bullworthy

Sound financial principles and guidelines is the mantra here at Bullworthy.com, and while very few day traders or the legions of stay-at-home retail investors agree with these traditional perspectives of investing, I’ve found someone who not only agrees, but has built a very successful wealth management firm on the perpetual truth behind this foundational approach: stop trying to be so cute and smart with our investments, and instead stick to what’s boring. Because the fact is, financial information isn’t free and you could pay dearly for bad advice.

Steve Pomeranz is the principle advisor and president of Steven L. Pomeranz Financial Management, a wealth management and advisement firm in Boca Raton, FL, formed just shy of 30 years ago. Steve is also the host of an NPR associated talk show called On The Money!, airing on member station WXEL here in South Florida twice a week. The show is refreshingly diverse; Steve regularly invites investment professionals and money experts from all corners of the financial services industry, and beyond.

I’ve listened to Steve’s show for quite some time now, and even attended a Table Talk discussion event he held last year at the WXEL station. It was an interesting experience; I was the only 25 year old in a room of retirees, and they all had the same thing to say. “What will I do about retirement?” “When will the stock market come back?” “Should I dump all of my AIG shares?”

Steve sat at the head of the large oak table, legs folded, fingers interlocks and knuckles on the table. He was there to answer questions, and answer every single question he did. I immediately got the feeling he had done this before – after the energy crisis meltdown of the late 70’s and ensuing sky-high unemployment, inflation (13.5% according to Wikipedia.org in 1980), and with prime interest rates hitting 20%, he was counseling those clients at his Table Talk.

Steve likely didn’t have to do much crisis counseling between 1991 and 1998.

I could only image the Table Talk after the Dot-com bubble burst of 2000-2001. “My retirement was in Enron stock, what do I do now?” “Who is next to go bankrupt?” While not as severe or sparking widespread economic disaster with the same magnitude as the inflation of the 80’s or sub-prime meltdown of 2008, the victims of the bubble-burst needed those consultations.

So perhaps 30 years as a registered financial advisor, talk show host, regular contributor on CNBC and other nationally syndicated financial programs, and after being selected by Worth Magazine as one of the nation’s Top 100 Wealth Advisors (there are something like 50,000 Certified Financial Planners in the U.S. alone), I figured Steve would be the go-to guy for unbiased, financially-sound, tested, true, and trite advice for weathering the sea-sick feelings myself and other investors been living with over the stock market’s volatility and despicable 2010 performance.

“A lot can be accomplished by giving people context” Steve tells me, on the long-held process he uses to determining how much risk an investor or client can take, “everybody wants safety, everybody wants bonds, nobody wants stocks. Well, it wasn’t too long ago that people only wanted to own stocks, and you were crazy if you wanted bonds. You know what happened to that thinking.”

We spoke for a little while longer on the herd mentality that retail investors find themselves incapable of escaping. We can get so wrapped up in trying to beat markets and earning double-digits that often we jump into trades and investments without the effort or diligence of collecting all of the information that may or may not be immediately available to us. And while investment information is only a Google search away, the information that is chosen for distribution is chosen based on what product or products will be or is intended to be sold by the author, firm, or organization behind that information.

The real problem is that financial information is never free, whether it be from a penny-stock newsletter, a CNBC correspondent, or a stockbroker. Perhaps it’s free in the sense that you did not write a check to whoever your information is coming from, but, for example, say you made an investment in a tech stock just before it tanked 25%. What that information really free, or did you pay a 25% premium for a lesson learned? Maybe your stockbroker just talked you into investing in the newest and hottest index or mutual fund, and his commissions are drawn for your principle. Was that really “free”?

I’ve long been a fierce proponent of unbiased, fact-based information, and so has Steve. So much so, in fact, he’s built his career around offering fee-only based advising and his radio show is organized as a non-profit whose goal is to distribute the whole economic and financial planning story, good and bad, then allowing you to make the decisions.

Here’s Steve on the subject. “All the information for how to play golf is out there, but how many people can take that information and go win a tournament?” The point is that information is free (and biased), but taking that information and churning out wisdom is a skill and a profession as valuable as the need for a physician, an accountant, or a lawyer, and therefore, can never really be free.

Professionals help us find our way, and that’s exactly what the Pomeranz office does. The firm charges only for advice and the team lives and dies by the advice they give. After 30 years, I can safely assume Steve knows what he’s talking about, so I dished out some questions for him.

BW: Just how uncertain is the stock market landscape and prospects going forward this year?

SP: A couple of weeks ago I spoke the former Federal Reserve Bank of Dallas President Dr. Bob McTeer, and he was fantastic. We basically had a fireside chat about what he thought about the banks and what he thought was going on today. I was amazed; he was talking about how it’s not that the banks are bad, they are just scared to lend money and are only lending to their best customers. The banks would rather keep their money in reserves because of all the uncertainty. I said that sounds like almost everybody. People have their money in money markets and 1% CD’s because they’re scared to death, and it’s really insane. Bob says, “I’ve got most of my money sitting in a zero percent checking account as we speak” and I’m thinking, do you really want to tell me that? Aren’t you supposed to be smarter than the rest of us?

BW: A former fed governor with no confidence in our markets, staying all cash – pretty amazing.

SP: Bob probably has more knowledge, more contacts, and more experience, but nonetheless in the face of uncertainty, he’s just as clueless as the rest of us.

BW: Talk to me about starting out as a municipal bond salesman in your twenties. What did you learn about the need for sound, unbiased financial information and its availability?

SP: When I first walked into my job, I told them I’ll be honest – I know nothing about municipal bonds. But they said I already knew 99% about these bonds than most people. So I realized you have to just get on the phone and sell these bonds. It took me a good four to five years before I really understood what it is that needed to be done in order to successfully guide people into making money. I also found out early on that it’s a “sale” business – not an advisory business. The brokerage firm is filled with high-quality people with knowledgeable advice, but the bottom line is that it’s all about sales. I eventually got really tired or that and decided that I didn’t want to devote my whole life to lining my pockets but rather give people something good, something of value. We live in a society where investments are sold, and that’s why I chose to open a fee-only office all those years ago.

BW: Give me the story of a bad investment you made early on as a first-time investor.

SP: Back in the 80’s, non-publically traded real-estate limited partnerships were a huge thing because there were tax incentives prior to 1986. If you were a passive investor, for every $1 you invested, you could get $2-$4 in tax deductions. I put my own money into one of these things, and it required me to make commitment year after year. The amount I ended up putting overall was about $50,000, and long story short, if I got back $30,000, that was a lot. If I had put that money into S&P 500 funds, or had I bought Berkshire Hathaway or J&J, or just stop trying to be so cute and smart about it and instead just stuck to what was boring, I would have made so much more money for myself in that investment. An opportunity lost is an expensive lesson learned. In reality, learning on your own can cost you much more than simply following the advice of someone who’s experienced it. The loss on the investment in my example was the difference between about $50,000 and $30,000, but the opportunity loss was probably more like half a million dollars.

BW: I hear you talk a lot on your show about those long held, some would say boring, investment strategies: diversification, save your money, understand the fees associated with your investment. It’s obvious that investors are losing sight of these Buffet-like principles. Is this slip from what’s been considered normal for 50+ years a bad thing in your eyes?

SP: We’ve had ten years where the S&P 500 has done literally nothing in terms of point-to-point. There have also been other times in history where the lost decade has happened, and it’s around these times when investors attempt to “outwit” the markets to beat the average performance of a stock. This is a great opportunity for salespeople to come in and create these hedge fund-like products and arbitrage products that seem to cater to this desire that also happen to come with a lot of fees. The investment industry is not interested in providing the basics that investors need. I’m sorry to say that yes, there are times when you can make moves that take advantage of markets moving in either direction, but there also comes a time when the stock market just won’t be a great investment and we don’t know that until after the fact. We have to be humble in the face of unlimited uncertainty.