number could hit, and you’d win $3,600.  Not bad!  It’s also a great time to run out of that casino, because if you keep playing, over time, that win is going to erode.  It may take hundreds or even thousands of of spins, but over time, you will end up losing $5.26 for every $100 you bet.

With gambling, you have a negative expected return over time.  You will lose money over time.

Investing is very different.  Investing has a positive expected return over time.  You will make money over time.   

The reason is that, as legendary investor Peter Lynch has noted, stock prices tend to follow earnings.   Because free economies almost always grow over time, earnings will grow over time, and so stock prices will go up over time.  Notice that I say “free economies” – where people can exchange in the buying and selling of goods and services.  In countries like North Korea, there is no real economy to speak of.

With investing, you may see wild swings if you look at the stock market year-by-year.  

Some years you will see big gains, and other years you will see massive losses.  In the short-term, the stock market appears to be similar to a casino.  

But something interesting happens when you look at ten-year rolling periods.  

Only once in history have the returns over a ten-year rolling period been negative, and that was the result of the Great Depression…and even then the results were just barely negative. 

What does that tell us?  That investing in stocks over the long term will yield a positive expected return, making it very different from a casino.

Finally, look at the 35-year rolling return chart, and you’ll see something amazing.

The returns are substantially above zero.  

And so we have the first two lessons of The Liberty Portfolios.  

Lesson #1:  Over time, the stock market will deliver positive expected returns.

Lesson #2:  Ignore financial media that says not to “buy and hold” stocks.