Successful Investments Start With These Five Questions...

Successful Investments Start With These Five Questions... By Mike Barrett, analyst, Extreme Value Friday, October 9, 2015

Finding successful investments is hard work. My colleague Dan Ferris and I routinely evaluate dozens of companies before finding a few that are worthy of additional research. Unfortunately, that means we probably spend more time reading about businesses that we don't recommend than reading about those we do. Often, our research begins with a company's annual report. To achieve transparency with investors, public companies are required to file these reports with the U.S. Securities and Exchange Commission (SEC), which refers to them as "10-Ks." Annual reports provide a wealth of valuable data. Better yet, the data are accessible 24/7 on the SEC website. These reports are often 100-150 pages long and contain a mind-boggling array of numbers. Our challenge is to quickly separate what's important from what's not. Or as Arthur Conan Doyle's famous fictional sleuth Sherlock Holmes says… It is of the highest importance in the art of detection to be able to recognize, out of a number of facts, which are incidental and which vital. How do you separate "incidental" from "vital" in a document loaded with thousands of seemingly important facts? You must have a plan. I have read thousands of annual reports in my investing career. Over time, I've developed a system that helps me quickly assess if a company is worthy of further study. My system starts with these five questions…  Are there risks related to the company's revenue stream that aren't readily apparent? Are there other unusual risk factors? Has the company demonstrated that it can grow revenue and earnings? Is there evidence of operating leverage? Is the company generating free cash flow? Let's look at each individually… Question No. 1: Are there risks related to the company's revenue stream that aren't readily apparent?  Typically, an overview of the business and how it generates revenue can be found within the first few pages of an annual report. Spend some time there. I specifically look for two risks…  •   Heavy dependence on just one or a few customers. •   Hidden exposure to commodity prices.   Customer Concentration  Ideally, we're looking for companies that sell to many, many customers. This limits the risk that revenue might suddenly decline from the loss of any one customer. It also limits the leverage any one company can have on the business. Raising prices on a customer that's responsible for 60% of your business will always be a challenge.  Be aware that some industries routinely experience high customer concentration. Food manufacturers like Hain Celestial Group often report Wal-Mart as a major customer (10% or more of sales).  Suppliers of original equipment manufacturer (OEM) auto parts typically have high exposure to one or more of the major car manufacturers. BorgWarner, for instance, reports that 17% of its 2014 sales were made to beleaguered Volkswagen.  Companies in the semiconductor industry also routinely experience high exposure to just a few customers. Cirrus Logic is an extreme example. In 2014, 72% of its sales were made to a single customer, Apple.  Exposure to Commodity Prices  In addition to assessing customer concentration, you also want to determine if there is hidden exposure to cyclical commodities, like oil and gas.  Remember, a company doesn't have to be in the oil and gas business to have significant exposure to its boom and bust cycle. Last November, I addressed this problem in the Stansberry Digest.  Oil prices were starting to fall hard. I warned investors they might be unwittingly exposed if they owned companies that did a significant amount of business with oil and gas producers. Here's what I said at the time…  I've looked closely at hundreds of companies over the past year and I'm continually surprised at the reach of the American oil industry. The manufacturing and global distribution of oil-extraction tools and parts – paired with the transport of crude-oil products – generates billions in revenue for thousands of American companies. If you own some of these companies (or own mutual funds that hold large positions in them), you're more exposed than you think. If oil continues to fall, your portfolio could take an unexpected hit. [One] blue-chip stock that lots of individuals and funds hold is Emerson Electric. Emerson is a global industrial powerhouse operating separate divisions in industrial automation, network power, and climate technologies. Emerson's process management segment has been the primary source of revenue growth over the past few years, thanks to surging demand from oil and gas customers. This division accounts for 35% of Emerson's revenue. A sustained slowdown in domestic oil production (a byproduct of plunging prices) would hurt Emerson's profitability. After I wrote that, the drop in oil prices did resume. And Emerson's stock price has dropped about 29% since then.  Question No. 2: Are there other unusual risk factors?  Toward the middle of a typical annual report, you'll find the Risk Factors section. Here, a company identifies and lists the primary risks for its business.  Many of these risks are generally the same from company to company. For instance, if a recession appears, sales are likely to decline. If another company is acquired, the integration may underperform the expectations management has set.  What I'm looking for are unique risks. Here's an example from the 2014 10-K of Molina Healthcare, which provides health care plans to more than two million members across the U.S. (emphasis added)…  Our profitability depends to a significant degree on our ability to accurately predict and effectively manage our medical care costs. Historically, our medical care cost ratio, meaning our medical care costs as a percentage of our premium revenue net of premium tax, has fluctuated substantially, and has also varied across our state health plans. Because the premium payments we receive are generally fixed in advance and we operate with a narrow profit margin, relatively small changes in our medical care cost ratio can create significant changes in our overall financial results. For example, if our overall medical care ratio for the year ended December 31, 2014 of 89.5% had been one percentage point higher, or 90.5%, our net income from continuing operations for the year ended December 31, 2014 would have been approximately $0.12 per diluted share rather than our actual income from continuing operations of $1.30 per diluted share, a decrease of approximately 91%. This is something you don't see every day – a change of one percentage point in expenses potentially reduces income 91%! No matter how attractive Molina might otherwise be, this vital fact about its business model was a deal-breaker for me.  Question No. 3: Has the company demonstrated that it can grow revenue and earnings?  Near the Risk Factors section, you'll usually find a financial review covering the past five years. This lets you quickly see whether the company has been successful at growing sales and profits.  Growth in these two metrics is vital because it typically means the products and services the company sells are enjoying greater demand over time. Companies that get bigger and better are exactly what we're looking for.  Acxiom is an example of a company that has not been growing revenue or earnings. The provider of enterprise software has been around for more than 40 years, but sales the past two years were actually lower than they were five years ago. Earnings also trended down during this period.  By glancing at Acxiom's five-year financial history just a few minutes into my research, I was able to quickly eliminate it from consideration.  Question No. 4: Is there evidence of operating leverage?  Operating leverage is simply the ability to grow profits faster than revenue.  Superior business models often grow profits faster than revenue, so I consider this a vital fact that helps me quickly determine whether a particular company is worth further evaluation.  Fleetmatics provides fleet management software services to 25,000 enterprise customers with large truck fleets. It's a textbook example of operating leverage. Over the past five years, revenue grew about 37% per year on average. Income grew a much faster 85% per year on average.  Adding lots of new fleet customers didn't require the company to build a new plant. It just needed room for a few new employees and their computers. Capital-light businesses such as Fleetmatics routinely demonstrate operating leverage.  Investors love rapidly growing companies that can grow earnings quickly. They regularly pay dear prices to own them. That's why these kinds of companies are rarely found in the Extreme Value model portfolio. Ideally, we look to buy these kinds of businesses during major market downturns when everything goes on sale.  Question No. 5: Is the company generating free cash flow?  The last thing I look for when starting the evaluation of a new company is its ability to generate free cash flow.  This can be easily determined by going to the Statement of Cash Flows, which normally follows the Balance Sheet and Income Statement about two-thirds of the way into a typical annual report.  Free cash flow is not a line item on the cash-flow statement. Instead, it has to be calculated by deducting expenditures for property and equipment (i.e. capital expenditures, or "CapEx") from net cash from operations (or operating cash flow).  As Dan likes to say, free cash flow is what gives equity its value. This is the surplus capital management has at its disposal to grow the business, reduce debt, and give back to shareholders via dividends and share repurchases.  The cash-flow statement in an annual report normally covers the last three years. Ideally, what I'm looking for is growing free-cash-flow generation over that period. If a company was unable to generate even a moderate amount of free cash flow over the last three years, I usually lose interest in it as a potential investment idea.  There are almost 7,000 companies listed on the three major U.S. stock exchanges: NYSE, Nasdaq, and Amex. Finding the handful of businesses that will translate into successful investments is hard work.  Having a plan like the one outlined above helps us eliminate many subpar businesses from consideration quickly… and focuses our attention on those that are worthy of your investment capital.  As you conduct your own research, I highly recommend you follow this guide.  Good investing,  Mike Barrett Source: Daily Wealth Follow us on Twitter: @blacklioncm

How the Chinese Will Establish a New Financial Order

How the Chinese Will Establish a New Financial Order By Porter Stansberry Friday, September 18, 2015

For many years now, it has been clear that China would soon be pull­ing the strings in the U.S. financial system. In July 2015, the American people owed the Chinese government nearly $1.25 trillion. I know big numbers don't mean much to most people, but keep in mind… this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both cor­porate and individual) each year. It's basically a sum we can never, ever hope to repay – at least, not by normal means. Of course, the Chinese aren't stupid. They realize we are both trapped. We are stuck with an enormous debt we can never realistically repay… And the Chinese are trapped with an outstanding loan they can neither get rid of nor hope to collect. So the Chinese govern­ment is now taking a secret and somewhat radical approach.  China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens, like you and me.  The Chinese State Administration of Foreign Exchange (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goals – as the Chinese have publicly stated – are to cre­ate a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.25 trillion the U.S. government has borrowed as possible.  Lucky for us, we know what's going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isn't the first time the U.S. has tried to stiff its foreign creditors.  Most Americans probably don't remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government's policy of print­ing overvalued U.S. dollars to pay its trade deficits… which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action…  In 1965, he took $150 million of his country's dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $5 billion.  Keep in mind… this occurred during a time when foreign govern­ments could legally redeem their paper dollars for gold, but U.S. citizens could not.  And France was not the only nation to do this… Spain soon re­deemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.  By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the country's gold.  It's estimated that between the 1950s and early 1970s, we essentially gave away about two-thirds of our nation's gold reserves… around 400 million ounces… all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold.  In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $450 billion… a 3,100% difference.  Incredibly stupid, wouldn't you agree? This blunder cost the U.S. much of its gold hoard.  When the history books are finally written, this chapter will go down as one of our nation's most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse…  The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government's annual deficits, which were larger than ever and growing… thanks to the gigantic new welfare programs and the Vietnam "police ac­tion." You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar.  Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon's. On August 15, 1971, he went on live television before the most popular show in Ameri­ca (Bonanza) and announced a new plan…  The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports!  Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse.  Of course, Nixon pitched these moves as patriotic, saying: "I am determined that the American dollar must never again be a hos­tage in the hands of international speculators."  The "sheeple" cheered, as they always do whenever something is done to "stop the speculators." But the joke was on them. Within two years, America was in its worst recession since WWII… with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.  And that brings us to today…  Roughly 40 years later, the United States is in the middle of anoth­er currency war. But this time, our main adversary is not Europe. It's China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That's not the case today.  This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It's critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome.  Regards,  Porter Stansberry  Source: International Man Follow us on Twitter: @blacklioncm

Three Steps to Protect Your Portfolio from the Next Bear Market

Three Steps to Protect Your Portfolio from the Next Bear Market

ALEXANDER GREEN, CHIEF INVESTMENT STRATEGIST, THE OXFORD CLUB

In one of my recent columns, I noted that investment analysis has gotten far trickier over the last few years. 

We have entered a period of “administrative markets,” in which equity returns are affected as much by government policies as they are by economic growth and corporate profits. 

In the last few years, we’ve seen large-scale bailouts; trillions in fiscal stimulus; massive quantitative easing; nearly seven years of zero short-term rates; heavy-handed regulation; and sharply higher taxes on income, dividends, and capital gains. 

Our corporate tax rate is the highest in the developed world, driving even iconic American companies like Burger King to move their headquarters to Canada. 

These policies distort markets... and lately equity investors have been paying the price. 

A Shot Across the Bow

The S&P 500 recently plunged more than 10% in four days. 

Don’t shrug this off. According to Bianco Research, this has happened only eight other times in the last 80 years. 

Yes, the markets took a significant bounce. But I still view this as a shot across the bow, a warning. 

Here’s what makes the smart money nervous right now... 

In the past, when the economy (and the stock market) went into the tank, the traditional policy response was to stimulate the economy with lower interest rates and deficit spending. 

But interest rates are already at zero. And under the Obama administration, the national debt has soared from $7.4 trillion to $18.4 trillion. 

What’s next? Are we moving to negative interest rates (like Europe), creating a situation in which you have to pay to leave your money in the bank and even more stupendous deficits? That policy prescription didn’t work well for Greece. 

Don’t put me in the gloom-and-doom camp. I’m not a pessimist. But I’m no Pollyanna either. 

I consider myself a skeptical realist who looks at both the positives and negatives. Despite the many government policy missteps over the last decade, there are factors to appreciate as well. 

For instance, the U.S. economy posted a much bigger rebound in growth during the spring than previously reported… (The Commerce Department adjusted the annual expansion rate in the April-June quarter sharply higher to 3.7%.) 

Plunging energy prices are a huge plus for everyone outside the oil and gas industry… 

Inflation is negligible… 

Housing is roaring back… 

Unemployment is falling… 

The dollar is strong... And the outlook for corporate profits is improving...

Three Essential Steps

Given the mixed outlook, what should you do with your portfolio now? Start with these three essential steps: 

1. Check your asset allocation. The roaring bull market of the last six and a half years has almost certainly increased – and perhaps more than doubled – your exposure to equities. If it’s now larger than you’re comfortable with, pare back to the point at which you’ll be able to sleep at night. How much in stocks is enough (or too much)? Investment great Benjamin Graham used to say that no one should have more than 80% of their portfolio in stocks – or less than 20%. Look at your age, time horizon, and risk tolerance, and adjust accordingly. 2. Move those trailing stops. Make sure they are no more than 25% below your holdings’ recent highs. And if you’re using “mental stops” – no actual stop orders entered – be sure to maintain your sell discipline when your stocks trade through your predetermined price. 3. Adopt a late-stage bull market strategy. That doesn’t mean move to cash. (This bull market could last five more weeks, five more months, or five more years.) History shows that as a bull market ages, the safest and best-performing stocks tend to be recession-resistant, mega-cap value stocks, preferably ones with growing dividends. (Those dividends both support your shares and provide income during the bad times.)

All this government meddling with the market makes this a challenging time for investors. We can only wait and see what policymakers dream up next, whether it’s higher rates or QE4 or something entirely new. 

Investment legend John Templeton used to point out that no matter how strange things look, economic and market cycles are all essentially the same. 

He famously noted that “this time is different” is the most expensive phrase in the annals of investing. That statement is generally true. 

But check your history. When was the last time the national debt was bigger than our GDP and the Fed held rates at zero for nearly seven years? 

This time really is different. Govern your portfolio accordingly. 

Good investing, 

Alex Green 
Chief Investment Strategist, The Oxford Club 

Source: Bonner and Partners

Follow us on Twitter: @blacklioncm

Four Easy Steps to Banish Fear and Change Your Life, Today

Four Easy Steps to Banish Fear and Change Your Life, Today By Mark Ford, founder, The Palm Beach Research Group Wednesday, September 9, 2015

I used to dread the thought of public speaking. And when I was forced to make a speech, I did a terrible job – which only made me dread the next speech even more. It was a vicious cycle. When I became the editorial director of a newsletter business in South Florida in 1982, I found myself in an uncomfortable position… I had to conduct meetings and give presentations at industry functions on a fairly regular basis – something I was ill-prepared to do. So, I decided to enroll in a Dale Carnegie program for public speaking. Somehow, I registered for the wrong course. Instead of focusing on speech-making, it had a broader goal. And that program changed my life. It taught me the importance of setting goals and taking action. But it also taught me to be more comfortable as a speaker.  My speech-making skills improved almost accidentally.  Every week, we had to read a chapter of Carnegie's classic book, How to Win Friends and Influence People, and then make a two-minute in-class presentation about how we were going to put the principle of that chapter to work in our lives.  On Thursday evenings after work, I would drive a half-hour to the meeting place.  During that drive, I thought about what I was going to say. It was difficult in the beginning, but it got a little easier each week. By the end of the 14-week course, I was performing at a near-professional level. I had won several awards in competitions and was routinely rated at the top of the class.  The final session was a sort of commencement ceremony. Relatives and friends were allowed to attend, which tripled the size of the audience we had to speak to. I gave the last speech. I was still a little nervous when I got up to the podium, but I'd learned a lot by then.  So, I took a deep breath and did my thing. I got a strong round of applause. Several people I didn't even know came up to congratulate me… and one suggested I should become a comedian.  I wasn't foolish enough to take his advice to heart, but it did make me happy to think I had made so much progress in so little time, starting from practically zero.  How did I conquer my fear of public speaking?  The same way you would conquer the fear of anything else.  Humiliation and Humility  A big part of what we are afraid of is embarrassment – being shamed in front of other people. When embarrassment is extreme, we call it humiliation.  If you pass gas at a fancy dinner party, you feel embarrassed. If your big project at work fails miserably – and you've been bragging it would be a "sure thing" – you feel humiliated.  Humiliation is what happens to embarrassment when it's mixed with pride. The prouder you are, the more failure hurts.  Which brings us to our cure for the fear of failure: humility.  I'm guilty of priding myself. I'm proud of my writing, for example, and the success I've had in business. So, I have to keep reminding myself to be humble about those things.  But I'm not proud of everything I do.  I take no pride in my ability to dance, sing, or speak foreign languages because I do those things so badly. And because my ego isn't involved, I'm not embarrassed to ask stupid questions, to show myself as a beginner, and, ultimately, to fail again and again as I attempt to master those skills.  The truth is, when I started out in business, I wasn't very good at that, either.  Again, that made it possible for me to ask lots of questions, look stupid, and make mistakes… which accelerated my learning curve.  That last observation brings us to an important principle of success. I call it "the secret of accelerated failure." It's a principle I developed in the early 1990s.  The principle of accelerated failure is this: To develop any complex skill, you must be willing to make mistakes and endure failures. The faster you can make those mistakes and suffer those failures, the quicker you will master the skill.  At the Palm Beach Research Group, we teach this secret to our managers.  We encourage them to allow their employees to fail. Not to fail stupidly. Not to make the same mistakes over and over again. But to feel free to fail at something – so long as it was done in the pursuit of knowledge.  If you play golf or practice Brazilian jiu-jitsu, you know this to be true: If you tense up and focus on avoiding mistakes, you will learn very slowly. If you relax, let the mistakes happen, and learn from them, you will advance quickly.  It starts with being humble. Humble enough to accept the fact that when you begin anything new, you're likely to do it poorly.  Humility Is Nature's First Gift  Pride prevents us from admitting we are incompetent. But we're all incompetent when we're learning.  Think of how a baby learns to walk. He begins by crawling, then advances to "forward falling" (as my brother calls it), then to walking like a little drunkard, and then, finally, to walking masterfully.  Babies don't feel shame, because they're not proud.  There's a reason pride doesn't invade the human psyche until 6 or 7 years of age: There's simply too much to learn before then.  If toddlers had pride, it would take them years – or even decades – to walk and talk properly.  Humility is a much-underrated virtue. It provides us with at least three significant advantages:  •   It makes us more endearing. Humble people, especially accomplished individuals who remain humble, are well-liked.      •   It makes it easier to get cooperation. Humble people get more cooperation from others because they don't try to force strong-minded people to accept their ideas.     •   It makes learning easier and faster. Humble people are able to ask questions, make mistakes, and experience failures without embarrassment. This attracts good people to them who want to help. Humble people get the best teachers and get the most from them. If Humility Is the Solution, How Does a Proud Person Become Humble?  Now we are coming to the most important part of this discussion – a practical plan for defeating the fear of failure.  Here's how you can do it:   1.   Begin by accepting the truth. You're a good person, but that doesn't mean you are naturally good at everything. Look in the mirror and think about the skill you want to accomplish.        Say out loud, "I accept the fact that right now, I am incompetent at (name the skill)." Repeat this exercise until it doesn't hurt.     2.   Admit your incompetence to an indifferent audience. Once you can say it in front of a mirror, say it in front of a living human being. Begin by admitting your incompetence to someone who doesn't care.        Admit to your Spanish teacher you are incompetent at public speaking. Admit to your public speaking coach you are incompetent at speaking Spanish. Repeat this exercise until you can do it with grace and good humor.      3.   Next, admit your incompetence to a judgmental audience. Admit you are no good at languages to your Spanish teacher. Admit you have two left feet to your dance instructor. Do this not once, but every time you make a mistake or fail in some way. Do it with grace and good humor. As pop psychologists say, "own" the feeling.      4.   Admit your incompetence to someone who can punish you. This is the ultimate test. The next time you volunteer for a difficult assignment at work, admit to your boss you might fail before you succeed. Do it with grace and good humor, and you will be amazed at the result.         Your boss won't can you on the spot. (Unless he is reallyincompetent.) Rather, he will admire you for your humility. After all, he knows you are not yet competent. All he wants is your commitment to carry on until you are.         I've found the most productive and successful executives are very comfortable about saying, "I'm going to try such and such. I'll probably screw it up completely. But if I eventually succeed… just think what good will come of it!" Defeat your fear of failure by being happy – and even eager – to try and fail until you succeed.  That's how Edison invented the lightbulb. That's how Michael Jordan, a very mediocre basketball player in high school, became the greatest hoops player of all time.  They weren't afraid of failure.  You shouldn't be, either.  Regards,  Mark Ford  Source: Daily Wealth Follow us on Twitter: @blacklioncm

Don't Let 'The Glidepath Illusion' Ruin Your Retirement

Don't Let 'The Glidepath Illusion' Ruin Your Retirement By Dan Ferris, editor, Extreme Value Friday, August 28, 2015

The traditional notion of retirement says you should take bigger risks in the stock market when you're young. You have more time to make up for losses than when you're older. As you age, you should take less and less risk, so you won't lose your retirement money. This strategy is called "Glidepath investing." And it could ruin your retirement. Let me explain… The emotional appeal of Glidepath investing is obvious. Young people feel like they're going to live forever, so it feels better to them to take more risks. Buying more risky stocks and fewer safe bonds feels right.  Older people feel they have more to lose and might not be able to support themselves one day, so they tend to be more risk averse. For them, buying fewer stocks and more bonds feels safer.  There's an army of financial planners and other "helpers" out there selling products designed to get you to retirement with a big, safe nest egg, based on this feel-good notion.  However, research suggests that what feels good isn't necessarily what you should do…  Investor and researcher Rob Arnott of Research Affiliates published a report in September 2012 called, "The Glidepath Illusion." Arnott says Glidepath investing will make you less money because it will lead you to put less money in higher-return investments (stocks).  Arnott studied 141 years of stock and bond returns from 1871 to 2011. From these data, he hypothesized a range of possible outcomes. In general, Arnott found evidence that the range of outcomes from doing the opposite of Glidepath investing was superior to the range of Glidepath-based outcomes.  It's well documented that stocks outperform bonds over the long term.Glidepath investors wind up putting a bigger percentage of their assets in stocks when they're younger and have less to invest. They put a higher percentage into bonds when they're older and have more to invest.  That's the basic error. Investors put fewer dollars into higher-return investments, then interrupt the compounding process to put more dollars into lower-return investments. So they make lower returns than if they had done the opposite of Glidepath investing.  Glidepath investing is a good recipe for feeling good, but a poor one for making as much money as possible in stocks and bonds. Arnott's conclusion is worth quoting and keeping close at hand as a reminder…  Investors who are prepared to save aggressively, spend cautiously, and work a few years longer (because we're living longer), will be fine. Those who do not follow this course are likely to suffer grievous disappointment… No strategy can make up for inadequate savings or premature retirement.  Save aggressively. Spend cautiously. Let your investments compound as long as possible before drawing them down. That's sound advice.  Sadly, it makes perfect sense that the financial services industry is once again doing exactly the wrong thing for clients. Don't trust financial planners and brokers. They're commissioned salespeople. They're incentivized to sell investments, NOT to make you money in stocks and bonds.  For as long as my health holds out, I'll stay productive and hopefully get well compensated for my efforts, saving aggressively and spending cautiously. I recommend you do the same.  Good investing,  Dan Ferris Source: Daily Wealth Follow us on Twitter: @blacklioncm