Don’t Expect the Stock Market to Continue Current Path

Recency effect is the tendency to remember a more recent experience better than a previous experience.

Behavioral economists call this recency effect “availability” and it is programmed into our DNA: I touch a hot stove — ouch!; I learn not to touch a hot stove again. Eventually I use the contained flame to my advantage, to prepare meals for my nourishment. But the result of touching the stove and getting burned is still stored in my memory, inspiring me to use a hot pad and keep my hands well away from the heat.

For investors, recency effect can bias investing decisions based on recent market performance. Whether up or down, we tend to extrapolate the recent event into the future. If the market is going up, we are more likely to act on expectations of a rising market. The converse is also true. Both tendencies can be dangerous.

The Arizona Republic

Chart a Course of Financial Discipline

Most of us won’t have 97 years to save and invest. But Stephanie Mucha, who recently was featured in Barron’s, has. Ninety-seven long and productive years. And she has made the very most of each one.

Mucha’s peak annual earnings of $23,000 were modest even in 1994, when she retired. Still, she has managed to grow her assets to more than $5.5 million. Mucha has given $3 million to charity and retains $2.5 million — still percolating — in her portfolio. Her goal: to donate $6 million before she dies.

Mucha is obviously blessed with longevity, an enviable work ethic and a high financial IQ. But she doesn’t have any unusual advantages. She reads financial publications and uses good sense and, incredibly, does not even own a computer. Still she has succeeded. Fabulously.

Read the rest of Stephanie Mucha’s story here: The Arizona Republic

A Conversation With… Nancy Tengler

Providing proven wealth accumulation strategies, tailored advice and a comprehensive market analysis, The Women’s Guide to Successful Investing is a must-read for female investors who want to master volatile markets with long-term success.
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In The Women’s Guide to Successful Investing, you share the astounding facts that women control over half of the nation’s personal wealth; own businesses that grow at one and a half times the national average; and—when they don’t excuse themselves from participating—outperform men in the realm of investing. What are they doing with their money if not investing and why do you think they have a tendency to shy away from it?

Women tend to be savers rather than investors. They are more risk-averse than men which is one of the reasons they make better investors and consistently generate better returns. I think women shy away from investing because they have not been encouraged to participate in finance. A recent article on The Wall Street Journal’s MarketWatch website cites a recent T. Rowe Price study entitled the 2014 Parents, Kids & Money Survey which cites the surprising statistic that among children eight to fourteen, 58% of the boys say their parents talk to them about setting financial goals while only 50% of girls report the same. Clearly, one of the problems is that (young) women are still not encouraged as much as (young) men to focus on financial matters. In addition, they seem to self-select out of finance as well. ASU reports that the number of women enrolled in finance has declined over the last ten years. The irony? Women–empirically and anecdotally–make excellent investors.
Can you give us a sneak peek into the case studies and personal stories of financial management that you feature in your book?

I spend some time talking about stocks that have fallen from grace. We call these Fallen-Angel Growth stocks. These are great companies that have had a marketing misstep or a product problem and the stock price has fallen to reflect the problems. I compare three stocks using the techniques outlined in the book: Apple, Coach and Nordstrom. Together we explore the variables and reach a conclusion about which Fallen-Angel might be a stock to own for a lifetime and which may not. You’ll have to buy the book to find out which is which.

If you can narrow your eleven “intelligent investing rules,” what would you say are the top three steps a woman can take to improve their approach to investing?

First, women must identify an investing style that suits their risk parameters and their schedule. Once they establish a investing discipline they must stick to it. Like an exercise program or diet the point is to follow the plan, even on days when things don’t go exactly as planned. Second: don’t run with the fast crowd. Women should never buy a company they don’t know or understand. My biggest investing mistakes were “stock tips” from a friend who claimed to have made a great deal of money or provided assurance of a home run. Never, never, never follow that kind of advice. And finally, identify stocks to own for a lifetime. The kinds of companies that are industry and brand leaders–survivor companies–that you will feel confident owning for a lifetime.

Are there particular companies and/or stocks that women are more likely to invest in than men? What qualities do women look for in a company when investing?

Not really. Since women are more likely to be the purchasers in their families they are much more aware of product trends and quality; of client service oriented companies and the best discounters. Because they apply those critical skills to acquiring food and clothing and health care and just about everything else for their families they are well-positioned to identify stocks to own for a lifetime. What I can tell you about women is that the research shows they perform more detailed research than men and they tend to trade less often which enhances their total return.

When should women start investing and does age affect how they do so? Are millennial women who are relatively new to the workforce just as able as those who have worked their way up to management and c-suite positions?

Women of all ages should invest. I spend a great deal of time in the book explaining the long-term and medium term returns for stocks, the importance of the compounding of dividend payments and the passage of time. I share an anecdote of two transactions I engaged in the week my son was born in 1988. One was a share of IBM stock for him the second was a Donna Karan sweater that covered my post-baby body elegantly. That it was cashmere was lost on me and when I got the bill I choked. $1099. Plus tax. I still have the sweater. It is bally and misshapen. That share of IBM stock? Well it has increased 14 fold through the compounding of the dividend and growth in the stock price. Imagine if I had invested the $1099 in IBM stock! Conversely, as a professional money manager met an 80-year old man of considerable wealth whose entire portfolio was invested in stocks. He believed his time horizon was not his life but the lives of his heirs. All of us should invest that way with a small portion (whatever we don’t need to live) of our portfolio. It takes time–but well worth the effort.

What are the aspects of your professional career and personal life that drove you to write an investing roadmap for women?

When I retired from the investment business my kids were entering high school. I was busy with the daily living of carpools, and laundry and grocery runs and I no longer wanted to shoulder the responsibility of managing our assets. My husband and I interviewed investment managers and I was shocked by two things: the first was that though many of these firms knew me professionally, in each meeting the presenters spoke directly to my husband, ignoring me! And I had been a chief investment officer and portfolio manager in the same town for over twenty years as well as a financial news commentator. For the first time I understood why women check out of the conversation. The second problem I had was the fees being charged by the investment managers we interviewed. By the time we would pay their fees these money managers would be unable to generate performance in excess of the market. What was the point? That is when I began devising the intelligent investing rules I reveal in The Women’s Guide To Successful Investing.

How did you become such a knowledgable and capable financial manager? Is there any other book like The Women’s Guide to Successful Investing out there from which you were able to draw advice?

I have been investing other people’s money since the mid 1980’s. There have been some pretty exciting and devastating market periods over that thirty-year period. But overall, stocks have still managed to return between 9-10% per year on average. I’ve watched and learned. I’ve heard the panic on the financial news networks (on which I used to appear regularly) and I’ve learned that those times — the ones when everyone is scared — are often the best time to to identify great companies at fire sale prices. A stock like, Starbucks, for example, that traded below $9 per share in 2009 and is now trading in the mid $70’s. If you have been watching the company, know the product and have confidence in the management you can make a great deal of money over time. That is the purpose of the book: to share with smart, busy women a variety of strategies they can employ to meet their financial objectives.

My last two columns have dealt with the question of saving.  Because, of course, we must save before we can invest.  Below are the last two entries.  I hope you enjoy them.

The Arizona Republic–today’s column which delves into the concept of saving and shares a reader’s story.

The Arizona Republic–last week’s column which focuses on the difference in return when we invest rather than simply save.

 

More soon.  Loved seeing many of you at Rakestraw Books.  Thank you for your support and enthusiasm for the subject of women and investing.

The Women’s Guide Named Amazon’s Best Business and Investing Book of the Month

I am thrilled.  See below from Amazon:

Each month, Amazon.com’s editorial team reads scores of books in search of those we consider the Best Books of the Month. We also seek and select the best books in popular categories like Cooking, Food & Wine books, Literature & Fiction, Children’s books, Mystery & Thrillers, Comics & Graphic Novels, Romance, Science Fiction & Fantasy, and the best books for kids and teens. We scour reviews and book news, we swap books amongst ourselves, and spend our nights and weekends tearing through as many of the best books as possible. Then we face off in a monthly Best Books showdown meeting to champion the books we think will resonate most with their readership.

The titles that make our Best Books of Month lists are the keepers, the ones we couldn’t forget. Many of our editorial picks for the best books are also customer favorites and bestsellers, but we strive to spotlight the best books you might not otherwise hear about. Each month we also pick “Spotlight” book (the #1 Editors’ Pick) and a “Debut Spotlight” (the best new book by a debut author).

The books included in Amazon’s Best Books of the Month program are entirely editorial selections. We have great passion for uniting readers of all ages and tastes with their next favorite read, helping our customers find terrific gifts, and drawing more attention to great books by exceptional authors.

The Women’s Guide to Successful Investing releases today, August 19th, 2014.

Think of Retirement As 20 Years of Unemployment

 

I hope you will read my current column in the The Arizona Republic.  I discuss the disconnect between most individuals when asked about their readiness for retirement (the majority admit they are not ready) and how they plan to spend their retirement (in luxury!).  And what to do about it.

My book:  The Women’s Guide to Successful Investing is about to be released.  You can pre-order on Amazon.com whose editors just named the book a:  “Best Business and Investing Book of the Month!”

 

Dollar-Cost Averaging Brings Peace of Mind But Comes With A Cost

Except for July and August in Arizona, when it comes to getting into the pool, I am a toe-dipper; an incrementalizer; a proceed-with-caution kind of swimmer.

Though I understand that diving in will acclimate me to the temperature more quickly, I’d rather shiver and shimmy my way into immersion. And that is also how I buy stocks. Most of us do the same when we invest. We begin with a modest position in a stock and add to it slowly over time. Investors call that dollar-cost averaging, a kind of second cousin to diversification. It is a satisfying approach except that it detracts from total return over time.

Yes, you heard me right. I employ the strategy although I know it hurts my performance. Still, DCA is the preferred approach of most people — especially if they receive a windfall. Putting a large sum of money to work all at once in the stock market is daunting to even the most experienced investor. DCA makes us feel better about investing in the face of uncertainty. And let’s face it, most investing involves uncertainty.

If the market has been strong, we often hesitate to invest all at once because we worry we are buying in at the top just in time for stocks to decline. If the market is weak, we worry it will continue to decline and we will lose our money. By averaging into the market, we are creating a natural hedge. (The most relevant, real-life example of dollar-cost averaging is the investment of our 401(k) contributions.)

DCA is like buying insurance when the dealer shows an ace in blackjack. We choose to give up some of our gains to insure against a loss.

Click here to read more:  The Arizona Republic