This Investing Stuff is Really Pretty Easy

After almost two decades in the financial advisory business and a lot of time spent trying to determine the direction of the financial markets, I have finally figured it out.  To my clients, this may seem like seem like an abrupt change in my investment philosophy.  But when you find something that works, you have to run with it. 

You see, I spent several years as a wirehouse broker.  Early in my career, I believed that working for one of the Wall Street giants, and having access to their top-tier research and analysis would be all that I needed to provide money-making ideas to my clients.  And I knew that if my clients made buckets of money, then I would make a good living. 

As you might have guessed, and in hindsight, I should have known, it didn't work out that way.  Oh sure, overall my clients made money because the markets were healthy…most of the time.  And while I didn't get rich, I made a decent living.  But that "top-tier" research didn't seem to help much…and often seemed to hurt.  It surprised me that the best and the brightest minds in the financial world could be so wrong so often on the direction of the markets. 

So, I left the brokerage world and went to work as an independent Registered Investment Advisor.  I adopted a fee-only business model to eliminate the potential conflicts of interest that commissions can create.  I also altered my investment strategy.  Having become convinced that no one, not even the best and brightest, could consistently predict the movements of the markets, I became an advocate of the passive investment style. 

A passive investment manager doesn't try to outsmart the markets.  We create portfolios for our clients that are diversified across several asset classes and we take what the markets give us.  We rebalance the portfolio when market movements create an imbalance.  The strategy forces us to buy low and sell high, which is the way the investing game is supposed to be played.

This strategy has worked well for me and my clients for years.  

But I have finally found something even better!  I have found an indicator that successfully predicts how the markets will perform.  Well, the US markets at least.  And, I've carefully studied this indicator for years.  But until recently, I didn't realize the predictive powers it possesses. 

You see, the Sports Illustrated Swimsuit issue came out this week.  Please note that, being a happily-married man, I only studied the issue for the market insight it would provide.  But sometimes that can take hours! 

It turns out that the swimsuit issue is a very good predictor of the annual performance of the S&P 500 stock index.  First introduced by the Bespoke Investment Group, the indicator suggests that when the cover model is from the U.S., the index will generate a higher return than its historical rate.  A non-American on the cover leads to an underperforming year.   

The good news?  This year it's an American on the cover!  So, forget about all those other so-called market indicators.  There's the Super Bowl indicator, the Billboard Top 100 indicator, the Big Mac index and the lipstick indicator.  None of them can hold a candle, or is nearly as much fun, as the Swimsuit indicator.  Although, I think I could become a fan of the hemline indicator.  I'll study that one more closely for a future article.