Review Category : Charles Tumlin

Self-control important in financial markets

By Charles Tumlin

It turns out that one of the best predictors of future success is the ability to manage “hot” emotional states and to learn self-control. The past two months in the equity markets have given just that opportunity once again.

Stanford psychologist Walter Mischel concocted an experiment involving 4-year-olds and marshmallows to test self-control back in the 1960s, and only understood its significance much later.

As Jonah Lehrer writes in The New Yorker: “For decades, psychologists have focused on raw intelligence as the most important variable when it comes to predicting success in life. Mischel argues that intelligence is largely at the mercy of self-control: even the smartest kids still need to do their homework.”

This is very true in financial markets. Temperament trumps brains when it comes to making money over the long run. You can have a great plan, but if you do not have the discipline to execute it, the plan is useless.

News flow in financial markets — much of it alarming, since scary new always gets better ratings — gives investors a multitude of opportunities to behave badly. The best strategy? Distract yourself.

At the time, psychologists assumed that children’s ability to wait depended on how badly they wanted the marshmallow. But it soon became obvious that every child craved the extra treat. What, then, determined self-control? Mischel’s conclusion, based on hundreds of hours of observation, was that the crucial skill was the “strategic allocation of attention.” Instead of getting obsessed with the marshmallow — the “hot stimulus” — the patient children distracted themselves by covering their eyes, pretending to play hide-and-seek underneath the desk, or singing songs from “Sesame Street.” Their desire wasn’t defeated, it was merely forgotten. “If you’re thinking about the marshmallow and how delicious it is, then you’re going to eat it,” Mischel says. “The key is to avoid thinking about it in the first place.”

According to Mischel, this view of will power also helps explain why the marshmallow task is such a powerfully predictive test. “If you can deal with hot emotions, then you can study for the S.A.T. instead of watching television,” Mischel says. “And you can save more money for retirement. It’s not just about marshmallows.”

As Mr. Mischel points out, it’s not just about marshmallows. When clients ask me what to do in volatile markets, I only half-jokingly suggest that they read the sports pages. Focusing on the business news is just going to make you more likely to react. The more impulsive you are, the more likely you are to make a poor decision.

Self-control is very important when using return factors, none of which offer smooth sailing. Whether you are implementing relative strength or deep value or whatever, the market is going to gyrate and test you — basically do everything possible to get you to abandon your plan. A systematic, rules-based approach can be very helpful in this regard. If you have chosen a successful long-term strategy, more than anything else, your results are going to be dictated by how well you can follow it over the long run.

This article was written by Dorsey, Wright and Associates, Inc., and provided to you by Wells Fargo Advisors and Charles Tumlin, Financial Advisor in Beaufort, SC, 211 Scott Street, (843) 524-1114.  You cannot directly invest in an index. Wells Fargo Advisors did not assist in the preparation of this article, and its accuracy and completeness are not guaranteed. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.

Read More →

Is college in your child’s future?

By Whitney McDaniel

It’s no secret that the cost of sending just one child to college for four years can be staggering. The College Board Advocacy and Policy Center reported that over the past decade college tuition and fees have rapidly increased. However, this year the average increase is smaller than it has been in the past. The table below shows how average college costs would continue to increase at national average annual inflation rates.

Estimated annual college costs*
                        Public         Private           
2014               $19,598         $42,170
2019                $22,609         $50,814
2024                $26,083         $61,231
2029                $30,091        $73,784
*Total yearly costs for in-state tuition, fees, books, room

and board, transportation, and miscellaneous expenses.

Base is 2013-2014 school year. Costs for all future years

projected by Wells Fargo Advisors in November 2013 assuming

a 2.9% national average annual increase for public and

a 3.8% national average increase per year for private.


Source:  Trends in College Pricing. ©2013, Inc.

Reprinted with permission. All rights reserved.

Rather than sending your student into the world with a burden of student-loan or private debt, consider saving options to help cover at least a portion, if not all, of higher-education expenses.

Start saving early. It’s common to assume that saving will be easier in the future when you’re earning more, but as your family and income grow, so do your expenses associated with your standard of living. If you wait until your student is closer to college age, you may find you’ve waited too long and may face the prospect of scaling back the family’s finances in other ways to save for hefty tuitions, fees, and living expenses.

Put time on your side. When you start saving early, college savings can earn substantially more over time through the power of compounded growth. For example, suppose you start putting aside $100 every month for an eight-year-old child. Assuming a 5% annual growth rate, you’ll save $15,592 by the time your child is ready for college but will have invested only $12,000 out-of-pocket.

If you wait until your child is 15 years old to start saving, you’ll have to put more money aside each month to save the same amount, and your out-of-pocket investment will be much greater. For example, at the same 5% annual growth rate, it would take $400 per month to save $15,556 in time for college, and you’d have invested $14,400 out-of-pocket.*

Know your options. Fortunately, parents and grandparents who intend to cover or contribute to a child’s education costs have more choices today than they’ve ever had. If you haven’t looked into an education savings plan, Wells Fargo Advisors can help you choose among a variety of savings vehicles, including 529 plans, Education Savings Accounts (ESAs), and custodial accounts. Visit for more information.

*This information is hypothetical and is provided for informational purposes only. It is not intended to represent any specific return, yield or investment, nor is it indicative of future results.

This article was written by Wells Fargo Advisors and provided courtesy of Whitney McDaniel, CFP® Financial Advisor in Beaufort, SC at 843-524-1114. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.

Read More →

Why magazine covers work to help investors

By Charles Tumlin

Some of the most effective market tools that we have used over the years to explain the importance of having an investment game plan are magazine covers. We often find that magazine covers typically present the most concise summary of investor psychology available.

The average investor, as is perhaps best illustrated in various studies from Dalbar and others, over-corrects to changes in the market as they shift their 401(k) based generally on the feeling

Charles Tumlin

Charles Tumlin

in their gut. Simply put, investors who are left to their own devices will, in sum, make emotional, irrational decisions and underperform over time as a result. They will buy when it is comfortable and sell when it is uncomfortable and that makes providing for a more comfortable lifestyle down the road a much longer road indeed.

Magazine covers typically help reinforce this modus operandi by providing a picture of the market’s collective conscious. For instance, the psychological effects of buying the “top” of the market is a tough one to overcome especially when media headlines are so bullish. At the end of the day, the fear of buying the top of the market ultimately comes from the lack of sell discipline. It is for this reason that we find mainstream magazine covers so useful, they simply provide a reflection of what is comfortable and palatable to investors at any given time. While we find magazine covers extremely useful, it is not because their advice is helpful, but to the contrary it reminds us of what market psychology has categorized as “certainty” and then forces us to think in a different direction, to think about what possibilities exist on the other side of that trade.

Why Magazine Covers Work?

Any editor worth his corner office is able to take all of the economic confluences that exist, both the lofty expectations and the latest disappointments, and distill them into one 9” X 11” glossy visage that evokes one thought from passersby: “I need to read what’s inside.” Typically, this is achieved by a strong confirmation of some generally accepted premise, or more importantly, rarely is it achieved by offering some innovative, against-the-grain, advice. Forbes magazine is no more likely to run a cover of who they think will be Company of the Year in 2014 today than Rolling Stone was to put Brittney Spears on their cover when she was a Mouseketeer. Instead, bullish covers often occur much closer to the landing than the takeoff of an investment flight.

A few years ago a group of professors at the University of Richmond, unbeknownst to us, actually tried to put some numbers to this observation. They looked at headlines from Business Week, Fortune, and Forbes for a 20 year period. Of the 2,080 cover stories they found, 549 were actually included in the study as they dealt with a particular public company for which the aftermath of the stock could be measured. Of those 549 stories, the vast majority (350) were slanted to the positive side, while 99 were considered “neutral” and 100 were “negative.” Keep in mind the time period was 1983-2002, which naturally lent itself to both bullish covers and bullish outcomes. At any rate, according to their research paper, “Are Cover Stories Effective Contrarian Indicators?,” Tom Arnold, CFA; John H. Earl, Jr., CFA; and David S. North found the following: “Statistical testing implied that positive stories generally indicate the end of superior performance and negative news generally indicates the end of poor performance.”

The study was very interesting and it makes a great piece of research to forward any friend or neighbor who suggests one of “those ideas” that is based in nothing more than popular conjecture and that more importantly isn’t supported by your investment game plan. The results of the University of Richmond show that bullish covers are born of spectacular outperformance, but followed by much tamer returns. Meanwhile, bearish covers actually tend to be followed by the opposite of what investors would expect — stark outperformance! ‘

This article was written by Dorsey Wright and Associates and provided by Charles Tumlin, Vice President – Investments, Wells Fargo Advisors, LLC, Beaufort, South Carolina, 843-524-1114. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.

Read More →

Cognitive biases

I was recently introduced to an excellent article by Morgan Housel in “The Motley Fool” on a couple of the most common cognitive biases that cause problems for investors, cognitive dissonance and confirmation bias.  The information is not new, but what makes this article so fun is Housel’s writing style and good analogies.  A couple of excerpts should suffice to illuminate the problem with cognitive biases.

Charles Tumlin

Charles Tumlin

Study successful investors, and you’ll notice a common denominator: They are masters of psychology. They can’t control the market, but they have complete control over the gray matter between their ears. And lucky them. Most of us, on the other hand, are mental catastrophes.

Take one of the most powerful theories in behavior psychology: cognitive dissonance. It’s the term psychologists use for the uncomfortable feeling you get when having two conflicting thoughts at the same time. “Smoking is bad for me. I’m going to go smoke.” That’s cognitive dissonance.

We hate cognitive dissonance, and jump through hoops to reduce it. The easiest way to reduce it is to engage in mental gymnastics that justifies behavior we know is wrong. “I had a stressful day and I deserve a cigarette.” Now you can smoke guilt-free. Problem solved.

Classic.  And this:

Cognitive dissonance is especially toxic in the emotional cesspool that is managing money. Raise your hand if this is you:

• You criticize Wall Street for being a casino while checking your portfolio twice a day.

• You sold your stocks in 2009 because the Fed was printing money. When stocks doubled in value soon after, you blamed it on the Fed printing money.

• You put $1,000 on a hyped penny stock your brother convinced you is the next Facebook. After losing everything, you tell yourself you were just investing for the entertainment.

• You buy a stock only because you think it’s cheap. When you realize you were wrong, you decide to hold it because you like the company’s customer service.

Almost all of us do something similar with our money. We have to believe our decisions make sense. So when faced with a situation that doesn’t make sense, we fool ourselves into believing something else.

And this about confirmation bias:

Worse, another bias — confirmation bias — causes us to bond with people whose self-delusions look like our own. Those who missed the rally of the last four years are more likely to listen to analysts who forecast another crash. Investors who feel burned by the Fed visit websites that share the same view. Bears listen to fellow bears; bulls listen to fellow bulls.

Before long, you’ve got a trifecta of failure: You make a bad decision, rationalize it by fighting cognitive dissonance, and reinforce it with confirmation bias. No wonder the average investor does so poorly.

It’s worth reading the whole article, but the gist of it is that we are all susceptible to these cognitive biases.  It’s possible to mitigate the problem with some kind of systematic investment process, but you still have to be careful that you’re not fooling yourself.  Investing well is not easy and mastering one’s own psyche may be the most difficult part of all.

This article was written by Dorsey Wright and Associates and provided by Charles Tumlin of Tumlin, Levin & Sumner Group – Wells Fargo Advisors, Beaufort, South Carolina, 843-524-1114. 

Read More →

24 Hour Financial News: Public Enemy #1

By Charles Tumlin
A recent article at AdvisorOne suggests that CNBC is detrimental to the well-being of investors. In truth, it didn’t really single out CNBC. It was applicable to any steady diet of financial news. Here’s what the article had to say about financial news and investor stress: Clients get stressed by things you wouldn’t predict. This is a classic example, uncovered at the Kansas State University (KSU) Financial Planning Research Center by Dr. Sonya Britt of KSU and Dr. John Grable, now at the University of Georgia, in their recent paper “Financial News and Client Stress.” They found that contrary to what you might think, investor stress goes up when watching financial news, and hearing that the market went up causes stress levels to rise even higher. “Specifically, 67% of people watching four minutes of CNBC, Bloomberg, Fox Business News and CNN showed increased stress, while 75% of those who watched a positive-only news video exhibited an increase in stress,” they wrote.
Why? “Financial news was found to increase stress levels, particularly among men,” wrote Grable and Britt. Surprisingly, positive financial news, like reports of bullishness in the stock market, created the highest levels of stress, they found, suggesting that positive financial news may trigger regret among some people. The authors referred to previous studies of regret that found “people tend to feel most remorseful when they look back at a situation and realize that they failed to take action.”
Surprising, isn’t it, to find out that investors were stressed even when the market was going up? The ups and downs of the market appear to elicit investor’s concerns about their financial decisions. Anything that undermines their confidence is probably not a positive. In fact, one of the important things advisors can do is help clients manage their investment behavior. Financial news appears to work at cross-purposes to that. (Other things do too; the full article has a host of useful thoughts on what stresses clients and how to reduce client stress.)
The relationship between high levels of stress and poor decision-making is well-known to psychologists, researchers and sports fans around the world. “Our brains operate on different levels, depending on circumstances,” Britt claimed in an interview. “Under high levels of stress, our intellectual decisionmaking functions shut down, and our emotional flight or fight response kicks in.” Added Grable: “People will adapt to low levels of stress differently, but overwhelming stress results in predictable behavior. When we are stressed, our brains cannot move to make intellectual decisions.”
A valuable characteristic that comes along with our Relative Strength methodology is objectivity. While the ability to make rules-based investment decisions is easier said than done, it is what allows us to “stay the course” and leads to long term outperformance. In his book, What Works on Wall Street, James O’Shaugnessy found, “The only way to beat the market over the long term is to use sensible investment strategies consistently…The lack of discipline devastates long-term performance.”

The information contained herein has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs.  Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.  Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable (“information providers”).  DWA and the information provider accept no liability to the recipient whatsoever whether in contract, in tort, for negligence, or otherwise for any direct, indirect, consequential, or special loss of any kind arising out of the use of this document or its contents or of the recipient relying on any such recommendation or information (except insofar as any statutory liability cannot be excluded).  Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.  Neither the information nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products.  This document does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.  
Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.    You should consider this strategy’s investment objectives, risks, charges and expenses before investing.  The examples and information presented do not take into consideration commissions, tax implications, or other transaction costs. Diversification does not guarantee profit or protect against loss in declining markets. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Wells Fargo Advisors, LLC did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers:This article was written by Charles Tumlin, Wells Fargo Advisors, Beaufort, S.C.  The views expressed by Charles Tumlin are his own and do not necessarily reflect the opinion of Wells Fargo Advisors, LLC or its affiliates. Investments in securities and insurance products are: NOT FDIC INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo Company.

Read More →

Navigating Today’s Economy

By Charles Tumlin


While changes in the economy occur regularly, what we have experienced recently is anything but a “normal” change. The challenges of the current economy haven’t been seen or experienced in our country in decades. Like most investors, you may wish you could figure out some way to know when economic conditions were about to change, or what adjustments you should make in your portfolio based on current conditions.  It’s a tricky topic, and even economists disagree about the nature and causes of economic cycles.  But we can at least take a look at some of the issues you need to be aware of, and help familiarize you with how the economy works.

Read More →

When should you buy stocks?

By Charles Tumlin

Have you ever done your homework on an investment, maybe read some good things in a periodical, or gotten your hands on a fascinating research report on an up and coming company?  All the pieces seem to be in place.  You make your investment with confidence, but the stock heads straight down.  If you have been an investor for any amount of time it has happened to you!

Read More →