This week I’ve been cleaning out my desk as I prepare for our move to our new offices on Glenwood Avenue. While organizing, I discovered that I have a paper copy of every single tax return I’ve filed since 1994. The financial nerd in me has thoroughly enjoyed reviewing copies of my old Schedule D tax forms. Schedule D is the form where you report all your capital gains, err losses, to the IRS. Having copies of mine has given me the gift of being able to reflect on almost all the investment decisions I’ve made over the years – at least outside of my retirement accounts.

As I remember my early years as an investor one thing is clear: I had no real process for making investment decisions. Some investments I’d thoroughly research, others I’d buy because a friend told me it was a sure thing. And if I didn’t have a process for deciding what to buy, I certainly didn’t have a process for deciding when to buy and when to sell. This meant that many of my investment decisions were based on emotion which can and often does have dangerous consequences. Fortunately for me, in my early twenties the consequences were limited.

One of my favorite purchases was my investment in the ProFunds Ultra OTC mutual fund. Its objective was to offer a return equivalent to 2x the return on the NASDAQ 100, the index containing all the big tech names of the the time.  So if the NASDAQ 100 was up 2% on a particular day my investment in the fund would be up 4% but if the index was down 2%, well… At age 28 I remember watching my $10k investment grow to $80k in just a few years!  However, a quick glance at my 2001 Schedule D reminded me that I sold it for $6k after the tech bubble had burst. I can’t tell you why I didn’t at least sell some of my shares earlier other than that it had something to do with not wanting to pay taxes and sheer greed.

Capture

That experience along with years of hearing about and witnessing other’s experiences has taught me the importance of having a well thought out, rules-based process for making investment decisions. One that efficiently captures the long term returns of the capital markets while also keeping costs and taxes low.  One that also minimizes or removes the possibility of making poor emotional choices at the wrong times – something to which we are all susceptible.  With that said, the best investment process in the world is useless if you can’t stick with it in good times and in bad. So it’s important to understand ahead of time how your process might behave in different kinds of markets, and to have the outside perspective of someone who can serve as a barrier between you and a costly emotional decision.

I don’t know what a rules-based investment process would have meant for my Profunds investment. Perhaps I wouldn’t even have owned it, but I feel confident that it would have at least prevented my 40% loss!  Today I’m happy to consider that loss a cost I paid to learn a valuable lesson at an early age.

This year marks my 21st year of offering financial advice to clients. I’m thankful that I get to work with such wonderful people in a job that I’m passionate about. I’m also thankful for the financial wisdom I’ve gained over the years. It makes me a better advisor and a better steward over my family’s money.

Tim Keller, a favorite pastor of mine,  likes to say, “Your future self will always see your present self as unwise and immature. That means you are currently a fool right now.” I look forward to another 20+ years of learning, growing and getting better as a financial advisor, one that puts a rules-based investment process in place for clients so they don’t have a Profunds story of their own twenty years from now.

Do you have a rules based investment process? If not, give us a call. We’d love to help.

 

Author Geoff Hall

After two decades of practicing wealth management, multiple bull and bear markets, an internet bubble, a financial crisis and everything else in between, I have come to understand certain truths. The stock market can be volatile and it’s best if you prepare ahead of time. The less you pay in taxes and expenses the more of your money you keep. Outside perspective is a very good thing. Having a good financial plan as your frame of reference goes a long way. Based on these truths, my value proposition is elegantly simple yet profoundly effective… I strive to listen to my clients like they are the only person in the world so that I can best understand what is most important to them. I work diligently to control the things that can be controlled in the investment process like taxes, expenses and market underperformance so my clients can keep more of their hard earned wealth. By creating and continuously monitoring a plan for each of my clients I ensure that they feel confident that they are on track to do more of the things that are most important to them. I offer my clients independent, unbiased advice in a language that they understand. My beautiful wife, Crystal, and I have a two year old son, Cooper, and we just welcomed our daughter, Rhodes, into the world. When I’m not spending time with them you might find me downtown serving at our church, pushing my limits at an F3 workout or having coffee with a friend in the Five Points area. I have been given the privilege of shepherding my family of clients through the ups and down of the markets and of life for that matter. And for that I am thankful.

More posts by Geoff Hall

Leave a Reply