Stocks 101

This is a fun educational video by Investopedia. Stay tuned for next week's featured pin blog post with more on the basics of stock investing.

Retirement Secrets Unleashed

Are you paying fees on your 401(k) and mutual funds without even knowing about it? Forbes contributor Sanjeev Sardana wrote an article in the PBS Frontline documentary, "The Retirement Gamble." This documentary uncovered hidden secrets that are not commonly discussed about investing and saving for retirement. If you are saving for retirement, click here to uncover the secrets click here.

Maximizing your 401(k) and retirement plan earnings

Dan Danford, CFP® and Founder/Chief Executive Officer of Family Investment Center, has been advising how to invest 401(k) and retirement plans for years. In the video below, he answers this question about what to do when dissatisfied with your 401(k) funds:

I want to shift my money to different funds within the plan. When making this decision, which do you think I should focus on more: the funds' expenses or the returns the funds have earned?

Danford explains why you should focus on expenses first, but that there is an important caveat when it comes to ensuring you are comparing apples to apples with different 401(k) funds.

Are you an aggressive investor?

According to Dan Danford, CFP® and Founder/Chief Executive Officer of Family Investment Center, forget rules of thumb when it comes to determining your aggressiveness in investing. In this video, Danford answers the question of whether or not the rule of thumb of limiting your stock percentage to 110 less your age makes sense if you don't want to risk giving up potential gains. Danford offers his reasons for ignoring that oft-used financial expression and why answers to retirement questions and portfolio diversity depend on what your retirement time horizon is.

Why you need to invest

Dan Danford, Founder and Chief Executive Officer of Family Investment Center, takes a "back to basics" financial advice approach with this week's episode of Money Made Easy.

Dan is frequently approached by people wanting to know the difference between savings and investing. In this video, he explains three reasons to invest and why savings alone will not allow you to meet your financial objectives.

Dad's Divorce: What To Invest In

Dan is a weekly contributor to Dad's Divorce, a website for men going through the divorce process. The site may be been designed for men, but the advice usually can apply to anyone. In this week's edition of Money Made Easy, host Dan Danford answers this financial question from a viewer: When choosing which companies to buy stock in, what should I be looking for? What are some steps that I should take to research a company?

Danford, MBA, CRSP of Family Investment Center, explains the difference between great companies and great stocks and how to seek unbiased research.

Registered Investment Advisors keep clients' interests at heart

By Dr. Jason White
Family Investment Center

The world of investing and managing money can be confusing, frustrating, thrilling and gratifying all at the same time. Some folks have the financial acumen to manage their own portfolios and do quite well, while many flounder in a sea of millions of investment choices and scores of different account types and other arcane rules of the road.

If you have the time, talent and dispassionate experience needed to manage your own money, then this week’s column may not be for you, and that is just fine. The United States capital markets benefit greatly from the liquidity generated by a large number of self-interested investors. But, if you have ever considered handing off the keys to your investments portfolio to a professional, or if you have done so already, then read on.

Essentially, there are two breeds of investment advisors to choose from: Commission earning brokers who charge based on the investment products they sell, and those who work on a flat fee or “commission-free” basis, Registered Investment Advisors. Given today’s increasingly complex and intertwined financial marketplace, some traditional commissioned brokers have begun offering some types of fee-based, straddling the line between both. Yet there is a very important distinction between commissioned brokers and fee-based advisors. In legalese, it is the standard of care provided.

TAKE NOTE – A Key Point Follows

Commission-free Registered Investment Advisors (RIAs) are fiduciaries for their clients. This means that an RIA is legally and ethically bound to provide client investment services that are solely in the “best interest interest of the client.” Further commission-free (a.k.a. fee-only) RIAs must be completely transparant and disclose all fees paid by clients, by research or mutual fund companies, or any others ancillary charges – including.

Commissioned brokers are held to a much lower standard of care – the investments they recommend for customers must simply meet a “suitability” standard. Whether the recommended investment is in the best interest of the client is immaterial in the world of commissioned investment salespeople.

I have been both a commissioned broker and a commission-free (fee-only) advisor in my 20-years at the virtual intersection of the streets of Main and Wall. I will remain a passionate promoter of the commission-free RIA business model until or unless a better investment business model is developed that protects clients better than an RIA, or that is more transparent.

I’m not holding my breath waiting for this to occur.

You see, a fee-only RIA earns larger fee income from a client as that client becomes more and more wealthy. Thus, it is squarely in the best interests of both the client and the commission-free advisor to be invested in such a way as to maximize growth, income and safety over time. Clients and their advisors sleep better at night knowing that they are both on the same team. This is truly one of the best win-win scenarios available in today’s financial marketplace.

Dad's Divorce: Rebalancing your portfolio

Dan Danford regularly provides commentary for Dad's Divorce.com, a web site for men going through the divorce process. Of course, his advice applies really to anyone. You can watch his latest podcast here:

Financial advice from TV experts is a no-go

By Robyn Davis Sekula

I ran across a story this week about Glenn Beck's financial advice. First of all, you need to understand I'm not a fan of his. I think he's theatrical and reactionary. I do think he makes some good points, but I can't get through the drama to listen to what he actually says. It's too much to wade through for me.

It bothers me to read that he's been dispensing financial advice. He has no expertise on this, and his idea about buying gold is just plain silly.

I've heard Dave Ramsey address buying gold a number of times, and his point is always this: when an economy collapses to the point that paper money is not valuable, gold is not helpful, either. He points to New Orleans during the aftermath of Hurricane Katrina as the most recent example of economic collapse. Were people trading gold coins? Not at all. They were bartering for bottled water, tarps, building supplies, generators and gasoline. Those were the things that were desperately needed and in very short supply.

There's also the journalist in me that notes that Beck is paid for his endorsement of gold as a commodity, and he's likely paid very well. It may even be in his contract to endorse it on his "news" show. Therefore, he's not objective.

I asked Dan Danford, Principal and CEO of the Family Investment Center, to weigh in on Beck, and here's what he thinks:

I share Beck's concern that many political policies discourage entrepreneurship and capitalism. And I also believe that investors have suffered at the hands of Wall Street and supportive bureaucrats. But capitalism grows from the basic initiative of people, and no government has ever succeeded is destroying that trait. I believe, strongly, that creative people find ways to make money and build companies even when the government discourages it. Corporations adjust to changing situations and needs. In brief, I don't think capitalism is dead and I don't believe all the doomsayers about the U.S. economy.

Then, I specifically asked about Glenn's endorsement of gold as an investment. Dan said this:

The time to buy gold is always before people start talking about it. I think Glenn should stick to broadcasting but there are a host of others who disagree!

What it all boils down to is this: if you are taking specific investment advice from someone who is talking to you, and not with you, you're heading down a dangerous path. There are some universal ideas, such as that we all need to save for retirement, and shouldn't have credit card debt. But how to invest that retirement, specifically, is a question Beck isn't qualified to answer, because he doesn't know you.

If you are seeking good, solid financial advice that applies to you, which is what you should want, you need to seek an independent financial advisor who isn't being paid a commission or a fee or anything else to endorse a specific product. That advisor needs to know how tolerant you are of risk, how far away from retirement you are, how many children you have and their circumstances, and whether or not you're divorced, widowed, married or single. All of that is important, as well as 100 other small factors that really change how you save, and what for.

For instance, in my case, I'm self-employed. That fact alone means I probably need a larger cash savings fund than many people, and a qualified investment advisor would tell me that, and NOT tell me to have a bunch of gold sitting around. You can't pay your mortgage with gold if you lose your biggest client.

Listen to Beck, if you like. But take any advice he gives with more than a grain of salt.

Investing in your 40s: Stability is your friend

There's lots and lots of articles out there about saving for retirement. And that's a great focus - and probably the most important savings goal anyone should ever have.

But what's often missing is how investing changes with the decades. We ran across this great piece by Jean Chatzky about investing in your 40s, and wanted to share it with you. She asserts that in your 40s, you're established in your career, probably making a steady, dependable income, and may have passed most of the big financial hurdles people typically face in their 20s and 30s, such as starting a family.

If you'd like to read the full story, go here:

http://www.dailyfinance.com/story/investing-basics/investing-in-your-40s-envisioning-the-future/19604306/

This week: Retailers release quarterly reports

For those of you who keep some money in the market, take note that this week, many retailers will be releasing their quarterly earnings reports. The Kansas City Star's Dollars and Sense blog had a nice post today quickly and neatly outlining who will be making reports on which days. To see the list, go here:

http://economy.kansascity.com/?q=node/7983

Today (Monday) Lowe's opened with its earnings, which were up. Reaction was mixed in the market, with Lowe's keeping its thoughts on the matter cautious but optimistic. Here's that report on Market Watch: http://www.marketwatch.com/story/retailers-open-mixed-on-lowes-report-2010-08-16

And here's Lowe's own press release: http://investor.shareholder.com/lowes/releasedetail.cfm?ReleaseID=499393

Calculate your number: what do you need for retirement?

By Jason T. White, ph.D.
Associate Professor of economics, Northwest Missouri State University
Director of Investments, Family Investment Center

I was watching financial TV one evening and a popular commercial jogged my memory. The ad shows various folks like you and I walking around with our “numbers” tucked under one arm. These television commercials are patterned after a book called “The Number: What do you need for the rest of your life and what will it cost?,” by Lee Eisenberg, one of the top nonfiction books on The New York Times best seller from a 2006. It is a must read for anyone approaching or beyond their 50th birthday, and a strongly recommended read for those of us a few years younger.

Eisenberg does a great job in mixing practical investment principles and theory in a comprehensive way, but without losing sight of the purpose of identifying one’s number. What is your number, you might ask? Well, according to Eisenberg, it is the dollar amount of your retirement nest egg which will allow to accomplish all of those yet unfulfilled hopes and dreams in life.

To me, this is what made “The Number” so interesting. I have read dozens of how-to financial planning books related to asset accumulation, goal-setting, life expectancy, estate planning, and so forth. “The Number” is the first book I have run across that looks at the more spiritual or humanitarian side of wealth accumulation and planning, for lack of a better phrase.

Eisenberg prods the reader to answer the question why we seem to be working our tails off trying to build the biggest number we possibly can. Is it the simple accumulation of money that is our primary goal and purpose in life, or is it what we can do with that accumulated sum that will make us happy?

These are not easy questions to ponder nor readily answer.

As a member of the business professoriate and a professional director of investments, I naturally am inclined to teach students in the classroom, and motivate clients in the business world, to save and invest as much as they can afford to do, with the idea of helping secure a comfortable retirement or other such long term financial goals.

After reading “The Number,” I believe I need to broaden my focus a bit further.
Everyone has his/her own picture about what the ideal retirement for them looks like. For some it is travel; others golf; and some simply want to be able to visit the grandkids a little more often. It is these sorts of thought-provoking questions that Eisenberg asks us to consider – and for most, the answers will not come effortlessly.

We have all heard stories from time-to-time about the death of an elderly middle-class individual who we come to find out actually had socked away a seven or even eight-figure number – the classic millionaire next door. Invariably, the next generation inheriting this chunk of change will blow it on trips, cars, homes, etc. consuming away a lifetime’s worth of disciplined savings and investment of the decedent.

“The Number” asks us to consider if that scenario reflects our personal financial wants and desires. Eisenberg suggests we work backwards when calculating our own number. In other words, begin by estimating the amount of annual income we will need in retirement, adjusted for inflation of course, and then compute the nest egg size (the number) required to provide that amount of income, using a conservative rule-of-thumb 4% savings withdrawal rate. Other sources of income besides just savings need also be factored in, like Social Security and pensions for example.

In my next column, I will dig a little deeper into the nuts and bolts of how to calculate your own number, but until then, let’s spend some time focusing and contemplating on what we want to do with our number, not just how to maximize the size of it.

Dad's Divorce: How do I pick 401(k) investments?

Dan Danford regularly posts video blogs on Dad's Divorce, a web site for men going through the divorce process. But his advice almost always applies to anyone. This week, he answers a question from a viewer about how to pick 401(k) investments.

Here's the post - let us know what you think in the comments.

An interview with Dan Danford

First of all, what do you do?

Dan Danford – I understand investments and finance better than most people, and I explain things really well. People ask me to help.

What exactly does Family Investment Center do?

Two main things. We manage large portfolios for clients. These are discretionary accounts for families, nonprofits, and companies. We use proven techniques, based on decades of academic research, to design, implement, and review portfolios. Another facet is consulting, where we do research and evaluation for nonprofit and corporate clients. Our internal team is remarkable.

How’s business?

Good. Most of our new business happens when people move portfolios to our care from somewhere else. Movement slows when the economy shudders, and the past few years have been traumatic. Despite that, though, we’ve continued to maintain our client base and Assets Under Management (AUM). Actually, we’ve been pruning a bit.

How do you differ from stockbrokers or other firms?

Family Investment Center is registered to actively manage portfolios. We don’t sell investments, and we don’t earn or charge sales commissions. Among competitors, we probably look most like the trust department of a bank, although we are regulated by the U.S. Securities and Exchange Commission. We have a fiduciary duty to our clients and we are genuinely independent.

Independent? What does that mean?

In the investment world, over ninety percent of professionals are aligned with some large firm. Brokerage, maybe, or a bank or insurance company. There’s a tendency to create and sell certain products or services. There’s a huge amount of redundancy in the marketplace and a host of mediocre products. Firms like ours have no ownership or financial alignment with other companies. We’re free to choose products and services that excel for our clients. From thousands of good choices.

I’m not sure I understand.

Ask yourself this: does the world need 26,000 mutual funds? Seriously, there are over 9,000 bond funds tracked by Morningstar. Bond funds! Few have the long-term performance of Bill Gross and the PIMCO organization. So there are a few stellar performers and most of the rest are mired in mediocrity. Why do they even exist? Because they create revenue or convenience for some particular investment firm. It’s not for the consumer, that’s for sure. That’s just one example, of course. There are thousands.

How much does any of that matter?

I think the business structure matters a lot. Obviously, what’s most important is competence and trustworthiness, but there is a big advantage to staying in a commission-free environment. Salespeople simply aren’t – can’t be – objective. Mostly, they are the ones selling those mediocre products.

And, again generally, I think it’s best to use bankers for borrowing, and insurance agents for insurance. I’m not fond of cross selling.

I’ve never heard that before. Why?

I just think specialization has value. How many pitchers also hit 300? How many successful physicians also keep the books? It's hard to be really good at multiple tasks. Banks and insurance companies have their strengths; investing isn’t often one of them.

A related mistake, I think, is that people somehow equate big with good. They think it’s safer or better to work with a big bank or big brokerage firm. Remember, those are the banks that brought us TARP, and that Lehman Brothers – among the biggest of big investment firms – collapsed entirely. Both groups played a hand in the mortgage crisis and its aftermath. Bigger is not necessarily better.

What should consumers look for in choosing an advisor?

There are at least three really important things to consider. First, what is this advisor’s history? Were they insurance people? Stockbrokers? Bankers? It’s important because their initial training – and possibly their belief system – hales back to that early history. Just realize that they likely have some bias shaded by history.

Next, whom do they serve? Their clients should look and live a lot like you. Sometimes I see these people selling tax-free bonds to folks who don’t even need them. Seriously, most advisors have expertise with one kind of client or another. Maybe two. You want one who helps other people in similar situations. Unless advice fits your personal circumstances, it isn’t very helpful.

Last, and maybe most important of all, do you want a long-term relationship with this person? I’m not saying you have to socialize with them, necessarily. Just ask yourself, is this someone I want to work with and rely on for the next decade or two? If not, I’d keep looking.

What about investing? None of the top three is performance?

Good point. Let’s just say that investment performance alone isn’t enough. Good investing is always better for these three factors. In fact, investing is about achieving goals. That happens more easily when you work with similar families, engage in a long-term relationship, and understand some professional history.

What’s the very best thing an advisor can do for a client? And don’t just say, “make them money.” What should clients look for from a good advisory relationship?

Now, that’s a great question. I work with a lot of really smart people and most of them could manage investments. What they lack is context. They read an article or see a powerful spot on television, and they think maybe that’s a good idea. But they’ve not seen anything like it before, or during any other time frames. They don’t know exactly how it works or whether is works all the time. Or half the time. That’s the value a good advisor brings. They’ve seen it all before, and whether it works or fails. They’ve seen it with other similar families, and they’ve studied it in trade journals. With thousands of products and strategies, that’s valuable insight.

Is it worth paying for, though? And how much?

Well, how much could it help your family? I can suggest a tweak to your investment mix that generates an extra $50,000 over the next twenty-five years. What’s that worth to you? Maybe I’ll talk you into or out of some strategic move because I’m seeing a particular result with other families. What’s that worth to you? Most times, the modest fee that a good advisor charges is worth every penny.

There’s another side to this, too. It always astounds me that prosperous people have quality advisors, and less prosperous ones don’t. I mean, come on, this isn’t rocket science! Did you ever think that maybe those folks have a lot of money because they have good advisors? That, alone, is proof enough for me. Sure you can do-it-yourself, but is that what wealthy people do? It’s a real laugher.

Theoretically, that makes sense. But I also hear stories about bad advisors. Say I agree with you that there is value in quality advice. What next?

Find someone really good to help. As I said earlier, structure matters, but only to a point. Competent advisors share some basic principles about personal finance. Spend less than you make. Invest for the long-term. Let the tax code increase your returns. Again, it’s not rocket science, and advisors might argue about which mutual fund is best, but most of us will agree that a growth fund is a good choice for a retirement account. Fees, funds, and brand names differ slightly, but smart investing makes sense anywhere.

One thing I’ve noticed is that the crooks usually promise something for nothing. Outsized performance or unrealistic safety. Ask yourself this? Is what they are recommending in the mainstream? Is it what you’d expect to see in Money magazine or the Wall Street Journal? If not, there’s a strong chance it’s dicey.

Once or twice, I’ve responded to a troubled client, “ninety percent of competent advisors recommend the same things we’ve done.” And I truly believe that. Personal finance is a science and there’s a body of knowledge to support our decisions. We can’t always control the results, but our choices are based on the best probabilities for achieving success. That’s what you should expect with a good advisor.

Time to buy: any time you can

By Robyn Davis Sekula

I did something a little unusual on Friday. I swam upstream, if you will, from the way other investors were going. I bought shares in a mutual fund in my Roth IRA.

To me, a great thing to do on a down market day is BUY. I had put $5,000 each in Roth IRAs for my husband and myself through Fidelity, but simply had it sitting in cash reserves. I hadn't thought about how to invest it - but asked my financial planner (it happens to be the Family Investment Center - of course!) for a recommendation. They analyzed my portfolio and told me I could stand to go heavier in stock, given my age (upper 30s) so that's what I did. I added to it another $500 each for us for 2010, with the idea being that I'll add to it until I reach the max, $5,000, per person for the year.

In truth, I wasn't trying to time the market. I just noticed that the market was down, and that it might be a good day to buy.

When is a good day to buy? It's any day that you can set aside money for investing. It's ALWAYS a good day to invest in your 401(k), and especially your Roth IRA. It's always a good time to save. When the market goes south just a bit, it's even better.

Think of the market as having stocks/mutual funds on sale.

Dad's Divorce: Overview of mutual funds

Dan Danford is a regular contributor to Dad's Divorce, a web site for men going through the divorce process. Most of his advice, though, is general enough that everyone can use, particularly this podcast on mutual funds. You can watch it right here.

Investor Architecture

By Dr. Jason White
Principal, Director of Investments
Family Investment Center

Investors are the true long-term architects of family wealth accumulation and preservation. They are a special breed who utilize the availability of professional investment management, and have the constitution to stay with the plan, even when it appears all is lost.

All is never lost, of course. Investors intuitively understand that a retrenchment in asset prices is the time to be aggressive, not to capitulate. Investors understand the importance of saving. Investors know that short-term moves in the market (up or down) are primarily noise, sentiment or whimsy, and have little to no bearing on the long-term value of equities and the businesses they represent.

Warren Buffett describes the stock market in the short-run as a “voting machine.” Popular sentiment, psychology and herd mentality (good or bad), can drive stock prices to amazing bubble peaks and gut-wrenching price nadirs. Neither is fundamental or real. The long run investor understands this, and remains true and loyal to his plan.

It is much easier on mind and spirit to be an investor in prosperous times, than in tumult. The scientific approach to the building of wealth, as embodied in Modern Portfolio Theory, has been proven the most reliable strategy for investors since this break-through approach captured headlines and professional interest in the 1950s. Unbelievers bounce in vain from strategy to strategy always seeking a better built mousetrap, and some succeed in the short run.

Our social makeup in the information age requires near instant gratification. Those who “play the market” move like a stampeding herd, always chasing the tail of out-performance, but never quite able to grasp it. In our own myopic and self-interested view of the world, we want to be unique and special. We believe that this time is truly different. We believe in a new normal of some sort or another.

Yet, business marches forward. Equity prices ebb and flow in the near term for many reasons: news, politics, taxes, earnings, war or tranquility. Business television will run a split-screen when a powerful person, such as President Obama or Chairman Bernanke, steps to the podium. Words are spoken, the Dow Jones vacillates, and commentators link the two together painting a picture of the short-run just as Buffett’s voting machine suggests.

The fact of the matter is that the short run is just as unpredictable as it appears. Daily volatility, a reaction in stock prices to an event or series of events, seems understandable when the experts explain how good or bad news caused a positive or negative reaction in the markets. We accept these notions because the human mind wants to longs for certainty. No investor on earth knows precisely when a bear or bull market will start and finish without benefit of hindsight.

Thus, the most prudent strategy with the highest probability of success is to stay properly diversified and invested, using the proven approach of Modern Portfolio Theory, all of the time. Attempts to time the market invariably result in disappointment. Behavioral finance observes that people logically want to buy when times are good and sell when times are bad. When implemented, this strategy results in buying the market peaks, and selling during the dips – exactly the opposite of family wealth building behavior.

Dr. Jason White is Director of Investments at Family Investment Center and an Economics, Ph.D. at Northwest Missouri State University.

Know when to hold 'em

We answer questions here from followers of our Twitter feed, @family_finances. If you have a question, please post it in the comments section or e-mail it to robynsekula@sbcglobal.net.

QUESTION: On the NPR radio program Marketplace Money last Sunday, the financial experts were discussing setting a target for when to sell an investment, such as if it drops 10 percent in value, or if it rises 10 percent in value, so that investors don’t hold on to an investment too long. If you’d like to do that, what percentage would you suggest? And should the percentage be the same for an investment that’s dropping as one that’s rising?

ANSWER FROM DAN DANFORD: This really depends on the kind of investing you do. If you own individual stocks, then having some targets is helpful. Generally, you want to buy stocks when the price is low, and sell when it's high. A stock is actually a portion of a company, and the value is determined by financial things like revenues, assets, and profitability. But different people have different estimates of those numbers, so two informed people can have different estimates of value.

An analogy I sometime use is a house. We can both visit a house and agree that it is a spectacular house. We'll agree on the square footage and building materials and the size and quality of the lot. We can gather information on other, similar houses, and even the level of mortgage rates. But, still, we can reach different conclusions on the house's value. Even if we agree on the exact value, we might argue over a smart purchase price. Let's pretend for a second that the house is "worth" $200,000. Would you pay $300,000 for it? How about $225,000? If you could grab it for $150,000, would you?

Stocks are kind of like that, too. Just because a company is good (or even great) doesn't mean the stock is a smart buy at a particular price. The true value is a moving target, and sometimes the stock will sell for less than value. Other times, it's selling for more. A good stock picker will buy when the price is lower than estimated value, and sell when higher. That sounds easy enough, but it's harder than it sounds.

Now, the idea behind price targets brings some structure to the process. You estimate value, then create a band around that price. When the stock moves one way or the other, you take action. If you were wrong in estimating value, a low target will reduce your risk. You can limit your losses by deciding where to sell before you even buy. On the other hand, a high price target forces you to take profits when they occur. Perhaps this takes some of the emotion out of decision-making.

Having said all this, I'm not a big advocate of picking individual stocks. It takes an incredible amount of time and most people can't do it well enough to beat the markets anyway. For most folks, a low-cost index fund will produce better results with less effort. Diversification also reduces risk, and funds do that better than any other option. We use funds in managing million-dollar portfolios, and that's probably the best approach for your IRA or investment account, too.

The best thing that can be said about pricing targets is that they require some forethought about your investments. Too many investors buy the hottest stock or fund without enough thought about the overall strategy or purpose. People focus on the trees, instead of the forest. I'm for anything that brings thoughtful deliberation to investing.

Chasing recent winners

By Dr. Jason White
Director of Investments
Family Investment Center

For those of us in a haze of emptiness now that the National Football League season has come to an end, I wanted to share a fun summary I ran across in my research activities entitled “NFL Alphas 2009-2010” from Analytic Investors.

Dr. Steve Sapra and Lisa Bosley authored this study which defines a positive-alpha NFL team as one that exceeds market expectations by winning games which most folks think they should lose. Thus, the teams with the highest positive alphas are those who record the most upset victories based on measured legal wagering activity.

During the regular season, 14 of the NFL’s 32 teams earned positive alpha returns, led surprisingly by the hated Oakland Raiders. The Raiders were only favored in one game this year, the epic Futility Bowl against the beloved Kansas City Chiefs – and the Chiefs won! Oakland recorded 5 unpredicted upset wins on the year, earning the highest alpha ever recorded in the history study.

Disappointing fans and earning the lowest negative alpha returns were the underachieving Redskins, Lions and Rams.

Historically consistent winning squads, like the Patriots, Giants and Ravens, ended the regular season with negative alpha returns as they lost to several teams they were heavily favored to beat.

We can learn some important financial lessons from human behavior in this study.

People have a tendency to chase last-year’s winners, much like in investing. It appears that even in football prognostication, past performance is no guarantee of future result. Behavioral finance has proven that the one of the biggest barriers to reliable long-run investing strategy is our own psyche. Investors tend to run in the same direction at the same time, like a stampeding herd of cattle spooked by a coyote or lightening strike. The herd has no idea where they are headed, or even why they are running, but they all fear being isolated from the herd.

Successful investors have learned to stick to their proven game plan despite the peer pressure of emulating what the herd is doing. A good team needs a good coach to properly devise and execute a winning strategy, just as serious family wealth grows best under the watchful eye of a skilled advisor.

Reversion to the mean is a predictable phenomenon. With so many closely matched teams in the NFL, parity if you will, the days of the perennial dynasty are over. While we may fondly recall the great Cowboys, 49ers, Steelers or Packers teams of decades gone by, today’s league is characterized by annual unpredictable winners and losers. Last year’s loser is this year’s champion, and vice-versa. If you look closely at the long-term records of many hall of fame coaches, they often are not that far above .500.

Investments typically revert to their long-run mean as well. When oil, gold, bonds or stocks have a stellar year or two, you can bet that below average returns are coming soon. The problem is these changes of fortune are not reliably predictable, despite the siren’s song any number of experts may sing.

So where does that leave us? Are we to just “place our bets” and hope for a lucky streak? Of course not! There is a science to long-run investing. Asset allocation, the mix of commodities, stocks and bonds in your portfolio, must be strategically managed, diversified, and rebalanced with emotional detachment, discipline and professional judgment. This is the only long-run success strategy that is a proven winner.

Glass half full? Or half empty?

The stock market is largely run on emotions. Are people feeling good? Great! They're buying, and stock prices go up. Are people scared, feeling depressed? That's bad - they don't buy.

Analysts and other experts have weighed in lately on what companies are expected to do poorly and what will do well. We spotted an optimistic article this week by Motley Fool and we thought it was worthwhile to share it with you.

Naturally, we aren't endorsing these stocks, and aren't telling you to go out and buy them. We're just passing along this information for our readers who like to talk specific stocks.

Read - and cheer!

http://www.fool.com/investing/general/2010/02/01/7-reasons-not-to-worry-this-week.aspx