Where to Find Happy People

Written by Bob Veres & Gerald E Gasber, CFP®, CIMA®, QPFC.

The World Happiness Report is out, and a group of independent experts have now compiled surveys of people in 156 countries, asking them to evaluate their lives on a scale of 1-10. They then looked at some of the factors that seem to contribute to happiness, and identified five: real GDP per capita (a measure of average wealth); healthy life expectancy at birth; freedom to make life choices; generosity; and whether or not they perceived their society to have elements of corruption.

Number One on the list is Norway, and you might see a certain pattern when you see the runners-up: 2) Denmark, 3) Iceland, 4) Switzerland, 5) Finland, 6) The Netherlands and 7) Canada. Sweden comes in at number 10, rounding out the socialistic Nordic societies. In between are 8) New Zealand and 9) Australia.

Where does the U.S. rank? Number 14, behind Israel (11), Costa Rica (12) and Austria (13). The U.S. ranked poorly in social support and, interestingly, mental illness. America's ranking was as high as third in 2007, when people were less likely to cite corruption as a part of their lives.

Where are people least happy? Most African countries reported low levels of happiness. And, interestingly, the people in China report being no happier today than they were 25 years ago, despite rapidly-growing per capita income. Chinese respondents to the survey attribute their lagging happiness to rising unemployment and a poor social safety net for the less fortunate.



What a Market Top Looks Like

Written by Bob Veres & Gerald E Gasber, CFP®, CIMA®, QPFC.

The current bull market in stocks will reach its 8th anniversary tomorrow, and for about the last four years, professional investors and financial planners have been scratching their heads. The markets have gone up and up and up, and we all know that they won't go up forever, which means there's a correction looming somewhere on the horizon.

The problem is that the wisest professionals generally know what a market top looks like—in hindsight. For most of the last eight years, investors have been constantly looking over their shoulders, waiting for the next shoe to fall, being very cautious about their stock allocations. As long as that generalized anxiety persisted, it was unlikely that we would see the exuberance and overconfidence that typically precedes a major market decline.

The markets generally top out when the average person starts feeling like he or she is missing out on future returns. Suddenly money that has been on the sidelines for years starts to flow back into the market, causing it to rise faster than it ever did during the early years of a bull market. You start to see pundits, touts and market prognosticators get really enthusiastic. Nobody could see any sign of that swell of overconfidence—

Until now, with what Wall Street has been calling The Trump Trade. The trade means that people everywhere are investing in anticipation of lower corporate taxes and fewer regulations.

An excellent description of how to spot a market top was published on the MarketWatch website, entitled "7 Signs We're Near a Market Top, and What to Do Now."

What are the signs? The first one is when you see retail investors start pouring money into stock mutual funds, in fear of missing out on another year of growth. Second: the survey of professional investors starts showing a low proportion of bears to bulls, basically meaning that the bear market prognosticators (and there are some who nearly ALWAYS predict one) start to give in.

Third, market sentiment indicators like the VIX index (that tells us what traders think of future market volatility) start to look complacent. Fourth: you see record price/earnings ratios, which means people are ignoring value and simply expecting future growth. Fifth: investors are finally starting to forget the last market crash, and have stopped looking over their shoulders. Sixth, the article says that the Nasdaq index of mainly tech stocks will begin a bull run. And seventh, investors reach a tipping point where greed outweighs fear. Instead of fearing a market pullback, they fear missing out.

Does any of this look familiar when you look at today's markets?

To many professional investors, the signs are everywhere that the investment markets have finally reached those last heady stages of a bull market, when prices begin to soar faster than they ever did in the runup. You can't expect a major, painful bear market until those conditions have been met, and we're finally meeting them now. You're going to hear that earnings per share for American corporations have been beating expectations in the latest quarter.

With all this wisdom and insight, what's the best course of action? Trying to time the market is never a good strategy. Even though valuations are high right now, there is no good reason, with all the euphoria, that they won't keep going higher. And the euphoria could last days, weeks, months... or years. If you get out now, there's a good chance you'll miss the most exciting part of the bull market.

More importantly, if you get off of the roller coaster and do manage to miss the next dip, how will you know when to get back in again? Bear markets have a habit of suddenly reversing themselves, and it's possible that by the time you feel confident that the market is finally on an upswing, you'll be buying at prices higher than what you sold for.

A better possibility is to quietly start to raise the cash allocation in your portfolio, with the idea that when the bear market finally does manifest, you'll have money to invest at bargain prices. This isn't for the faint-hearted, however, since it's tough to miss the last stage of a roaring bull, and even tougher to re-invest when everybody else is selling out.

A safer way to weather the storm is to simply hang onto the restraining bar in your roller coaster seat and endure the bumpiest part of the ride. If you believe that stocks will eventually recover, as they always have in the past, then eventually you'll be looking at gains again while a lot of your friends and neighbors will have sold near the bottom in the last stages of a bear market capitulation.

Most importantly, you should recognize that the best, most seasoned market watchers can and will be way off on their timing. You can't rely on anyone to know the future. That MarketWatch article that talked about the seven signs of a market top? It advised people to start edging out of the market as soon as possible, because the red flags, it said, were everywhere.

And it was published in March, 2014.


Get Ready for Weird Food

Written by Bob Veres & Gerald E Gasber, CFP®, CIMA®, QPFC.

Are you ready to start eating bugs? Or or goldfish muscle dipped in fetal bovine serum? Scientists point out that people 100 years ago probably would have barfed at the sight of a Twinkie and would have had trouble comprehending a Dorito. So, looking ahead 100 years, they're predicting that the food people typically consume will get weird in ways that are surprisingly predictable.

For example? Consider insects in your diet. You can already buy pasta and food bars made with cricket flour that adds extra protein, and roasted crickets are sold whole at the website Grasshoppers are equally nutritious, and mealworms and black soldier flies are, we are told, a great source of dietary fat. There's some debate about whether eating insects is more environmentally-conscious than eating chicken or beef, but reports suggest that the insects can survive on diets that you wouldn't feed to your pig.

What about hamburger that is made in the laboratory? Companies like Memphis Meat and Mosa Meat are patterning stem cells into animal tissue, which can be converted into synthetic meat that looks like ground beef. The process uses 7-45% less energy than raising animals for slaughter, and produces 78-96% fewer greenhouse gas emissions—and, as you might guess, it involves 99% less land use than conventionally produced steak. Along the same lines, NASA researchers created fish fillets by dipping goldfish muscle into fetal bovine serum, while New Wave Foods is looking for ways to create synthetic shrimp out of red algae.

Farmed fish are already part of our diet, and history suggests that it will totally take over the fish market. Raising cattle takes up a lot of land, but raising cultivated fish as livestock takes place where people don't live (in the ocean), and fish require only a fraction of the amount of feed that cattle do in order to produce the same amount of protein. In case you think this is far-fetched, the former director of Aquaculture at WorldFish Corp. says that most aquatic food now comes from farming rather than fishing. That shouldn't be surprising, since virtually all the beef, pork and chicken we consume now comes from farmed animals, rather than hunted ones.

You already eat vegetables and other plant life. Why not micro-algae as well? The microscopic plants feed off carbon dioxide in the atmosphere, and are rich in proteins, fats and carbohydrates—including a high concentration of omega 3 fatty acids.

Not ready for the brave new world of exotic (and disgusting) foods? Don't worry; over time, your kids or grandkids will eat these future delicacies with the same nonchalance that you now give to Doritos and Twinkies.


A Look Back at 2016

Written by Weston Wellington, VP Dimensional & Gerald E Gasber, CFP®, CIMA®, QPFC.

Every year brings its share of surprises. But how many of us could have imagined that 2016 would see the Chicago Cubs win the World Series, Bob Dylan receive the Nobel Prize in Literature, Donald Trump elected president, and the Dow Jones Industrial Average close out the year a whisker away from 20,000?

The answer is very few—a lesson that investors would be wise to remember.

At year-end 2015, financial optimists seemed in short supply. Not one of the nine investment strategists participating in the January 2016 Barron’s Roundtable expected an above-average year for stocks. Six expected US market returns to be flat or negative, while the remaining three predicted returns in single digits at best. Prospects for global markets appeared no better, according to this group, and two panelists were sufficiently gloomy to recommend shorting exchange-traded emerging markets index funds.1

Results in early January 2016 appeared to confirm the pessimists’ viewpoint as markets fell sharply around the world; the S&P 500 Index fell 8% over the first 10 trading sessions alone. The 8.25% loss for the Dow Jones Industrial Average over this period was the biggest such drop throughout the 120-year history of that index.2 For fans of the so-called January Indicator, the outlook was grim.

Then things seemingly got worse.

Oil prices fell sharply. Worries about an economic debacle in China re-entered the news cycle. Stock markets in France, Japan, and the UK registered losses of more than 20% from their previous peaks, one customary measure of a bear market.3 Plunging share prices for leading banks had many observers worried that another financial crisis was brewing. As US stock prices fell for a fifth consecutive day on February 11, shares of the five largest US banks slumped nearly 5%, down 23% for 2016.

The Wall Street Journal reported the following day that “bank stocks led an intensifying rout in financial markets.”4 A USA Today journalist observed that “The persistent pounding global stock markets are taking seems to be taking on a more sinister tone and more dangerous phase, with emotions and fear taking on a bigger role in the rout, investors questioning the ability of the world’s central bankers to calm the market’s frayed nerves, and a volatile environment in which selling begets more selling.”5

February 11 marked the low for the year for the US stock market. While prices eventually recovered, as late as June 28 the S&P 500 was still showing a loss for the year. Meanwhile, a number of well-regarded professional investors argued that the next downturn was fast approaching. One prominent activist in May predicted a “day of reckoning” for the US stock market, while another reportedly urged his fellow hedge fund managers at a conference to “get out of the stock market.” A third disclosed in August a doubling of his bearish bet on the S&P 500.6

Throughout the year, some observers fretted over the pace of the economic recovery. The New York Times reported in July that “Weighed down by anemic business spending, overstocked factories and warehouses, and a surprisingly weak housing sector, the American economy barely improved this spring after its usual winter doldrums.”7

Despite all of this noise, the S&P 500 returned 11.9% for the year and international stocks8 returned 4.4% for US dollar investors (6.9% in local currency9), helping to illustrate just how difficult it is to outguess market prices. Once again, a simple strategy of embracing sensible asset allocation and broad diversification was likely less frustrating than fretting over portfolio changes in response to news events.

A Vote For Small Cap Stocks?

Written by Weston Wellington, VP Dimensional.

In the days immediately following the recent US presidential election, US small company stocks experienced higher returns than US large company stocks. This example helps illustrate how the dimensions of expected returns can appear quickly, unpredictably, and with large magnitude.

Average returns for US small company stocks historically have been higher than the average returns for US large company stocks. But those returns include long periods of both strong and weak relative performance.

Investors may attempt to enhance returns by increasing their exposure to small company stocks at what appear to be the most opportune times. Yet this effort to time the size premium can be frustrating because the most rewarding results often occur in an unpredictable manner.

A recent paper1 by Wei Dai, PhD, explores the challenges of attempting to time the size, value, and profitability premiums.2 Here we will keep the discussion to a simpler example.

As of October 31, 2016, small company stocks had outpaced large company stocks for the year-to-date by 0.34 percentage points.

To the surprise of many market observers, the broad stock market rose following the US presidential election on November 8, with small company stocks outperforming the market as a whole. In the eight trading days following the US presidential election, the small cap premium, as measured by the return difference between the Russell 2000 and Russell 1000, was 7.8 percentage points. This helped small company stocks pull ahead of large company stocks year-to-date, as of November 30, by approximately 8 percentage points and for a full one-year period by approximately 4 percentage points.

This recent example highlights the importance of staying disciplined. The premiums associated with the size, value, and profitability dimensions of expected returns may show up quickly and with large magnitude. There is no guarantee that the size premium will be positive over any period, but investors put the odds of achieving augmented returns in their favor by maintaining constant exposure to the dimensions of higher expected returns.


1. Wei Dai, "Premium Timing with Valuation Ratios" (white paper, Dimensional Fund Advisors, September 2016).
2. Size premium: the return difference between small capitalization stocks and large capitalization stocks. Value premium: the return difference between stocks with low relative prices (value) and stocks with high relative prices (growth). Profitability premium: The return difference between stocks of companies with high profitability over those with low profitability.