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If you have thought about hiring a financial advisor but don’t know where to start, contact me and I would be happy to have a free, no obligation discussion on what kinds of services we can provide! Alex@fncadvisor.com


Linchpin: Are You Indispensable? By Seth Godin (Book Review)

Every now and then, I try to pick up a book like this in the self help/motivational genre. Once you have read a few of these, they can get a bit repetitive. When the author is taking broad strokes across several types of industries, you won’t leave with specific, actionable advice.

Having said that, I tend to find each self help book has 1-2 key takeaways worth thinking about. These books are also great to dive into every couple of years as your career evolves, potentially becoming more relevant or serving as a gut check to bring you back on track.

The theme behind Linchpin involves being unique, special, and irreplaceable. In a world where computers could replace you, or systems could easily bring in the next employee at your departure, you need to figure out how you can go above and beyond to be the linchpin to your firm or customers. A linchpin also doesn’t need a rule book, and delights others because that’s what they love to do.

As I’ll elaborate on in my notes, the read comes at a good time for me. With each passing month, my financial planning practice is growing and I continue to contemplate my specific niche. I am constantly pondering the balance of: should I be enrolling in classes to deepen my knowledge for a specific set of people, or should I focus on making their experience incredible and unique?

I have two critiques about the book. First, Seth Godin is a bit erratic in his writing. While I have plenty of notes, upon review, they really seem to go all over the map. My second critique is a word of caution: nobody is indispensable, and nobody is a linchpin. While I applaud the theme of self improvement and philosophically approaching your role, one should not believe they ever achieved the status of being a linchpin, for they will soon be fired or replaced by the younger, hungrier version of themselves. Thus, one must realize that until you reach retirement, there is no sunset where your innovations are no longer necessary.

With that, here are 10 of my favorite quotes from Linchpin:

If you can use your productivity advantage to earn five dollars in profit for every dollar you pay in wages, you win. Do it with a million employees and you hit a home run. The problem? Someone else is getting better than you at hiring cheap and competent workers. They can ship the work overseas, or buy more machines, or cut corners faster than you can. The other problem? Consumers are not loyal to cheap commodities. They crave the unique, the remarkable, and the human.

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The Best Reason to Be an Expert in Your Field: Expertise gives you enough insight to reinvent what everyone else assumes is the truth. Sure, it’s possible to randomly challenge the conventions of your field and luckily find a breakthrough. It’s far more likely, though, that you will design a great Web site or direct a powerful movie or lead a breakthrough product development if you understand the status quo better than anyone else. Beginner’s luck is dramatically overrated.

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The other reason? Because it tells you whom to ignore. It’s impossible to make art for everyone. There are too many conflicting goals and there’s far too much noise. Art for everyone is mediocre, bland, and ineffective. If you don’t pinpoint your audience, you end up making your art for the loudest, crankiest critics. And that’s a waste. Instead, focus on the audience that you choose, and listen to them, to the exclusion of all others. Go ahead and make this sort of customer happy, and the other guys can go pound sand. In the words of Ev Williams, founder of Blogger and Twitter, The core thing would be just do something awesome. Try not to get caught up in the echo chamber. That is probably the toughest thing when you are trying to break out and do something original.
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Let’s go back to the beginning of this book. Everyone, every single person, has been a genius at least once. Everyone has winged it, invented, and created their way out of a jam at least once. If you can do it once, you can do it again. Art, at least art as I define it, is the intentional act of using your humanity to create a change in another person. How and where you do that art is a cultural choice in the moment. No one wrote novels a thousand years ago. No one made videos thirty years ago. No one Twittered poetry three years ago.
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When you started reading this book, did it make you squirm a bit when I called you a genius? A lot of people are uncomfortable with that sort of permission, authority, or leverage. If you’re a genius, after all, then you need to deliver genius-quality results. You’ve almost certainly been brainwashed to believe that you aren’t a genius, that you’re working at the appropriate level, earning what you’re supposed to earn, and doing what you’re supposed to do. And some of that brainwashing has been consensual, because your resistance sort of likes low expectations. Once you’ve given a name to the resistance and you know what its voice sounds like, it’s a lot easier to embrace the fact that you actually are a genius. The part of you that wants to deny this is the resistance. The rest of you understands that you’re as capable as the next guy of an insight, invention, or connection that makes a difference.
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Old-school businesspeople argue for copyright and patent protection and say, “I can’t tell you my idea because I’m afraid you will steal it.” Old-school thinking is that you get paid first, you sign a contract, you protect and defend and profit. They say, “Pay me.” Artists say, “Here.”
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The linchpin has figured out that we get only a certain number of brain cycles to spend each day. Spending even one on a situation out of our control has a significant opportunity cost. Your competition is busy allocating time to create the future, and you are stuck wishing the world was different. We’re attached to a certain view, a given outcome, and when it doesn’t appear, we waste time mourning the world that we wanted that isn’t here.

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You don’t want to take initiative or responsibility, so you check your incoming mail, your Twitter stream, and your blog comments. Surely, there’s something to play off of, something to get angry about, some meeting to go to. I know someone who goes to forty conferences a year and never seems to actually produce anything.
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Three Ways People Think About Gifts 1. Give me a gift! 2. Here’s a gift; now you owe me, big-time. 3. Here’s a gift, I love you. The first two are capitalist misunderstandings of what it means to give or receive a gift. The third is the only valid alternative on the list.
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The easier it is to quantify, the less it’s worth.
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Trump Suspends Fiduciary Rule, Consumers Left To Educate Themselves

Donald Trump signed an executive order today to suspend the Department of Labor’s “fiduciary rule.” The law, which was introduced in 2016, was set to regulate financial advisors managing retirement accounts starting in April. I wrote about the law and linked to John Oliver’s explanation in June of 2016.

The spirit of the regulation was to raise the standards of those holding themselves out as “financial advisors” when managing retirement accounts. The law required those advisors to act as a “fiduciary.” A fiduciary is defined as someone who has your best interests in mind. Their recommendations fit your needs, not theirs. This could also be seen as a “conflict of interest” rule.

That may sound strange, but the law was introduced in response to commissioned salesmen holding themselves out as “financial advisors” who did not have their clients’ best interests in mind. Instead, they could be holding themselves out as financial advisors but be placing their clients into products that generated the largest commissions for themselves.

At First National Corporation, we supported the law. Frankly, we had little to change on our end in order to comply. After switching over to RIA status in 2006, we have been regulated as a fiduciary financial advisor. However, several brokerage and insurance companies lobbied hard to have this law changed or repealed. It appears that they have won the battle.

Less regulation ties into the philosophy of a free market. By having fewer costs to comply with the Department of Labor, more firms in theory can enter and serve the market. Instead of having the government watch out for the consumer, it is on the consumer’s shoulders to become educated about who handles their money.

How To Find A Fiduciary Advisor

There are three ways to ensure you are hiring a fiduciary financial advisor.

One is to look for a Registered Investment Advisor. These types of wealth management firms are held to a fiduciary standard by the Securities Exchange Commission (SEC).

The second is to look for a Certified Financial Planner™. CFPs are held to the fiduciary standard by the CFP® Board. CFPs are required to complete several financial courses, pass a six hour exam, and have three years of experience.

Finally, ask the advisor yourself. How do you get compensated? What does it mean to be a fiduciary? What conflicts of interest do you have? They should tell you that their only way of getting compensated for advice is through a level fee. This might be by a percentage of assets under management or a flat monthly fee.

The law could still be stripped down and implemented in a different form. Even so, there is no question that consumers should be aware that not everyone who holds themselves out as a financial advisor, financial planner, or wealth manager will have their best interests in mind.


Vote Your Dollars: Socially Responsible Investing Vs. The Sin Bin

As of this writing on February 2nd, 2017, President Trump currently shows an approval rating of 53%, with 47% disapproving. Those figures include 40% who Strongly Approve of the way Trump is performing and 40% who Strongly Disapprove, according to Rasmussen.

What I find notable about those statistics are that 80% of those polled have a “Strong” opinion. That is higher than at any point during Obama’s presidency, which usually hovered around 70% who had “Strong” opinions. If you’re reading this, it’s likely I can’t describe you as “indifferent” to President Trump.

The causes you care about get thrown around in the news left and right. You might be marching, calling your state senator, donating your money, or simply getting depressed. I thought this might be a good time to discuss another alternative to making your voice heard: investing your money.

Socially responsible investing (SRI), also known as sustainable, socially conscious, “green” or ethical investing, is any strategy which seeks to consider both financial return and social good to bring about a social change. Some of these strategies look to promote those companies related to the environment, consumer protection, human rights, and diversity. Some businesses that may be avoided are those involved in alcohol, tobacco, fast food, gambling, pornography, weapons, abortion, fossil fuel, or the military.

While these SRI strategies get the most press, it should be noted that these definitions might be considered more “liberal.” What is “responsible” or “ethical” also surely depends on who you ask.

Those that are more conservative-minded may look at that list and want to invest in the exluded companies instead, such as a gun owner who wants to buy stock in Smith & Wesson. The businesses that “socially responsible investors” typically want to avoid are referred to as “The Sin Bin.”

In a moment, I’ll look to give you some guidance whether you are liberal or conservative. First, let’s discuss why your investable dollars might have an impact.

How Investing Works

When you buy a share in a company like Microsoft, you are paying $63 to own a very small percentage of the company (0.000000001%, roughly). When Microsoft returns a profit, you may receive some of that profit in the form of the dividend. If they begin to beat expectations, other investors may be willing to pay $70 for the right to own that share. That makes you money. When there are more buyers than sellers, the price of the stock will go up.

As share prices rise, Microsoft becomes more valuable as a company. They go from being worth $1 billion, to $100 billion, to their current market cap of $479 billion. This gives them more leverage. They can reinvest their profits to expand their business, obtain bank loans at very low interest rates, or issue more shares of stock to raise additional capital.

As share prices fall, Microsoft won’t have as many of those luxuries. Creditors may become worried about the stability of the company. Since acquiring a business typically means issuing shares of stock to the small business owner, they may not find that to be as valuable as a share in, say, Apple. In today’s world, this might look like J.C. Penney.

Thus, by buying a share of Microsoft, you are hoping that their “special sauce” will bring you profits in the future. You are also giving a vote of confidence to the C-Suite by holding on through thick and thin while they run the business.

Should I Be An Active Investor?

If you have been reading this blog, you know that for most people, I recommend a passive investing strategy. This means buying low-cost ETFs and mutual funds that will bring you exposure to large, small, domestic and international companies.

It does not mean picking Pepsi over Coke, picking health care over technology, or picking Europe over the United States. A passive strategy will ensure you hit your long-term savings goals by being diversified.

Having said that, there is something to be said about being engaged with your investments. If you are having a hard time motivating yourself to save and invest because it seems boring, taking an active approach would be preferred to not investing at all. Whether you would achieve greater returns or losses is debatable.

There are many ways to customize your portfolio. If you are purchasing large mutual funds that exclude one small sector, such as weapons, you could get away with having this eat a larger portion of your portfolio. However, if you are choosing to strictly invest in individual solar energy companies for example, I might encourage keeping it to just 5% of the overall portfolio.

One last note here: you should consider which accounts you will use for your active investment strategies. Most will want to leave their retirement accounts alone. Others that are at certain ages, income and net worth levels may find it more advantageous from a tax standpoint to use their IRAs for alternative investment strategies. Consult your advisor for further consultation.

Now, let’s talk about your active options for investing. Let me be clear: there are various iterations as to what it means to be socially responsible, or “sinful.” After this election, you already know that being liberal or conservative isn’t black or white. I don’t mean to simplify your choices here, but I certainly can’t cover every philosophy. With that, let’s dive in.

Socially Responsible Investing

In recent past, I would have been hard pressed to recommend a SRI strategy. With few mutual funds participating in the space, expense ratios were well over 1% while performance was very volatile. As the space has matured, fees have gone down while performance has tracked closer to equity benchmarks.

Morningstar, essentially the Wikipedia for investment research, has started rating how well mutual funds are managing the environmental, social, and governance (or ESG) investing factors relevant to their industries. These go for mutual funds that may not even be marketing themselves as socially responsible.

For some ideas, check out the following:

VFTSX– This is a broad fund from Vanguard that tracks US companies that rate highly on social, human rights, and envrionmental criteria with just a 0.22% expense ratio. Its largest holdings include Apple, Microsoft, and Alphabet.

FSLEX– For those looking for an alternative energy fund, Fidelity’s seeks to invest in companies principally related to renewable energy, energy efficiency, pollution control, water infrastructure, and waste and recycling technologies.

SHE– This fund from SPDR tracks US companies that are leaders in gender diversity. At just a 0.20% expense ratio, it’s largest holdings include Pfizer, Pepsi, Amgen, 3M and Mastercard.

CATH– This fund picks companies within the S&P 500 whose business practices adhere to the Socially Responsible Investment Guidelines as outlined by the United States Conference of Catholic Bishops (USCCB) and excludes those that do not. Its largest holdings are Apple, Microsoft, Exxon Mobil and Amazon.

There are a whole host of options. For even more options, see this list from Schwab which outlines several kinds of ETFs available. Here at First National Corporation, we have created a broad, low-cost SRI strategy with funds I have not mentioned here. Feel free to contact me if interested in employing an SRI strategy.

The Sin Bin

After reading the above section, you may be taking a contrarian view. You may think that these businesses are constraining themselves unnecessarily. In order to be environmentally friendly or more diverse, there could be an extra cost that eats away at profits. It may also be reasonable to think that these companies won’t do well under President Trump.

Since there is a negative stigma with these companies, some investors find “sin stocks” as being too risky. This is in part due to the threat of litigation (think tobacco, casinos). However, that risk may mean you can find value here. As Warren Buffet commonly says, “be fearful when others are greedy, and greedy when others are fearful.”

Unfortunately, this space is simply not as developed. I really can’t recommend a fund like VICEX, which is the most prominent name in the space. While holding companies like Altria, MGM Resorts International, and Philip Morris, the expense ratio of 1.48%. This is far too expensive and its performance is lacking because of this.

One moderately acceptable option could be Fidelity’s Select Consumer Staples fund (FDFAX), whose top two holdings of British American Tobacco and Philip Morris make up 20% of the portfolio. The expense ratio is much more reasonable at 0.76%, but this probably isn’t what you’re looking for.

Instead, you’ll have to do a bit more work here:

-When investing in guns, tobacco, casinos, alcohol, or fast food, your best bet would be to own the largest two or three companies in those spaces. The energy sector could be held through ETFs such as JHME or RYE.

-If you think Russia’s economy will have better performance under a Trump presidency, you may want to buy the broad Russia index RSX. I recommended this ETF back in December of 2014 when oil crashed, and the ETF is up 45% since then.

-If you think the Trump tax plan will provide the wealthy with more money to spend on luxury goods, you could consider a high-end company such as Coach.

-The steel industry may also grab your attention through firms such as United States Steel or Steel Dynamics.

-Finally, if you simply think that volatility is on the rise in 2017, the virtual currency Bitcoin could be an option through the Bitcoin Investment Trust, though the expense ratio is an astronomical 2%. Buying funds associated with the VIX may also allow you to make money on volatility.

The Bottom Line

In summary, proceed cautiously. I would hate to see you put a majority of your assets into any of the strategies outlined above. This post is meant to help you get creative, but only for a small portion of your assets. Find a company or area that speaks to your values and support it through a thoughtful investing strategy.