Corona Coping: Listen to Your Doctor and Financial Advisor

One of the great things about my building is that you can network informally with so many smart people from all types of businesses and professions. After a week like we just had, it can be very helpful to get a big-picture global perspective from outside the financial world.

The International Medical Crisis Response Alliance (IMCRA) is right down the hall from me. Executive Director, Dr. Tom Hedberg and I have become friends thanks to shared interests in fitness, fiction and coffee-intake. Like behavioral finance pros, neuroscientists like Dr. Hedberg are fascinated by the way that human emotion takes over our rational decision-making during times of stress.

I asked Hedberg how serious the Coronavirus really is in the U.S.

Hedberg said it’s very hard to predict because U.S. citizens are historically not likely to be “closely bound” by government regulations concerning quarantines and isolation measures. “While our treatment facilities are excellent, a virulent airborne mutant contagion could prove a serious threat, and that widespread infection rates could easily overwhelm such facilities,” noted Hedberg. That being said, Hedberg believes Americans are “exceptionally well-informed about medical and health issues” and that most of us will take appropriate measures such as using disinfectant wipes in the home and gloves in public. 

The bottom line of course will be the number of virus carriers coming into the country from high infection-rate areas. “This can be limited by curtailing flights FROM such countries and encouraging flights OUT of the US,” added Hedberg. 

While infection rates could be significant, experts say fatality rates so far have been low.

“It appears the virus in its current form poses the greatest threat to elderly persons with pre-existing health conditions,” noted Hedberg. “Young children are only slightly affected and robust healthy persons are: 1) likely to get over the infection on their own and 2) Very likely to get over it with treatment.”

Hedberg reiterated the importance of staying calm and not overreacting to the news coming out of other countries, as well as the inflammatory domestic headlines about Wall Street and the economy.

True, the stock market had its worst week since the 2008 global financial crisis. But even with a 12-percent sell off, the broad-based indexes are still up by about 6 percent over the past 52 weeks and up by over 400 percent since 2009. While he’s not a professional investor, Hedberg said he’s going “bargain hunting” next week for undervalued stocks.

While over 80-percent of respondents to our annual CPA/Wealth Advisor Confidence Survey™ think we could see another 10-percent market correction within 12 months, only one in five (21%) think it’s “very likely” we’ll experience a recession within that time. That number moved only 5 percentage points from this time a week ago, before the market sell off began. There’s still time to take the survey….Give us 5 minutes of your time, and we’ll send you a report to show your responses stack up to your peers.

NOTE: We don’t make money from the survey or share respondent names or emails. It’s a pro bono effort in association with The Financial Awareness Foundation.

Whether talking about your finances or your health, the bottom line, said Hedberg, is to use common sense:

1) Refrain as much as possible from crowded environments where many people are breathing and re-breathing the same air.

2) Wear gloves in public whenever possible.

3) Use facemasks in public whenever possible (This is de rigeur in Japan and should become so in the U.S.).

4) Increase intake of vitamin C through citrus fruits.

5) Avoid physiologic stress situations such as going out into the cold inappropriately dressed.

6) Don’t get spooked by the headlines.

Conclusion

As with so many upsets in life, staying calm and using common sense will get us through this crisis and all its residual impacts. Don’t succumb to the headlines. Heed the advice of your financial and medical advisors and don’t hesitate to reach out them with questions or concerns. Let’s get on with your busy lives.

# Corona virus  #stock market  #Tom Hedberg #IMCRA

You Never Know. Lessons from a Zamboni Driver

Hard to believe, but it was the 40^th anniversary of the Miracle on Ice hockey game this weekend. That’s when a team of scrappy American college kids pulled off one of the greatest upsets in sports history. Against all odds, they defeated Russia’s undefeated elite professional team in the semifinals of the Lake Placid Olympics and spawned countless books, motivational speeches and a movie.

There was another hockey miracle this weekend, which I’ll get to in a minute. But first let’s look at what else transpired first in a topsy turvy week.

Baylor University’s men’s basketball team, ranked No.1 in the country, was knocked off by Kansas, ending Baylor’s 23-game winning streak. A few hours later, No. 2 ranked Gonzaga, went down hard to unranked Brigham Young University, ending Gonzaga’s 19-game winning streak. Then, the nation’s only remaining undefeated team, 4^th ranked San Diego State, lost to unranked Nevada Las Vegas, ending State’s 26-game winning streak.

Speaking of Las Vegas, Bernie Sanders, until recently a fringe candidate in the overcrowded Democratic presidential field, obliterated the competition Saturday night at the Nevada Democratic Primary. Now most of the remaining five contenders are on thin ice.

*** To what extent will the elections impact the economy and financial markets. Take our 4^th annual CPA/Wealth Advisor Confidence Survey™. See what your peers think

Back to hockey. How many of you know the name David Ayres? I didn’t either until this morning and I’m a hockey fan. In last night’s National Hockey League game between the Carolina Hurricanes and host Toronto Maple Leafs, both Hurricanes goalies got injured on separate hits by the Leafs. Without any goalies left on the bench, the Hurricanes turned to a 42 year-old Zamboni driver named David Ayres, an emergency backup goaltender and kidney transplant survivor from Toronto who was sitting in the stands.  

Without time to warm up, Ayres was asked to enter the game in the third period and preserve Carolina’s lead against the hometown team. After allowing the first two Toronto shots to slide through his pads, Ayres steadied himself and stopped the next eight shots, preserving Carolina’s 6-3 win. Ayres became the first emergency backup goaltender ever to win an NHL game was mobbed in the Carolina locker room by his temporary teammates.

Talk about being ready for anything!

Ayres, who had also battled two bouts of skin cancer, drives the Zamboni ice resurfacing machine for Toronto’s minor league team. He has filled in a few times in emergency situations in the minor leagues, but never before in the NHL. His job is simple: Be ready for anything on the off-chance your number is called.

After Carolina’s backup goalie Petr Mrzaek went down, Ayres told reporters: " I got a bunch of text messages that said, 'Get in there,' and someone came into the room and like, 'Hey, you'd better get dressed, hey, you're going out there. I was a little shocked, but loving it."

Conclusion

We live in a crazy, unpredictable world when anything can happen. Sure, things seem pretty good right now on the economic and financial market front, but this is exactly when you want clients to get regular medical checkups, “stress-test” their portfolios and see how they’d fare if a natural disaster hit.

*** Find out why half of the CPAs and wealth advisors we surveyed think a recession is possible within 12 months.

Battening down the hatches when you’re flush is the best way I know to be proactive, rather than reactive, during times of stress so you can keep your momentum going without praying for a miracle.

# Miracle on ice  #Zamboni drivers  #David Ayres

Wisdom of the Crowd? Not on Super Bowl Sunday

Whether you’re a hardcore football fun or just a casual observer, chances are you’re going to get sucked into watching the Super Bowl—the world’s most watched sporting event. Even if you don’t know a screen pass from a screen door, you’ll be tempted to make a friendly wager or two with a co-worker, a friend or someone at a neighbor’s Super Bowl party.

That’s okay. We won’t tell.

Nearly $7 billion will be wagered on Sunday’s big game according to CNBC. That’s roughly a dollar for every man, woman and child on the planet. And it’s not just cigar-chomping high rollers reaching into their wallets. Roughly 26 million regular people are expected to bet on the Super Bowl, according to the American Gaming Association. Of those 26 million bettors, only 4 million will be wagering in person at a sportsbook. Only 5 million will are expected to bet through an online or mobile platform. The rest of us — roughly 16 million — will bet illegally via a bookie, an office pool, or a “buy a square” board at your favorite pub or deli.

It's fun, right?

I’m not going to debate the ethics or gambling or whether or not you should report your winnings to the IRS if you haul in more than $600. Just don’t use real money—money you can’t afford to lose—if you lay the points, buy a square, ride the dog, parlay a prop or squeeze the under or make some other kind of wager on the game. Eventually you will lose, just like you do in the stock market. No one has ever gone undefeated in the market or in sports betting. And just like investing, the pain of a loss in sports betting is felt significantly more than the thrill of a gain. I didn’t make that up. It’s based on the theory of “loss aversion” that was pioneered by Nobel prize winner Daniel Kahneman and Amos Tversky.

Bottom line: You have about the same odds of being a consistently successful sports gambler as you do being a consistently successful market timer—close to zero. That’s because the market instantaneously prices in every material piece of information that’s out there and does it a lot faster than you, or any well-staffed Wall Street firm can possibly do. 

Our client Chas Boinske, President of Wayne, Pennsylvania-based Independence Advisors and author of the forthcoming book “Masterful Investing,” likens the market to “the world’s fastest super-computer” that continuously sets and updates prices. “When you try to play the market,” writes Boinske, “that’s exactly what you’re up against—one of the most powerful supercomputers in the world Good luck.”

Oh. And there’s another thing. Vegas oddsmakers aren’t in business to lose money. They have armies of people who spend all day long scouring injury reports, field conditions, scouting reports, trends, and even the police blotter the night before big games. Their job is to set an equilibrium price (aka the betting line) that has an equal number of people on both sides of the bet. And there will be a lot of dumb people throwing down their money on Super Bowl Sunday.

Now, I can’t speak to the entire $7 billion expected to be gambled on the Super Bowl. But of the $150 million or so that’s handled legally through the Vegas Sports Book, oddsmakers consistently make a return of about 7.3% for themselves. Does that 7.3% rate of return sound familiar? It should, because 7.3% is what the stock market historically returns to investors on an annualized basis.

In case you were wondering, the line (aka equilibrium price) for tomorrow’s big game is Kansas City favored by 1-1/2 points over San Francisco and the two teams are expected to combine for 54-1/2 points. That’s what -1.5 (54.5) means when you see it in the sports section. What that really means is that half of all the bettors out there think Kansas City will win by two or more points and half think San Francisco will either win the game “straight up” or else lose the game by less than two points.

So how do they come up with half a point?

Do they split a field goal in half? Nope. Half a point is the same thing as fractional shares in the stock market. It’s the equilibrium price that keeps getting adjusted all the time so that an equal number of bettors (aka investors) are on either side of the line. Same goes for that 54.5 number also known as the Over/Under. All that means is that half of all the betters out there think the two teams will combine to score 54 points or less and half think they’ll combine to score 55 points or more. Believe me. It doesn’t matter if the score is a tense 28-26 or a blowout 49-3. If you’ve got a lot of money on the “Under,” you’ll be sweating it out big-time if one of the teams starts lining up for a field goal in the final minute of the game.

Fun, right?

Like the markets, Vegas doesn’t care who wins and who loses. The house just wants an equal amount of money on both side of the equilibrium price. In fact, professional sports books don’t do a very good job of accurately predicting the score of the game or the margin of victory. They just want a lot of transactions flowing in. Sound familiar?

If you’re new to sports betting, a point spread of 1-1/2 points like we have for Sunday’s game is pretty small. Sure, both teams are very good, Super Bowls are often lopsided affairs with an average margin of victory of about 10 to 11 points. In fact, only seven of the 53 previous Super Bowls (13%) have been decided by three points or less, and just one has had a one-point margin of victory. Further, there have been only two “pushes” in the 53-year history of the big game. A push is what happens when the favored team wins by exactly the point spread. In the 1997 Super Bowl, Green Bay was a 14-point favorite and indeed beat underdog New England by a score of 35-21. Three years later (January 2000), the old St. Louis Rams, a 7-point favorite, defeated underdog Tennessee by a score of 23-16. That’s been it for pushes.

Vegas hates pushes. They have to return everyone’s money whether they bet on the favorite or the underdog. Again, pushes don’t happen often. Sports books are set up to make money on both sides of the transaction just like market makers do. Like Wall Street analysts, oddsmakers can be consistently off target and still get paid. The average “miss” for the Super Bowl has been about 11 points when the favored team wins and it’s been about 10 points when the favored team loses.

Not great forecasting. But again, most of the time oddsmakers make money.

In case you were wonder, we found only four previous occasions in which the betting line was as close as it for Sunday’s Big game (1-1/2 points).

·         In 1982 San Francisco was a 1-point favorite over Cincinnati and ended up winning by 5 (26-21).

·         In 1973 Miami was a 1-point favorite over Washington and ended up winning by 7 (14-7).

·         In 2015 Seattle was a 1-point favorite over New England and ended up losing by 4 (28-24). Hmmn

·         In 2014 Denver was a 2-point favorite over Seattle and ended up getting blown out by 35 (43-8)  Oops!

So much for predicted close games.

James Surowiecki’s 2004 best-seller, The Wisdom of Crowds, argues that large groups of people tend to be much better than individuals when at assessing situations and making good decisions whether we’re talking about pop culture, psychology, biology, behavioral economics, and other fields. The wisdom of the crowd even works in the famous jelly bean estimating game. As Boinske relates in his book:

You’ve probably played the jelly bean game at least once in your life. That’s when a large jar of jelly beans is placed in a public space and people try to guess exactly how many jelly beans are in the jar. Whoever guesses closest to the actual number wins a prize – often the jelly beans themselves. Whether at a school, a county fair or a church fundraiser, it’s amazing how often someone in the crowd of people will guess exactly the right answer.

One day at our firm, my assistant and I poured 1,670 beans into a large plastic jug and we set it up on our lobby. Almost everyone wanted to play the game and guesses varied wildly – from 409 to 5,365. The average of our guesses was 1,653—just a hair off the correct answer. Wow, that’s spooky!

Conclusion

Just remember this: When it comes to investing and sports betting, the game is rigged by the house. The house always has both sides of the bet covered. The more emotional you become, they more they suck you in and take your money. Enjoy Sunday’s game and make a friendly wager or two with spare cash you absolutely can’t afford to lose. We’ll have plenty of team to get emotional as global market volatility kicks in with a vengeance in the turbulent months ahead.

# Super Bowl  #wisdom of the crowd  # sports betting  #investing