Posted On: 2006-09-13
Listen to this podcast
Alright folks, this is your host Johannes Ernharth and welcome to yet another edition of Vigilant Investor live streamcast being telecast, telecast I guess is not the right word, broadcast live on talkshoe.com, every Wednesday night at about 9PM. And, then available for Podcast 24-7 any place you really want to go looking for it; iTunes, our RSS feed at talkshoe.com as well as through the Vigilant Investor web site that we run. There is a direct link there which you can always access downloads and so forth there as well. In the background is of course is Grace Jones who is giving us one of her twisted tangos just to set the tone for today's subject which is a little bit of a, well you know something that we've been hammering on for a long while around the vigilant investor which is that conventional is as conventional does to some extent and that everybody kind of gets locked into a certain way of doing things in the investment advisory industry as well as just generally across the board when you look at analysts and economists and the Federal Reserve and everything else. There's a tendency for everybody to kind of operate in a lock step form. And that's all fine and dandy to a point but a lot of that is based on what we think is sort of a shortsighted approach to looking at things. So, all that said, let us get into the meat of the subject today which is, you know, is the investment industry gotten a little bit wrong, its conventional approach to investing actually a little bit wrong. And, our argument here at Vigilant investor is that it's a little bit off it's a little bit short-sighted and it needs to be expanded upon, I think to be appropriate for where things are going in the next decade or so. So, to set the stage for that I wanted to try to keep things condensed as much as we can, try to keep to a half-hour format, but by the same token, not be so rudimentary that we don't really get into the crux of things. And I think a little bit of perspective is in order and that is to lay the framework for how most people in our industry these days tend to be operating, and they're working to try to I think you know, really have the best interests of clients in mind when the build any kind of a portfolio design or advice for their clients. And I guess when I say in the industry, I mean everything from, you know people like myself who are in the investment advisory side of things; and just the same there are also loads of analysts out there who are doing writing and offering newsletters and so forth. And you also have your do it yourself web sites where you know, people might be going to a discount brokerage and logging on trying to get their information together there, and design themselves a portfolio. And you also might be, you know subscribing to money magazine or watching MSNBC, whatever it might be. But, what we've noticed is there very much is a standard way that things are done when it comes to building portfolios, at least according to the conventional wisdom. And entails more often than not an approach that, you know, suggests that what you ought to do is get into you know, some sort of assessment of what your risk tolerances are, what kind of volatility you can take, the ups and downs in your investment portfolio. Will, if you have 100 thousand dollars, will a 3 percent loss throw you for a loop or not? Will a 10 percent, a 10 thousand-dollar loss throw you for a loop, or how about a 20 thousand-dollar loss, will that throw you for a loop? You gauge that, and just the same you need to gauge that in the context of your time horizon, when do you need to have the money that you're saving, for what purposes if you need it all in the next six months, obviously you don't put it down on emerging markets stocks or hot telecom play or something like that, and penny stocks and so forth. And so, what generally is believed to be the appropriate way. And I think it's good wisdom, because if you don't have a long time to invest you definitely want to have a broader asset allocation, and you want to make sure that you're not going to be terribly risky at that. Even ahead of a broader asset allocation if you're looking at just a few months of investing, you want to be in cash, you don't want to be in aggressive stocks or emerging markets or something like that. So, that's fairly rudimentary, and I think anybody that you'd run into would agree with that whether you're part of the conventional in the way things are done or if you happen to be contrary, you're going to be basically saying the same thing on a very short term. Where things diverge a little bit is where the conventional then takes that basic premise which is, once you determine your time horizon, let's just happen to say that you're, you've got 15, 20 years to go and you happen to score out as a moderate investor in terms of your risk tolerances. You don't mind losing a little bit of money but you don't want to lose a whole lot. You're really looking to outpace inflation by a little bit but you don't need to have equity like returns which historically you'll be told always average about 10 to 12 percent depending on the equity markets you're looking at usually. And you know what you typically get in a moderate allocation is a suggestion to mix it up between stocks and bonds. And what ordinarily is kicked out for an investor is that, you know, something that is basically a pie chart. And let's say a moderate allocation for example, typically you're going to see something that's about 60 percent in equities and stocks and about 40 percent in fixed income, 40 percent in bonds. So, with that maybe a portion of the bonds may actually be in cash in the fixed income, so maybe it will be 30 percent bonds, 10 percent cash or something along those lines for a total of 100 percent. And then the pie chart is further subdivided if you're dealing ordinarily with some sort of professional system that holds itself out as being you know, sort of a something, a professional or institutional methodology and so forth. Or, you know, prudent as would a prudent professional do their allocation. And what you'll get is of the 60 percent in our example that's supposed to be in equities, you'll probably find, you know, and I'll just make some numbers up here, we'll say 20 percent supposed to be in large cap stocks, 10 percent mid cap, 10 percent in small cap and you get a certain percent international and so forth. That's pretty much standard and the even, you know further broken down in the equities you might find that large cap if you know, we're going to reset my numbers here, let say 30 percent is supposed to be in large cap, they might suggest to you that you don't just stick with one style of large cap but rather you diversify. So, among equities you ordinarily have value style investing on one side and then growth style investing on the other side. And if you've ever seen the official morning star style boxes, they look like a little tic tac toe box with a, tic tac toe sort of chart with a box around it, the top row of three is your large cap and then your left box is value, middle box is what they call blender core and your right most box is going to be growth oriented and the same would apply for mid cap and small cap. And the idea is that in your pie chart of equities and among the large cap you want to diversify them. From that standpoint you get your pie chart and that is your asset allocation. And what happens is the reason that's recommended is that diversity clearly will minimize your, well I shouldn't say minimize, that's probably not the appropriate word, but will theoretically give you lower volatility, your diversity means that you're not going to be subjected to the extremes of just one of those asset classes that's in there, and theoretically you don't have as many downs. You might give up a little bit on the home run side of the equation in that you're not going to get the full upswing when the markets go up, but just the same you're not going to have as much volatility and generally if you were to look at your portfolio performance in a graph format, the lines of ups and downs would be smoothed out with diversity, that's the theory behind it. And moreover, it's also a little more scientific than just that, in that if you go back in history and you look at different asset classes - for example, if you were to pick one of the styles out of the style box from morning star, well you look at large cap growth for example, you can actually go back and time and get a sense of what performance you will get out of large cap growth equities. Historically, what is the tendency? What is the average rate of return over the last 65 years of 100 years or whatever time period you want to look at. Generally you'll find that when building portfolios, you're justifying portfolio allocations. It's a fairly long period of time. And then, correspondingly you'll measure what the pure assets will do and get a feel for what the volatility is as well. So we get the return averages and you'll also get the tendency for variability relative to that average. That's ordinarily standard deviation. Standard deviation simply measures the variance off of the average. And without getting too complicated, that's what they call modern portfolio theory, in terms of establishing what a portfolio's theoretical tendency is going to be based upon the asset classes that you're utilizing, and how much of a percentage of each asset classes you end up using. So, there are all sorts of other statistical measures that go into determining what you can expect or what you should expect out of an asset class on average. And, from that is distilled the justification, or the reasoning behind whey a particular pie chart makes sense for you. Now, that gets a little esoteric and I know that when we're doing this over a Podcast or a live streamcast it gets a little bit hard to follow without having visuals in front of you but what you need to know basically is that ordinarily if you're going to go see a professional or you're going to you know, come across any article advising you how to do this, maybe it's even 401K enrollment material which does the same thing. You're going to be encouraged to go through a questionnaire and it's going to ultimately determine your risk tolerance, your time horizon. It's going to place you in or suggest you a particular pie chart allocation that you should use. And, that's that. And, the theory behind it is based on the average tendency that the asset classes that are made up in that pie chart, that are contained in that pie chart. So, that's your basic modern portfolio with theory asset allocation. One of the very important corollaries to that is that you don't want to be moving in and out of asset classes that are in your pie chart. What you should do is you know, stick with that blend of assets that are suggested to you in that pie chart. And that's considered the most prudent thing to do, and there's nothing there that I wouldn't, that I would disagree with. Now the logic behind that also is that there has been sufficient studies, and I'm sure that if you've read anything on the financial press media, listened to the radio what have you over the years, you've heard time and time again that timing of the market, trying to guess which asset class or which area you should be in the markets is usually a futile thing to attempt. On average, people lose money when they try to time the markets. The greatest example of timing markets is typically what you see, and you see this all the time in 401K environments for example, where participants will sign up for the 401K, and when it's time for them to choose how they will direct their own investments, rather than going through a questionnaire, and this happened a lot in the late 1990's regardless of whether you were a 401K participant or not, what people would do is they would, you know, shoo aside any talk of asset allocation and pie charts and you know, whether it was two time consuming or other factors came into play, perhaps a little bit of greed there might have come into play when you here some of the logic here. But the bottom line is, what would happen is people would take a look at what the best performing manager of the past year, or two years or three years was and they would pick that and their investment, or one of their investments. So, you know in other words we look at performance for the last 12 months, we take the one that did 35 percent over then one that did 20 percent. And, maybe, you know, you listen to some of the talk about why you should diversify so, okay, well you pick the four best performing funds, maybe they're offered to you in your 401K mutual funds that were offered there, and you end up developing your asset allocation 25 percent among four. And the reason you picked them, well, they were the best four performers of the last year, two years or three years or whatever it might be. And that's about the extent of it. And, typically what happens when you do it that way, is what happened to a lot of people in the late 1990's, they got their hands burned badly because, what happens is one of those little slices in the pie chart might be really, really, really doing well; large cap growth for example, and mid cap growth in the late 1990's mid cap growth especially was heavily Nasdaq oriented. And Nasdaq was, you know, very tech heavy and what ended up happening was these people would take a look at the best performing funds in 1997, 1998, 1999 and they'd load up on those and they'd even double down, all new contributions would go into those particular managers that had that great performance. And individual did the same thing, oftentimes, you know putting a lot of money in to stocks. And as empathetic as I am, and sympathetic as I am to people who for example who lost their shirt in Enron or WorldCom and those debacles with the fraud and so forth. Jus the same I doubt that anywhere that they read that they should be putting you know, 80, 90 percent of their assets in the one stock. And you read some of these horror stories of people doing that kind of thing and the bottom line is that they were getting a little bit greedy; and I don't think that anybody expected the stock to go to zero because of fraud, but that's the kind of risk that is out there potentially, and combined with a massive correction in the Nasdaq stocks and so forth, people got their hands badly burned and a lot of people lost their retirement and so forth. So, all that said, that's a form of market timing there and trying to chase performance. And, subsequent to that what oftentimes would happen is people in the process of that would sell their under performers; maybe they had a couple of funds or stocks that weren't doing so well and they'd offload those and place all their money into the good performers in the past couple of years. And generally what happens when you do that kind of thing is you tend to be chasing returns. You're selling at a low and you're cashing out of an investment that you're buying high in to investments that have been performing above average. And that's you know the classic mistake of investors. Selling low and buying high. And it didn't surprise a lot of people that, at least on my side of the table, when the technology dot coms and all that crashed in 2000 through 2002, and a lot of people you know, decided it was time to get out of some of those funds and they sold out, or some of those stocks and they sold out at extreme lows in a panic and then moved in to something else and it's just a fiasco. So, that is why it makes a lot of sense to, you know we used to tell people, and we still tell people, follow [...] to some degree with your asset allocation and not with the individual investments that you're using. You want to be true to that asset allocation, be true to, you know, if you're a moderate investor, you know, obey that and don't get caught up in trying to b, you know getting into extras, you know percent by chasing performance. So, moving on now, I think there are some good justifications for asset allocation. One flaw with that is, as we see it, is that a lot of the justifications for the asset classes that are picked are based on the historic averages. And averages, we will tell you time and time again if you read the vigilantinvestor.com, simply are averages. They're stupid, they don't give you any other information other that what the average is. And the reality is that not all situations and times are necessarily average, it does not necessarily mean that because on average you see that you might earn 10 percent in equities, that you will earn 10 percent. Or for that matter, the averages, you know, consists of some substantial extremes at times. Sometimes you get great years, for example in equities from 1982 to 2000 was one of the longest and best bull markets in history. And performance was well above the 10 percent average that you always hear, you know, you get in the S&P 500 large cap stocks and so forth. You did far better than that, you know, up to 2000; and that even includes with the big market adjustment in 1987, where stocks dropped more in a couple days then they had ever done before. And, in such a short period of time. You know so you got a pattern there established, of course that you know, boy, stocks to pretty well. But what's forgotten is that if you go back from 1965 to say 1982 you'll find that the S&P 500, the Dow Jones Industrial, some you know, the Nasdaq type stocks really weren't as organized back then. You just didn't have the performance back then, they were well, well, well, sub par, well below the 10 percent average you always hear thrown out there as something to expect from stock oriented investments. And that is because you're going through a different economic environment, a different period. And the same holds true for bonds too. And this is not just to say that stocks have this you know, nature to them; bonds for example, and a lot of people don't know this, and I had hoped that, you know, if you're taking the time to listen to this, this is something you might have been clued into before but, bonds have an intrinsic value to them that is you know, what is the market value of a particular bond, and that is very much subject to fluctuation, even if it's a U.S. treasury, and it's dependent on interest rates. And, from 1982 to 2004, we were coming out of a interest rate environment where bonds were very, very high in their interest rate in the early 80's and progressively they were declining over that time for, you know, well over 22, 24 years there, they were continually dropping. And what that meant is that if you owned an old bond earning 12 percent for example, and in the existing current environment, the new investors could only get new bonds paying 8 percent, your 12 percent bond was going to be worth a lot more than you paid for it. You paid a thousand for it, you're going to get more for that on the open market. And in fact if you looked at your brokerage statement it would be valued at more than what you paid for. And that's just the nature of bonds, that the market does adjust to compensate for interest rate changes. So, bond investors, up through the 90's and pretty much up to 2003, 2004 when interest rates finally began bottoming out. Bond investors did extraordinarily well because not only were the getting the interest rate of the bond, they were also getting capital gains in that they were experiencing appreciation in the bond's value. Now, of course what people tend to forget when you have a very long bull market and you don't have very many corrections during that period of time; I think the last serious bond correction was in 1994, and a little bit of a correction this past spring, but what people don't realize is that if you were invested in bonds in the 1970's as interest rates climbed in the double digits and you were holding old market value bonds, excuse me, old bonds that, you know, were lower interest rate bonds in a rising interest rate environment, the market value of those bonds was going to drop. And just the same, correspondingly today in our environment where we had a brief short term rise in interest rates and only for them to come back down in the past month and a half or so, should we get into a, you know, a prolonged rising rate environment, a lot of the gains that people got in bonds over the past few years as interest rates dropped could easily be given back. And any investor who has acquired new bonds in the past few years at these 50-year low interest rates should expect to have a market value decline as interest rates rise. And you know, a lot of people tell you, "ah don't worry about it, it's a rising interest rate, you got a bond, I'm going to hold to maturity and I'll get my money back." We have some inflation risk there. If interest rates are obviously rising there's more to it than just meets the eye, and if you've go a lower paying interest rate and a bond and new interest rates are at 8 percent, and you've only got a 5 percenter, and you're telling me that you don't care because you got your 1000 dollars where you're losing a couple percentage interest rates, and those rates are being driven by the economic climate, which suggests that for that corresponding risk you probably should be getting paid a higher rate for a reason. Now, that context again, let's go back to that asset allocation premise, one of the things I don't like about the pie charts is that pie chart is going to tell you, look you are supposed to be doing a, excuse me, an allocation that says you know, lets go back to our moderate allocation 60 percent in stocks, 40 percent in bonds. And, generally what you're going to find is that the bond allocation is going to be somewhat indifferent to the fact that interest rates are at 50 year lows. I see know good reason why you'd want to load up heavily 40 percent on bonds and pretend as if you're not in a 50-year low environment. But generally if you go into some of these asset allocation systems that spit out an allocation based on an asset that you put in there on average, bonds are going to get 7 percent, they'll tell you, and you're going to get so much variability, and they're kind of you know, indifferent to, you know, the current economic climate. Which is, boy, it strikes me as being a lot riskier than typical for bonds given the economic situation and so forth. And again, read up at Vigilant Investor if you have any questions about our views on the economy. Too much to get into for this particular show at this time. But, why would you want to just be statically sticking with an asset allocation that might have made good sense in 1995, or 1990 relative to bonds, but does it make the same kind of sense today? That's something we think that people ought to be questioning at a bare minimum; you should go talk to your advisor call up your 800 number, speak to a live person at your discount broker and talk to your investment advisor, your broker, whomever about these sorts of things. And be careful if you're going to be getting these answers like, "oh it just doesn't matter, nobody knows on average what's going to happen anyway, most people who try to guess are wrong." It strikes me as being a little bit of a cop out these days, at least that's our opinion. And some people will tell you, you still can't time the markets, you never know what's going to happens with bonds. But, you know, our estimation is that if you had a well above average rates of returns for bonds for example, you know, the longer that goes on eventually you're going to have below average rates of return in order for the average to regress back to the mean. Because you just can't always have above average otherwise the above average would be the average. It's simple enough, right? So, all that said, there are some flaws with asset allocation. And the buy and hold methodology may not be appropriate and we take a look at the global macro environment these days and we think it doesn't merit just being purely equities, purely bonds and so forth, and that you should consider other asset classes as alternatives perhaps. And then even today you're seeing trickling down in the retail level various hedging strategies. And by hedging strategies I don't mean hedge funds for the wealthy, I simply mean that there are alternative management styles and asset classes that can hedge different things. And hedge, for those of you who don't know the terminology hedge, hedge simply means as a way to offset some risk by doing something else. Technically it's not guaranteed, but, you know for example, if people are worried about the dollar losing purchasing power will buy or invest in hedges, historic hedges against a weakness in the dollar, which may be their precious metals, or may be their commodities, or many other currencies and so forth. And the idea is if the dollar loses its purchasing power and U.S. bonds lose some of their value, you've hedged against the loss there. Now, the corollaries of course is if you're wrong and the dollar is strong and you end up losing some money on the other side. So there is never any guarantees for hedging of course. But, again we are at the belief that the different times, different situations, different economic circumstances merit that you at least consider these sorts of things because, why just stick with the status quo because you know, hey it worked well for the past 20 years, lets keep doing it. I don't buy that. And that's just you know, again if you got back to periods like 1965 to 1982, completely different investment environment than which we had from 82 to 2000. And I think that so many people, got you know, earned their spurs with investments. And that includes people on my side of the table, that they really haven't, they don't see a whole lot outside of you know, the comfort zone of what they learn. And what was very positively reinforced, you know hammered in, all these great returns and stocks and bonds for you know 20 years straight since 1982. You know, why would you change? If it ain't broke don't fix it, right? Well, you know in any event, let's move on now. One of the other things I don't like about the conventional investment methodology out there is the way that managers are then selected for the respective slices of the pie in the pie chart. For example, if you were looking for a large cap growth manager your, say your allocation calls for 10 percent of your portfolio to be in large cap growth. The conventional wisdom is that an advisor like myself, or a system of some sort or another, maybe it's an off the shelf product, a broker selling that uses an investment advisor, third party management or something like that. The conventional wisdom is okay, look we're going to go out there and we're going to screen all large cap growth managers against some process that we've determined is a sensible one and that process is determined to be sensible because historically if we would have used these criteria for screening management, we would have had an above average performer and therefore we use the same methodologies going into the future, we should have above average performers, and, so that's one of the variables. The other variable is that because the pie chart, there's that, you know, as I said earlier, I said fall in love with your asset allocation, your pie chart and be true to that. There is a bias against managers who do not allow someone who has developed that particular pie chart to accomplish the intent of that pie chart, okay? And again, the pie chart allocation is designed to have a specific risk return profile, so much volatility potential based on historic averages and so much return potential based on historic averages. And that's so there are no surprises for the investor who puts their money into that. Part of that is, you know, based on the necessity for having that 10 percent that's supposed to be in large cap growth being managed as large cap growth, okay? If the large cap growth manager decides to be a large cap value manager and you already have 10 percent in large cap value, well suddenly your risk profile is thrown off because you now have 20 percent in over waiting in value, or maybe the manager shifts down to small cap instead or something whatever it might be. The bottom line is that the asset allocation gets screwed up, and the risk return profile goes wacky there from where it's supposed to be and it maybe becomes more volatile theoretically based on the historic averages of asset classes. Which is defeating the purpose of diversification. Okay, so, with that type of process in there you start developing a bias of mediocrity. And it's what I refer to as sort of a tendency to dumb down management a little bit and let me explain why I believe that's the case. A large cap growth manager knows that there is nothing to be gained by drifting out of his or her style. So they're pretty much locked into large cap growth. Yet, that large cap growth manager might find that there is nothing out there that they fell is of value. Let's just say hypothetically it's the late 1990's and you have large cap growth manager who is looking around and saying "good God almighty, what I'm looking at are PE ratios that are through the roof, you know and how am I even going to find any kind of investment opportunity here that I don't think is way over priced. I think people are paying too much for it and I'd rather sit in cash." Guess what, that manager, if he holds more than a certain percentage of cash that are defined by these screening criteria that our industry uses, that manager is going to lose his management opportunities, he will be fired from the pie chart. What will happen is people who do what I do or wherever they do it, they do it like we do, or could do I should say because we're not doing it like that necessarily any more. They will go in and say, "okay, 10 percent is supposed to be large cap growth, if this manager XYZ over here from Super Fund Company is no longer a large cap growth, we're just going to fire them and we're going to replace that 10 percent and we're going to put it into ZZ advisors over here because they're sticking true to large cap growth." Now what you just had there is, you know again it's deference to the averages it's deference to the belief that there is nothing to be gained by market timing, but you know, again on average that's the case, but are all times average? Could you have discerned in the late 1990's that growth, mid cap growth, was getting way over valued? You know there's a good possibility that you might have thought to back off that allocation. And yet, any manager who would have dared to diversify would have run the risk of losing all their institutional methodology clients, because that's how they're being screened. So when I say clients, you got to keep in mind that a lot of fund managers out there, or money managers view the investment advisory community, the ones designing the pie charts and hiring and firing managers as their clients. And, if I find that XYZ manager is not up to snuff anymore and I unload it, you know I could be yanking out you know, 50 million dollars. And you combine that by all the managers doing that across the country doing what I do, excuse me, all the advisors across the country, or all the consultants out there deciding to move money in mass out of that particular manager's environment you have problems. So, managers therefore are not going to be quick to unload their style, they're going to be very quick to, you know, be true to what they were hired to do, and that's you know, expected. The other thing is that they're being measured by their peer groups. So if I'm an analyst whose assigned to selecting, you know who is the best large cap growth manager out there for us to use, my job is going to be to measure you know XYG growth fund against all growth funds, as well as against an index. And, I'm going to measure its risk profile, its return profile, its volatility, all sorts of different things and again using modern portfolio theory to dig around in there. And what ends up happening is you have a narrowed down list where you pick your fund, or your manger, and once you have it selected that's all great. Now, a manager who decides to defy what is considered to be the conventional wisdom again, they, let's say they decide to drift a little bit away from their particular style, or maybe they decide to back off some of the risk compared to the average and maybe wait a little bit differently compared to their peer group, that's going to show up in the analysis. And, that might show up as style drift as well, and if a manager also happens to maybe find that a certain area of their particular style is maybe too over bought, or whatever it might be, and they don't even have to change out of it. I gave an example of it earlier that you know, large cap growth manager decides to you know, move [...] value or something. But let's just say that the manager decides to do something that's dramatically different from it's index. You know for example the S&P 500, maybe that's the index that you're being measured against and you decide that you're not going to be very much like the S&P 500 and do things a lot differently. Well, let's say you're a little bit early on something and you under perform the index just a touch for the time being. What'll happen is it will raise all these red flags for the management analysis standpoint and you can end up getting fired that way as well. And it might have been the most prudent thing that you thought was appropriate for your clients and maybe you didn't want them to be exposed to as much risk as you were reading out there in the economy, but again you will lose selections, people will no longer have you in their portfolios. When we're talking about you know, the institutional process what we're talking about here are, you know, every 401K in the country decided your no longer passing the screening process, suddenly a manager is going to say, "you know what, maybe I don't want to do that." After all, you know this is the crucial thing here, they're going to be measured against their peer group and in index. And so long as that they are above average compared to both of those they will not be fired. Consequently, when we look at a manager's evaluation in an up market you'll find a lot of people say, "look at this, the average for the peer group and the index was 20 percent and our manager did 22, we did 2 percent better, therefore we have a victory." You know that seems logical enough. But the corollary to that is that the inverse when you have a down market environment, you have the same kind of stuff. So, from 2000 to 2002 suddenly you hear a lot of conversations like this, "well, you know gee Mr. Client, you know, you lost a little bit of money in your fund there, and, but we were comparing it to the averages and to it's peer group and they dropped 25 percent, but you know what, you only dropped 22, we did better by 3 percent, that's a victory, let's all hold hands and clap and sing Khumbaya," You know, clients don't like to hear that I've experience that first hand. And, I've also seen that, you know that's something I think doesn't resonate with people very well, when you consider, you know, is that really a victory? And yet that's the way the industry is geared towards measuring success. And when we tie that concept into the overall portfolio, the overall pie chart, what you're looking at the pie chart asset classes all blended together by the percentages and then you come up with, again if we go back to moderate as your allocation, your moderate portfolio on average, based on all the averages of the peer groups would have given you X percent rate of return, and based on the indexes used the index is proportionally by your percentages in your pie chart, you would have earned a different percentage, and your portfolio did either better or worse, and if the markets all dropped down and were negative and the averages were negative, and the peer groups were all negative and you did, you know, better than that negative, you know a couple of percentages, points to the positive, but you were still negative, that's considered a victory. And, again, tying that back up, the justification behind that is that well on average you're not going to be able to guess and know when the environment's coming, where you're going to be getting negative rates of return. To that I'd say, yeah, on average, you probably won't know, fair enough. But, not all times are average and I always say, you put one foot, one of your feet in a hot coal fire and your other foot out the window next to the fireplace and into the snow on ice, on average you're comfortable. You know that's, not all averages are, you know made up of just the average. You're going to find that there are extremes in there. And, I would say that based on the methodology that we're discussing there, which is very much considered to be the institutional methodology, and this is something that's been around for years and it's trickled down from everything from the GM pensions of the world to the major institutional consultants out there, the Callens of the world who have preached investment management consulting methodology all the way over to the center for fiduciary studies here in Pittsburgh where we're located. Don Trone and his group, they have a great system there and so forth. But, they're advising the DOL, here's how we should suggest, you know, 401K trustees institute procedures and processes for their plan. But is it perfect for all situations and circumstances? You know just because the averages are in the averages, doesn't mean that you can't sometimes discern that there are facts in situations that might merit a little bit of a different plan. And, again not to be using little sayings left and right but you know if on average a train doesn't come down the track, it doesn't mean that when a train's a rumblin' that you just, you know step out blindly into the oncoming train. You step beside for a while, let the train go by and then you get back on the track and walk across. And I'm not alone in saying that, but I'll tell you what, when you do mention these sorts of things the overwhelming majority of people in the investment management community, in the investment media community and analysts and so forth will frown on that and suggest to you that you are market timing and therefore you're doing a disservice. I would say that one of the people I'm not alone with is Peter Bernstein who is a famous author out there but he's also considered to be one of the grandfather's of modern asset allocation and you know he really ruffled a lot of feathers in 1993 when he was speaking at a large seminar environment made up of institutional managers and institutional investors. And he said, "you know what, maybe times are a little bit different now and I know that I've said these things in the past about asset allocation but not all times are the same and sometimes you maybe need to consider that the variables are different and don't just be on auto pilot." And I'm paraphrasing greatly there, but he did say something along the lines of, you know, I am speaking of the words market timing. Which when you say market timing in our business, it's like holding up the sign of the cross to the vampire who is coming at you. I mean you're really breaking some laws, violating the conventional wisdom. Who would ever dare market time? And I think that, that's largely because you know market time done a certain way is sensible, market timing done on average I'll grant you does not make sense but when we consider all the variables that we're talking about on the Vigilant Investor day in and day out, we talk about the trade deficit, we talk about the massive inflating that's been going on coming out of the Federal Reserve and M3 and the credit bubble that's out there working, and how many people have leveraged up there homes in the housing bubble, and how interest dependent we are on low interest rates, and how consumption - 70 percent of the U.S. GDP is consumption driven, and on and on and on we could talk for hours about this stuff. Again visit vigilantinvestor.com you could read up on it and definitely tune in on future Podcasts and we'll enlighten you more to what's going on out there. But all times are not on average and to wrap things up here, it's not to say that we have a crystal ball and are predicting the end of the world for tomorrow or you know hyper-financial calamity, but we would suggest to you that, and I'm paraphrasing other very important people who are out there, you know the Warren Buffetts of the world, your Jim Rogers and all sorts of others who say things along the lines of, you know, all the ingredients for the perfect economic storm are out there on the table. The only question that's outstanding is, will they get all mixed together and if they do what gets mixed up and which dominos start to fall, is you know, mixing my metaphors there a little bit. But all that said, that's pretty much what I wanted to talk about in this edition of Vigilant Investor online streamcast or whatever you want to call it. Again, we are on every Wednesday night, my name is Johannes Ernharth, every Wednesday night 9PM, you can tune in live and we will be able to accept live phone calls. We had some technology glitches over the past couple of weeks that have either resulted in very, very, very low sound quality; this past week we had lightening and thunderstorms which actually pre-empted this particular Podcast I'm doing right now, knocked me off the air a couple of times, then we had some other additional glitches following that. But I promise you we are working on getting those resolved and moreover I encourage you to tune in, we're going to start having some guests on, Doug Wakefield is going to be on Wednesday I believe it is the 20th is that what it is? Wednesday night the 20th at 9PM, hope I'm not giving you the wrong actual date, it's, actually yeah, Wednesday the 20th, it will be 9PM, we'll have him on there, we'll be taking phone calls from you via the Talk Shoe system. And the Talk Shoe number we will announce live on the air, and you can always visit talkshoe.com and check out the Vigilant Investor site for the phone numbers. And we also, the nice thing about Talk Shoe is you can call in, we'll have a couple of pin numbers that will enable you to get through without having to register with Talk Shoe and you can be a guest that way. But just the same if you want to register with Talk Shoe, they have a great interface that you can download and chat among other listeners, and basically work it that way. Of course streaming live every Wednesday at 9PM tune in and often. And by all means, we love your feedback, so check by vigilantinvestor.com and let us know your thoughts and your questions through the contact us forms there. So, look forward to hearing from you, and otherwise again this is Johannes Ernharth, this is the Vigilant Investor show for everybody and we're going to wrap up with a little bit of Brian Setzer and his orchestra here to wrap up the night. You take care and be vigilant.