Thanksgiving is a wonderful opportunity to get together with your family for a holiday that’s all about good food and gratitude. It can also be easily spoiled if conversations turn confrontational, which is why some subjects — namely politics and religion — are usually considered off-limits. 

Many people include financial matters on the list of off-limits topics during the holiday, but having the family together presents a perfect opportunity to discuss important financial matters — especially estate planning. While this may seem like an uncomfortable topic to bring up, effective communication with your loved ones is a critical part of the process. 

You don’t want this topic to come up by surprise, so give advance notice to your family that you’d like to make it part of the day. It doesn’t have to be the central discussion during the big meal; setting aside some time after the feast, or at some point during the long weekend, will suffice. 

Here are a few ways a family discussion about estate planning can be useful:

It helps set expectations

There has been considerable discussion about the massive wealth transfer that is expected to take place between Baby Boomers and younger generations. Fortune recently determined that the average Baby Boomer has a net worth of $970,000 to $1.2 million. An analysis by Cerulli and Associates estimates that the Baby Boomers and their parents (the Silent Generation) will pass on about $72.6 trillion to their Gen X and Millennial heirs.

This transfer of assets could have major ramifications for younger generations, especially for Millennials whose economic advancement has been hampered by challenges such as the Great Recession. Receiving a substantial sum could allow them to purchase a home, strengthen their retirement account, start an investment portfolio, or achieve other long-delayed financial goals.

However, there may also be a significant disconnect between what younger generations think they’ll inherit from their parents and what their parents are actually planning to leave them. While the figure in the Cerulli analysis is impressive, it’s worth noting that 42 percent of the wealth to be transferred is from ultra-high net worth households. A recent survey by Alliant Credit Union found that while 52 percent of Millennials believe they’ll receive an inheritance of at least $350,000, 55 percent of Baby Boomers said they were planning to leave less than $250,000 to their heirs.

Other factors also affect how much the older generations intend to leave for younger ones, or how much they’ll actually be able to pass on. Retirees must balance factors such as long-term care costs, higher costs due to inflation, and longer life expectancies to ensure that they don’t outlive their savings, and this can also limit how much money they’ll be able to pass on to their heirs.

A discussion about your finances can help set realistic expectations, and is also a good starting point for a conversation on estate planning. 

It gets the ball rolling

Failing to discuss what happens to a loved one’s assets after their death is a key source of wealth transfer problems. If you make your heirs aware of your plans and involve them in the process, it makes the process much smoother. 

An initial discussion on estate planning can simply inform your children of any plans and preparations you’ve made. Estate planning allows you to inventory all of your assets, including debts and liabilities, so you might share this information to help set expectations and discuss what you’d like to leave as an inheritance or as charitable donations. Your initial discussion can also be a useful way to inform your children about where your assets are being held, such as the names of any bank accounts, investment portfolios, and retirement accounts.

Clearly establish what steps you’ll be taking as part of your estate planning. This might include determining how your assets will be divided, setting up a will or a living trust, making preparations for long-term care, establishing health care directives, and setting up your power of attorney for financial and health care decisions in case you are incapacitated.

A Thanksgiving meeting is also a good way to get input from your offspring on your estate planning. You’ll be able to determine who is best suited to share the responsibility of this process, and make sure they’re ready for it. Your children may challenge some of your own assumptions as well; for example, you may believe that your family will want to keep a vacation home and discover in the course of the conversation that they’d prefer to sell it.

It can be the first in a series of important conversations

Estate planning is far too weighty a topic to cover in one conversation. While a discussion on Thanksgiving is a good starting point, you should regularly revisit the subject in the ensuing months and years.

Your initial talk might simply make a checklist of what you’re looking to accomplish as part of your estate planning, then make a plan for an ongoing dialogue. Perhaps you’ll want to set up weekly or monthly check-ins to keep your children up to date on your plans.

Financial advisors can help you prepare a family meeting to discuss your estate planning. These professionals will also take a considerable amount of stress off your children while also providing helpful expertise in organizing your assets, making sound investment decisions, and minimizing tax liabilities. They’ll also coordinate with attorneys overseeing the legal aspects of estate planning.

By Ken Russell Jr.

Successful entrepreneurs are unique individuals with an affinity for risk-taking behavior that assists them in building their wealth. However, some of these very same traits can become a detriment to maintaining the assets they’ve created. There are three key characteristics that can often turn successful entrepreneurs into unsuccessful investors:

Control: Entrepreneurs, especially those who found their own companies, are known to be extremely controlling people. After all, they’re trying to bring their own vision to life and take the reins of numerous aspects of their business. Even if they employ others who assist them in running their company, the entrepreneur is the final arbiter of virtually every material business decision. 

When an entrepreneur is accustomed to being the decision maker on so many financial considerations involved in running a business, they’re often less willing to cede control of their investment decisions. They might also be overconfident in their own abilities, leading to the problems attendant in emotional investing.

Concentration: Doing one thing, and doing it extremely well, is frequently the key to entrepreneurial success in the United States. A concentrated focus on “owning” your business space is a proven path to growth.

While this focus is highly beneficial in running a business, it can lead to problems when entrepreneurs try to manage their own investment decisions. An entrepreneur may be an undisputed expert in the operations involved in providing a service or bringing a product to market, but that won’t often translate to an ability to navigate the complex issues involved in investing.

Use of Leverage: Entrepreneurs usually invest some of their own capital to start or expand a business, but they also tend to rely heavily on financial leverage. “Using someone else’s money” is an excellent way to increase the return on one’s own equity ownership in a business, as it preserves a founder’s personal capital, serves to spread some of the financial risk to either lenders or note holders, and supports the growth of the business.

Leverage can also strongly influence an entrepreneur’s approach toward investing, and it may be difficult to break this behavior later. They may be willing to favor a more conservative approach to avoid losing their own capital or the capital of their investors, but they may also favor a riskier approach when using borrowed money — a behavior which can carry over when investing personal assets.

From Entrepreneur to Investor

Now let’s say that a successful entrepreneur has reached the point where he or she is able to monetize their ownership in the business, perhaps through an outright sale or a significant distribution that transforms their illiquid investment into a fully liquid one. While this transaction can leave them with a sizable amount of capital, the characteristics noted above can significantly impede their ability to maintain or grow their assets.

For example, many years ago, my team and I visited with a nationally known businessman that had just sold his company for a significant amount of money. My team pitched him and his family on our investment process and a host of other wealth preservation services. His response was something along the lines of, “What you do sounds fabulous, but if you did that my sons would have nothing to do!”

He proceeded to trust his sons with the management of his wealth. Over the next decade, their poor decision making had cut the value of his portfolio in half. 

While it may take some time to accomplish, entrepreneurs can abandon the characteristics that made them successful in business when weighing their investment options. This will significantly increase the chances that they can sustain and grow their assets. Here are some tips on how to do so: 

Cede control and heed a financial advisor: Here’s the hard reality: while you may have been a professional business owner when you were running your company, you will be using an amateur advisor if you try to manage your liquid wealth by yourself. It’s akin to leaving the management of your company to an intern when you go on vacation. 

When you use a financial advisor, you’re still directing the strategic goals of the investment process. However, you’re ceding control of the day-to-day portfolio management process to professionals, who will be taking steps to ensure the sustainability of your money for decades.

Less concentration, more diversification: The business concentration that created your wealth in the first place will jeopardize it if you remain concentrated after you’ve acquired more liquidity. Sticking with what you know can be a form of risk mitigation when operating a business. Following this same strategy in public equity investing can be a fatal flaw.

Take steps to diversify your investments as soon as possible. For example, if you receive stock as part of the sale of your company, sell it as soon as your holding period requirements are met. If you’ve made your money in the private healthcare or services sector, don’t over-invest in the public side of those sectors when your wealth becomes liquid. 

Leverage your time, not your money: The use of borrowed money is an excellent return on investment optimizing strategy when running a business. But the continued use of margin debt in an equity portfolio is an unnecessary risk-taking behavior. 

To be sure, there may be occasional – and temporary – reasons to apply leverage to a portfolio if it involves optimizing the timing around tax deferrals or cost basis changes. But the continued use of leverage in an attempt to enhance portfolio returns – or fund one’s lifestyle – can have disastrous outcomes for your liquidity at the worst possible time. 

I’ve been in this industry long enough to witness unforeseen market events in 1987, 1998, 2000, 2007, and 2020. These events generated countless margin calls which decimated investor portfolios. 

An unleveraged portfolio has the ability to wait out equity market downturns. A nervous lender does not afford a leveraged portfolio the luxury of time.

To learn more about how a financial advisor can help you invest the wealth you’ve created through your business, contact Grey Ledge Advisors at 203-453-9075.

Investing in the stock market offers numerous opportunities for profit, but it also carries inherent risks. Market participants have used two popular investment approaches — the contrarian and trend following strategies — to try to enhance profits and minimize risk, to varying degrees of success.

In this blog post, we’ll explore the merits, drawbacks, and intricacies of each approach, providing insights for investors seeking to make more informed decisions in their pursuit of long-term success. We’ll also look at real-life examples of these strategies in action, including the pitfalls and challenges associated with each approach.

The Contrarian Approach: Seeking Value in Unloved Stocks

Contrarian investing involves seeking out-of-favor stocks with low valuations, as they often have most of the negative factors already priced in. While this approach may sound simple in theory, it requires a keen eye for detail, patience, and the discipline to execute an investment effectively.

Strengths: Contrarian investing can uncover hidden gems in the market, as undervalued stocks may offer significant growth potential once their true value is recognized by the broader market. This approach can also lead to lower portfolio volatility due to its focus on fundamentally strong companies trading at discounted prices.

Pitfalls: Identifying true value in out-of-favor stocks can be challenging, and investors must be prepared to weather disappointments and potentially prolonged holding periods. For instance, AT&T and Verizon are businesses that, on paper, appeared to be great contrarian investment opportunities due to their low valuations. However, the negative price action ultimately proved justified due to managerial overspending and a continuing decline in revenues. These cases illustrate the importance of being meticulous about which businesses you select for contrarian investing.

Example: Unilever, which underperformed due to the management’s search for a “purpose” for their brands, resulting in a price multiple difference between the European conglomerate and its US competitor Proctor and Gamble. Contrarian investors saw potential in Unilever’s valuable brands and the involvement of activist investors. Today, the company has caught up to P&G — and significantly outperformed this competitor — as it has focused on profit, changed its business divisions, and announced an external CEO with a great track record of growing brand-oriented businesses, who will be taking over in July 2023.

The Trend Following Approach: Riding the Momentum of High-Performing Stocks

Trend following investors seek to capitalize on the momentum of stocks with strong price performance, trusting that better-performing companies will continue to outperform their competitors. This approach requires investors to buy and hold more expensive stocks, often in the face of market noise and short-term fluctuations.

Strengths: Trend following can generate significant returns when executed well, as market leaders often continue to deliver strong performance over time. This approach can also benefit from the compounding effect of reinvesting gains into high-performing stocks.

Pitfalls: The trend following approach carries the risk of entering positions too late or failing to exit before a trend reversal. Additionally, trend followers may be prone to herding behavior, driving stock prices to unsustainable levels and creating market bubbles. In such cases, investors who do not exit in time may experience significant losses.

Example: In the beginning of the last decade, Apple began to outperform and grow bigger than Nokia, the leader in smartphone manufacturing at the time. Apple’s stock price became very expensive as it factored in a higher market share for phones, and many investors fled for less expensive Nokia shares. True trend following investors stayed invested in Apple, which dominated the smartphone industry over the next decade.

Strategies for Success in Contrarian and Trend Following Investing

To maximize the potential benefits of these investment approaches, investors should:

1. Develop a clear understanding of their risk tolerance, investment goals, and level of expertise.

2. Conduct thorough research on the companies they invest in, analyzing fundamentals, competitive position, and management quality.

3. Stay informed about market trends, economic indicators, and geopolitical events that may impact their investments.

4. Regularly review their investment portfolio, rebalancing and adjusting positions as needed based on changing market conditions and individual circumstances.

By considering these factors and understanding the potential pitfalls of each approach, investors can make more informed decisions and increase their chances of achieving long-term investment success.

At Grey Ledge Advisors, we believe that a successful investment strategy cannot be bound by a single approach but should rather be adaptive to various market environments. Our investment philosophy is rooted in a holistic blend of contrarian and trend following methodologies, allowing us to take advantage of opportunities across the full spectrum of market conditions. We strive to take a nuanced, opportunistic view of the market landscape, considering both the potential undervalued gems and the high-performing trendsetters in our decision-making process.

By integrating these complementary approaches, we aim to balance risk and reward, seek consistent returns, and ultimately, strive towards fulfilling our clients’ financial goals.

By Brant Walker

Like most processes, investment decisions moved more slowly in the pre-Internet days. When I started my investment management career nearly 40 years ago, a bank or analyst would send you a report through the mail — a multi-day process in itself — and you’d spend a day processing it before making your choices.

Today, anyone trying to invest on their own is being bombarded by information from all sides. Between 24-hour news networks, business news websites, social media chatter, and the ability to track a stock’s performance literally minute-by-minute, it can be difficult to choose how to proceed.

This noisy environment has only heightened the emotional aspects of investing. There has been extensive research into “behavioral finance,” or how human psychology affects investment decisions — often negatively. By better understanding this concept, you can put more trust into unbiased indicators, building your portfolio based on impartial information rather than gut feeling.

How emotions affect investment decisions

Many emotions come into play when you invest your money. You may be anxious about meeting your financial goals, excited to see your portfolio grow in value, eager to find investments that will produce a huge return on investment, nervous about market downturns, or depressed when an investment decision turns out to be a poor one.

Emotion-driven decisions can occur at any time. Some examples include:

However, emotion has the biggest impact on the market during periods of prominent gains or losses. During a strong market, people are more likely to underestimate risk, be overconfident in their own abilities, and chase after popular investments. During market downturns, people are more likely to panic and sell off investments in an effort to limit losses.

There are also several cognitive biases that affect investment decisions. One of the most common is confirmation bias, where people only consider evidence that supports their investment decisions and ignore other data, such as warning signs that a stock might be overvalued. 

Anchoring bias is also a common factor that influences investment decisions. This occurs when you measure the performance of an investment on some irrelevant point of reference, like the price of a stock when you purchased it or a stock’s previous peak value. 

Greed and fear

Greed and fear are the most powerful emotions affecting investment decisions. Greed spurs people to pursue higher gains by making riskier decisions, taking chances on speculative stocks, and pursuing short-term gains. Fear is the dominant option during bear markets or more volatile conditions, causing people to favor lower risk investments with smaller yields.

Concerns about losing your hard-earned money are a particularly potent factor in behavioral finance, leading to something called loss aversion bias. This occurs when a person gives priority to minimizing losses on their investments instead of actively pursuing gains. 

Loss aversion bias can lead to considerably different investment decisions. Since people tend to be more risk-averse when faced with a positive income, they might sell a well-performing stock too early out of fear that its value might go down. Conversely, they may also engage in riskier behavior in an effort to avoid losing money, such as doubling down on a declining investment in hopes that it will recover.

Optimism and pessimism

Market trends drive the broader emotions of optimism and pessimism, which also tend to cause people to make buying or selling decisions at the exact opposite of the optimal time. When the market is on the upswing and stock values are rising, people are optimistic and more willing to buy. When values are declining, people are more pessimistic, less willing to buy, and more willing to sell the stocks they have in an effort to avoid losses.

You might notice that these decisions directly contradict the classic “buy low, sell high” investment strategy.

Two recent market downturns show how a pessimistic outlook can impact your investments. Tumbling stocks during the Great Recession drove investors to pull their money from the market, only for stock values to grow steadily over the next several years during the economic recovery. There was a similar response when the stock market cratered at the start of the COVID-19 pandemic, with stock values recovering even faster.

Once more, without feeling

When investing your money, you should always take the time to research your options and avoid quick decisions. While monitoring the performance of your investments is important, tune out the noise and do periodic check-ups instead of frequent adjustments; this can help you retain focus on a long-term strategy instead of responding to short-term trends.

Other strategies to take the emotion out of investing include:

Working with an investment advisor will also help you avoid emotions when investing. This professional will provide you with unbiased recommendations and help you determine your goals and strategies.