Watching "Family Feud" may improve your stock picking skills!

I recently discovered re-runs of the very successful game show Family Feud on YouTube, there is this particular episode where a beauty queen was asked the question - "What practice would you eliminate if you became CEO", as beauty contestants were quite adept in Q&As, she gave a brilliant answer, she said that she would eliminate "Glass Ceilings" in the office!! 

(The phrase is commonly used to describe the difficulties faced by women and minorities when trying to move to higher roles in a male-dominated corporate hierarchy. The barriers are most often unwritten, meaning that these individuals are more likely to be restricted from advancing through accepted norms and implicit biases rather than defined corporate policies.

 (The Glass Ceiling: Definition, History, Effects, and Examples (investopedia.com)

Guess what? the answer is incorrect! because the basis for correctness is not the brilliance of the answer but the opinion of a hundred Filipinos who were asked the same question. unfortunately, it is not the popular opinion.

This brings to mind a well-known advice given by one of the most prolific minds in modern economic history - John Meynard Keynes on stock picking - this is what he has to say...

more on the "Keynesian Beauty Contest insight here - Keynesian beauty contest - Wikipedia

Keynes observed that since the stock market is participated by "opinionated investors", the stock that eventually rises may not be the stock you think has the most potential, but the stock that the majority of market players believed will do. An illustration of the Keynesian Beauty Contest Analogy is where judges are rewarded for selecting the most popular faces among all judges, rather than those they may personally find the most attractive.

So, a word of caution the next time you think you have a big winner on hand, is it a big winner that a large number of stock market players will also believe in? if not, don't bet your house on it!!

All the best my friends!

#acgadvice

Coming recession? Pass on the Investment Risk!

 

#ctto

A fellow financial advisor called me yesterday, she is quite concerned on a viral video of a famous "FINANCIAL GURU" warning of an imminent recession-induced stock market CRASH happening very soon, how do we advise prospective policyholders in scenarios like this?

VULs have gained popularity in the last decade because it allows policyholders to have direct exposure to the capital markets, while this may result to above average returns, it exposes the policyholders to investment risk!

To know more on Investment Risk, read this. 

 The 8 Main Types of Investment Risk Explained (einvestingforbeginners.com)

How confident are you that in 10 to 15 years' time, the VUL that your clients bought will really adequately provide for their financial needs? are you 100% sure? 75%? or not even sure?

The answer is provided by another financial advisor who I talked to last night (a fellow PIFAAP trustee), she said that her client is not so much concerned on returns anymore, he just wanted to ensure his capital does not deteriorate in case of a market meltdown, so he bought a "Traditional" product.

Both VUL and Trad products guarantees the sum insured, Trad products goes one step further by guaranteeing policy value and in some cases guaranteed payouts, the returns may not be as "exciting" as VULs, but it is GUARANTEED! The Life Insurance Company in this case takes on the investment risk in behalf of the policyholders!

While it's true that over the long-term, capital markets investments almost always outperformed other types of investment, But it still carries a certain amount of uncertainty.

So whether the predicted bear market comes to pass or not, maybe it is better to err on the side of safety and pass on the investment risk!

All the best my friends!

#acgadvice