April, 2017 | Posted By Buddy Reisinger
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© Can Stock Photo / kbuntu

Given how fleeting a financial super-star’s fame tends to be, there’s something comforting about Warren Buffett’s staying power as the “Oracle of Omaha.” (Omaha is Buffett’s hometown and headquarters for his global holding company Berkshire Hathaway.) The straightforward wisdom he’s been sharing for more than 50 years in his annual shareholder letters helps explain the perennial appeal.

I’ve long admired his position on how to invest sensibly over the long haul. After all, he’s the guy who first said (in 1988), “our favorite holding period is forever.” But his insights on human character are always among my favorites, such as these new gems from his recently released 2016 letter.

  • “1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.”
  • “Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.”
  • “As Charlie [Munger] says, it’s great to have a manager with a 160 IQ – unless he thinks it’s 180.”
  • “[B]ad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be ‘helpful’ as well.”
  • “This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: ‘When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.'”

PS: If you haven’t caught the HBO Special, “Becoming Warren Buffett,” I recommend that too. You have to love an 86-year-old billionaire who still drives by the McDonald’s take-out window on his way to work each morning to “splurge” on an Egg McMuffin®. (Here’s the promo for it​. To watch it in full, you’ll need to be an HBO subscriber.)

April, 2017 | Posted By Henry Bragg

At Your Service Art-fullsizeWhen we talk about evidence-based investing, we often mention the importance of going global.

Global diversification ensures that you aren’t placing all of your financial faith in the fate of any one country’s concentrated risks. It also helps you combat your natural tendency to bulk up on investments closer to home, where you imagine you’ll be safer or better off over the long haul.

That’s known in behavioral finance as “familiarity” or “home-town” bias, and it’s premised on false assumptions. We’re as patriotic as the next Americans. But the evidence still informs us that human commerce knows few borders, so neither should our investments.

That’s the long view on global diversification. But have you ever wondered about some of the details?

Say, for example, you were to invest half of your portfolio in a U.S. equity index fund, and the other half in an international index fund, “ex-U.S.” In terms of number of stocks as well as market cap (the total dollar value of a public company’s outstanding shares), how diversified are you, really? Are you still at a 50/50 split?

Dimensional Fund Advisors recently published “Going Global: A Look at Public Company Listings,” to explore some of these underlying questions. Some of its findings:

  • Worldwide, there are more publicly traded stocks than their used to be, increasing from about 23,000 to 33,000 between 1995 and year-end 2016.
  • In the U.S., there are fewer publicly traded stocks than their used to be. Using the Wilshire 5000 Total Market Index as a benchmark, U.S. stocks declined from about 5,000 to 3,600 companies between 2005 and year-end 2016. (That’s right, the “Wilshire 5000” actually only tracks about 3,600 stocks these days.)
  • As measured by market cap, the U.S. still dominates global markets – by far, at 54% of the world’s market cap. That’s also an increase from 40% in 1995. The next biggest contender? Japan at 8%. (See our accompanying “Illustration of the Month.”) 
  • Many index funds only expose their shareholders to a fraction of these total available stocks. From Dimensional’s report: “For example, one well-known global benchmark, the MSCI All Country World Index Investable Market Index (MSCI ACWI IMI) contains between 8,000 and 9,000 stocks. … For comparison, the Dimensional investable universe, at around 13,000 stocks, is broader.”

What can you draw from these insights besides trivia to share at your next social gathering? Zooming back to our favorite vantage point – the Long View – there are still plenty of opportunities in plenty of places to maintain your efficient, effective, globally diversified investment strategy.

April, 2017 | Posted By Rick Hill

Is there such a thing as too much knowledge? There can be! It’s called “the curse of knowledge” when we forget that nobody will have a clue what we’re talking about if we leap right into the deep end of investment theory.

That’s why our first responsibility is to recreate those same, “ah-ha!” moments that we’ve already enjoyed. Today’s video with journalist Robin Powell does just that, for those of you who are wondering what this “evidence-based investing stuff” is all about, as well as for anyone who could use a handy, two-minute reminder. Enjoy!

Robin Powell and Matt Hall on Evidence-Based Investing from Hill Investment Group on Vimeo.

April, 2017 | Posted By Matt Hall

We’re big on celebrating milestones here at Hill Investment Group. Along those lines, what better excuse for cake and bubbly than the one-year anniversary of the “Odds On” book launch?

That’s what my HIG colleagues thought when they threw me an April 12th surprise party to celebrate. Our team is truly inspired by the way “Odds On” has allowed us to share a message of evidence-based hope to investment advisors and investors alike.

As I expressed in the first sentence on the first page of the book’s intro: “I want this book to change your life.

I can’t tell you how exciting it’s been to see it do just that for so many who have been kind enough to let me know what the book has meant to them. I have collected some of my favorites and now have more than 21 pages of feedback and more than 100 reviews on Amazon. Here’s what one reader shared with me recently:

“Matt: I started reading your book this morning and now find myself emailing you after just finishing the entire thing. As a young financial advisor, very new to the business and working for a wire house firm, I too noticed everything you described in the opening chapters. … Until I picked up your book, I was losing hope for our profession. Work was dreaded. The days long. My outlook bleak. But after reading your book, I realize there is hope. There are people out there who understand and care. Your book gave me a much needed breath of fresh air. Now, more than ever, I am excited to help others and build a business centered around evidence based investing.”

To have the opportunity to impact other financial professionals who want to do right by their clients? I don’t know if I could ask for much more out of life.

Beyond leveraging “Odds On” to reach out to readers, we were also delighted to begin donating the profits from all of the sales to charity. We’ve already made our first donation and look forward to making many more as book sales continue.

So, happy first birthday to “Odds On,” and many more!

April, 2017 | Posted By John Reagan
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© Suzy Gorman Photography

Remember our announcement earlier this year, welcoming Katie’s daughter Sally into the world? Time has flown fast since then. Katie is now back in action at Hill Investment Group … although we don’t doubt that a part of her heart remains at home.

“It is a bittersweet time for me to leave our beautiful daughter during the day,” says Katie. “But having a job I really love makes it sting a little less. I missed chatting with my coworkers and our clients during my three-month leave.”

Are you a working mother as well, or do you know someone who is? Here are some additional words of wisdom from Katie:

“My mother worked as a full-time nurse when I was young, and I believe that instilled a work ethic in me that I might not otherwise have. Being a working mom is not going to be easy, but I think it will make me a better momma to Sally!”

April, 2017 | Posted By Matt Hall

In March we took a break from our regularly scheduled e-newsletter and blog programming to share an annual Hill Investment Group overview.


 

Dear Friends,

You’re used to getting the Hill Investment Group newsletter now every month. We put a lot of thought into those newsletters, curating the best stories to help you stay focused and keep the odds of success on your side. I want to do something a little different this time.

The investment industry is in the midst of a major transformation. Independent advisors like Hill Investment Group are growing 15% annually, as investors are becoming smarter than ever and learning to focus on evidence over hype. As our firm evolves alongside the industry, I want you to know that we’re holding on to the core values that have gotten us where we are today—and that we intend to protect, fiercely, for the future.

Since our founding in 2005, we’ve thought of ourselves as a small firm with big ideas. To preserve this mentality even as the firm grows, we’ve worked hard to create a very specific culture that’s rooted in three core areas:

The character of our people Everyone at Hill Investment Group has authentic passion for our work and our clients. We make new hires very intentionally, looking for people who share that strong desire to serve. Then, we strengthen engagement in many ways throughout the year, such as annual family and team parties and even daily lunches. In fact, lunch here is more than just a meal—it’s a vital work session where we tackle everything from big questions about the future to little details that make our office run better.

[Editor’s note: Speaking of those daily lunches, Matt was pleased to talk about them recently in a BBC Business Daily broadcast exploring today’s business lunch culture. You’ll find his sound bite at (appropriately) around 12:00 in this “Out to Lunch” radio podcast.]

Our dedication to service – We’ve created a client service culture that’s extravagantly thoughtful and detail-oriented. This approach not only ensures a consistent experience for every client, it’s another way to show how much we care. Remember the television show “Cheers” where everybody knows your name and can anticipate what you order? That spirit has been and will always be a part of the fabric of our firm.

Our commitment to the evidence – We are results oriented and data-driven. Everyone on the team—even those with many years of experience—is hungry to learn more. To that end, we strive to be leaders in our community and to forge connections that help us advance our professional development. That way, we can continue offering clients the best possible service.

These values are written into our company mission statement, and more importantly, they underpin every decision we make for our business and our clients. I could reel off hundreds of anecdotes illustrating our culture in action—and actually, I captured a lot of those stories in my book, Odds On. As I was working on this letter in March I headed out to visit Hill Investment Group’s Houston office, which opened in 2014. Sitting in the airport waiting for my flight, I realized that our expansion was another example of how our culture guides our actions.

Opening another office was nowhere in our strategic plan. Then a colleague I really trust suggested I meet an exceptional advisor from another firm who was thinking about his next move. So I talked with Henry Bragg and realized he was everything we look for in a new team member. It was obvious that he needed to be a member of our group, but he lived in Houston. As we continued talking it became clear he was the right person to take Hill Investment Group further—and that opening a new office would give us another way to make a real difference in people’s lives.

The Houston office is now one of the biggest sources of growth for Hill Investment Group. Even better, I know those clients are getting the same experience that we deliver to clients in St. Louis (and everywhere else in the country) thanks to the strong culture we’ve built.

That challenge of staying true to our values as we grow is both exciting and humbling— it’s why we do what we do. We started Hill Investment Group to help change lives, and we work hard, every day, to live up to that mission. I hope these thoughts on our culture help clarify how we make decisions. Please feel free to reach out if you have any questions. I’m always happy to talk.

Take the Long View,

Matt Hall, President
Hill Investment Group

 

April, 2017 | Posted By Henry Bragg

As we explored in our accompanying article, “Going Global: What Does It Really Mean,” we are a huge part of the world when viewed by market cap, as the slide below shows. Thinking only in terms of landmass can distort investment decisions. Directly comparing the markets of nations produces some surprising results. Measures such as population, gross domestic product, or exports do not directly indicate the size or suitability of investments in a market.

This slide (one of our favorites) illustrates the balance of equity investment opportunities around the world. The size of each country has been adjusted to reflect its total relative capitalization.

Of course, the world is in motion—there is no fixed relationship between markets, and their proportion can change over time. Viewing the world this way brings the scope of diversification into new light and helps clarify allocation decisions.

A country’s equity market capitalization, or market cap, reflects the total value of shares issued by all publicly traded companies and is calculated as share price times the number of shares outstanding.

 

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Click to enlarge

February, 2017 | Posted By Rick Hill

Michael Lewis’ latest book, “The Undoing Project,” weaves together the biographies of Amos Tversky and Daniel Kahneman, two Israeli psychologists whose work in the 1970s–1990s launched a new way of combining behavioral academics with practical applications. Their specialty was exploring the ways the human mind makes systematic errors when forced to judge uncertain situations.

At first, you may not think that sounds like gripping entertainment. But in typical Michael Lewis fashion, these pair of academics become a fascinating read.

I and my Hill Investment Group colleagues had the privilege of meeting Lewis and hearing him speak shortly after he published his 2003 book, “Moneyball.” In it, he showed how Major League Baseball teams were making poor decisions on valuing players based on human judgment. Defying convention, Oakland A’s General Manager Billy Beane evaluated players using data rather than “expert” judgments to successfully compete against teams boasting much higher payrolls.

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The HIG team meets Michael Lewis (center).

When Lewis wrote “Moneyball,” he wasn’t aware how powerful his book would become. He was simply intrigued by a real-life illustration of objective evidence beating the pants off of conventional so-called wisdom.

In some respects, “The Undoing Project,” is a prequel to “Moneyball.” Lewis admits, he didn’t realize it at the time how much of what he explored in “Moneyball” came directly from professors Tversky and Kahneman and their earlier work. Once he connected the dots, he decided to write a book about them too. Their story is about how they used their understanding of systematic errors in people’s judgment to improve that judgment, and thus improve their decision-making.

I believe one of their most important findings is this: Knowing you or others have biases (such as relying on overly small samples, anchoring on past assumptions, and mistaking hindsight as being predictive) isn’t sufficient to overcome them. Even when we know we’re being influenced, we often let it happen anyway!

Here’s one example from Lewis’ book:  In 2016, basketball player Jeremy Lin signed a $38 million contract with the Brooklyn Nets – clearly a coveted hire. But back in 2010, no NBA team would draft him. “He lit up our models,” one team manager said … but as a Chinese-American Harvard grad, Lin didn’t fit the stereotype. Even though they had the evidence (the models) in hand, they were unable to overcome their biases and recruit him when he could have been had for far less money.

Back to professors Kahneman and Tversky. In 2002, Daniel Kahneman won a Nobel Prize for the work that continues to shape our lives today. Amos Tversky likely would have received the award as well but, sadly, he passed away in 1996, and Nobel prizes are not awarded posthumously. In any case, their work has contributed to untold advances in medical diagnosis, military decisions, professional sports and – last but hardly least – financial economics.

Across all of these disciplines and more, the takeaway is that human bias is ever-present, which is why we must remain ever on guard against it. Hint: One of the best ways I know to combat your own biases is to recruit someone who is aware of how prevalent they are, to let you know when it’s happening to you.