Don’t Let This Happen to You!

By John Berzellini

Are you 50 or 60 something and trying to determine when you can retire?  Are you worried about maintaining an attractive life style in retirement? Will you be able to leave something to your heirs?   Are you worried about out living your retirement assets?

For those of us who have a secure and adequate pension, the answers come easily.  However, for those who will depend on savings in IRAs, 401ks or 403bs the answers do not come easy and the stakes are higher.

Recently, I consulted with a man in his early 70s.  He was successful in his work and retired at the age of 60 with approximately $2,500,000 in retirement assets.  Today he has about $550,000 and is worried about maintaining his lifestyle.  He came to me in search of some type of investment model that would solve his dilemma.

What this man failed to realize, is the notion of searching for investment models rather than sound planning caused his dilemma.

The financial media, supported by the financial services industry, created this searching notion and spares no expense to reinforce it on a daily basis.  We are offered an ever increasing number of complicated financial products to keep the search interesting, and only time will tell if these products will work as promoted.

Since tried and true methods of investing have been available to the retail consumer for some time now, what is the true purpose of the searching and complexity?

It is my hope that this blog will help you realize the whim they made, and turn you to sound investment and planning strategies.

Introducing Our “Where’s the Beef?” Side Bar

“Where’s the Beef”

By  John Berzellini

When saving for retirement we believe, asset allocation programs using index funds and ETFs are your best option.  Using actively managed mutual funds in asset allocation programs is like putting a square peg in a round hole.  Not only is it a bad fit, most actively managed funds do not beat a comparable index fund, and it’s a losers game trying to pick next year’s winners.

The proof is in the pudding. Check out our ”Where’s the Beef” section (to your left), it posts the lastest exerpts from  ”S&P Indices versus Active Money Managers”. 

When planning for retirement, we believe the new model, comprehensive financial planning delivered by an independent financial advisor , will lead to a successful investing experience!

Bank financial advisors, aka registered representatives,  work for the bank, and move up the corporate ladder by selling more and more financial products.  This model works fine for the bank and its registered representatives, but not for the customer. So why do we continue to use it?

To quantify just how bad the old model is, check out our ”Where’s the Beef” section for excerpts from latest Dalbar Report on the Qualitative Analysis of Investor Behavior.

The numbers don’t lie;   If you have a 401k or IRA of $500,000 or more, don’t become another statistic of the old bank registered representative model. Find an independent financial advisor that will work for you!

What Does a Winning Streak Tell Us?

What Does a Winning Streak Tell Us?

Reprinted with the permission of Dimensional Fund Advisors

Introduction by John Berzellini

The bank financial advice model focuses on providing investors with the so called best of breed money managers.  Most banks and mutual funds tout their most successful money managers or funds.

In the not so distant past, Bill Miller’s Legg Mason’s Value Trust (LMVTX) was all the rage in the investment world.

In his article below Weston Wellington, VP Dimensional Fund Advisors,  discusses Bill Miller’s 15 years record of beating the S&P Index and implications for the investor.



November 29, 2011

What Does a Winning Streak Tell Us?
Bill Miller is one of the most closely watched money managers in the industry, so it was big news when he announced his decision last week to step down as portfolio manager of Legg Mason Capital Management Value Trust (LMVTX) early next year. His departure also adds an intriguing chapter to the long-running debate regarding the value of active stock selection.

Miller’s most frequently cited accomplishment is the fifteen-year period from 1991 through 2005, during which Value Trust outperformed the S&P 500 each calendar year, the only US equity fund manager to have ever done so. His success attracted a wide and enthusiastic following: Morningstar named him Portfolio Manager of the Decade in 1999, Barron’s included him in its All-Century Investment Team that same year, and a Fortune profile in 2006 described him as “one of the greatest investors of our time.” A former US Army intelligence officer and philosophy student, his formidable intellect covered a wide range of interests, and he believed that conventional investment analysis could be enhanced with insights drawn from literature, logic, biology, neurology, physics, and other fields not obviously related to finance. His expressed desire to “think about thinking” suggested an unusual ability to assess information differently from other market participants and arrive at a more profitable conclusion.

Miller’s bold and concentrated investment style would never be confused with a “closet index” approach. Big bets on Fannie Mae, Dell, and America Online, for example, were rewarded with handsome gains (as much as fifty times original cost in the case of Fannie Mae). Unfortunately, similar bets in recent years revealed the dangers of a concentrated strategy as heavy losses in stocks such as Bear Stearns and Eastman Kodak penalized results. For the five-year period ending December 31, 2010, LMVTX finished last among 1,187 US large cap equity funds tracked by Morningstar. Considering the enormous variation in outcomes among these carefully researched ideas, Miller’s overall investment record presents an interesting puzzle: How can we disentangle the contribution of good luck or bad luck, of skill or lack of skill?

Over the May 1982–October 2011 period, annualized return was 11.28% for the S&P 500 Index and 11.76% for the Russell 1000 Value Index. Value Trust slightly outperformed the S&P and underperformed the Russell index by over 0.40% per year. A three-factor regression analysis over the same period shows the fund underperformed its benchmark by 0.08% per month.

Do these results offer conclusive evidence of the failure of active management? Not necessarily. The fund’s expenses are above average at over 1.75% and provide a stiff headwind for any stock picker to overcome. Gross of fees, the fund’s performance over and above its benchmark goes from –0.08% to 0.07% per month. This swing from negative to positive raises an interesting point that Ken French speaks to at every Dimensional conference. There are almost certainly some mistakes in market prices and almost certainly some skillful managers who can exploit them. But who is likely to get the benefit of this knowledge—the investor with his capital or the clever money manager? If stock-picking talent is the scarce resource, economic theory suggests the lion’s share of benefits will accrue to the provider of the scarce resource—just what we see in this instance.

To cloud the discussion even further, both of these results, positive and negative, flunk the test for statistical significance; in neither case can they be attributed to anything more than chance. So even with twenty-nine years of data, we cannot find conclusive evidence of manager skill—or lack thereof. This is the inconvenient truth that every investor must confront: The time required to distinguish luck from skill is usually measured in decades, and often far exceeds the span of an entire investment career.

Miller is well aware of the challenge of distinguishing luck from skill and has conspicuously declined to boast about his results, even when they were unusually fruitful. He has acknowledged that topping the S&P 500 each year for fifteen years was an accident of the calendar and that using other twelve-month periods produced a less headline-worthy result.

Commentators have said that Miller has “lost his touch” or that his investment style is no longer suitable in the current market environment. These arguments strike us as the last refuge for those who find the idea of market equilibrium so unpalatable that they search for any explanation of his change in fortune other than the most plausible one—prices are fair enough that even the smartest students of the market cannot consistently identify mispriced securities.

Where does this leave investors seeking the best strategy to grow their savings?

When asked by a New York Times reporter in 1999 to sum up his legacy, Miller replied, “As William James would say, we can’t really draw any final conclusions about anything.” Twelve years later, this observation seems more useful than ever. And investors would be wise to treat even the most impressive claims of financial success with a healthy degree of skepticism.


Andy Serwer, “Will the Streak Be Unbroken,” Fortune, November 27, 2006.

Edward Wyatt, “To Beat the Market, Hire a Philosopher,” New York Times, January 10, 1999.

Tom Sullivan, “It’s Miller Time,” Barron’s, October 12, 2009.

Diana B. Henriques, “Legg Mason Luminary Shifts Role,” New York Times, November 18, 2011.

S&P data provided by Standard & Poor’s Index Services Group.

Morningstar data provided by Morningstar Inc.

Russell data copyright 2011, Russell Investment Group 1995-2011, all rights reserved.

Retirement Planning Portfolios at JBA

By John Berzellini

At JBA we view our portfolios in two ways. Portfolios designed for savings, and portfolios designed to produce income.

Portfolios designed for retirement savings are classified from conservative to aggressive, and are primarily managed by other investment advisors. We refer clients to and work with Morningstar Investment Services and Matson Money. We limit our referral offerings to investment strategies that make use of broad diversification and Modern Portfolio Theory (MPT) . The component parts of our referral portfolios are indices in the form of ETFs and Dimensional Fund Advisor’s structured asset class funds. Clients who invest in these portfolios, do not anticipate making withdrawals to support their day to day living expenses in retirement.

JBA directly manages retirement income portfolios. We consult with the Client, Advisors Asset Management, Pershings LLC fixed income division when constructing and implementing income portfolios.  These portfolios largely consist of investment grade bonds, CDs, dividend paying common and preferred stock. The mix depends both on the size of the client’s portfolio and the client’s income needs. Portfolios are designed to deliver a reliable income stream without the need to worry about the ups and downs of the market. Clients investing in these portfolios intend to make monthly withdrawals of interest and dividends to pay for day to day retirement living expenses.

In addition to our income portfolios, when in the client’s best interest, we will make use of immediate annuities to produce a monthly income.

Where we agree with the competition:

In the case of portfolios designed for savings: We are similar to advisors who believe Modern Portfolio Theory (MPT) works best with index funds or ETF rather than actively managed funds. However, we will differ in the amount of allowable tactical investment strategy used in a portfolio.

Where we disagree with the competition:

In the case of retirement income portfolios:  We think it’s a mistake to try to produce a monthly income by systematically liquidating a portfolio which is moving up and down. If you are working with an advisor who builds model portfolios, uses a Monte Carlo simulation to test how long the portfolio will last at various withdrawal percentages (3% or 4% of the portfolio value annually), and based on that simulation suggests you implement such a strategy, you need a second opinion!