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Insights: Investment Advice from a Galaxy Far, Far Away

Investment Advice from a Galaxy Far, Far Away

Why alternatives are a powerful Force, not a Jedi mind trick

There are two types of investors who keep track of the Star Wars galaxy.  First, there are those who genuinely want to find out if Rey is good or evil in the upcoming sequel, “The Last Jedi.”

And then there are those who wish George Lucas was frozen in carbonite circa 1980, when the franchise arguably peaked.

Sadly, we can’t put the Jar Jar back in the bottle. Nor can we predict whether Rey is good or evil – our compliance officer might have something to say about that.

So instead, let’s look at 5 things we can learn about investing from the galaxy’s wisest character, Jedi Master Yoda.

1) “Adventure. Excitement. A Jedi craves not these things.”

These are among Yoda’s first words of wisdom to young Luke Skywalker. Yoda sees him as impatient and reckless, unable to master the discipline and control of the Force.

This historic bull market has been an adventure. For some, it’s been as much fun as outrunning the Imperial fleet. More risk means more potential reward, right?

But what happens when the hyperdrive eventually fails? Basic math suggests that fortune actually favors a more cautious portfolio construction. You’ll also have a smoother ride.

2) “Fear is the path to the dark side.”

Yoda utters these words when evaluating Luke’s father, a young Anakin Skywalker. He senses fear in the boy, an emotion that eventually leads Anakin to become Darth Vader.

Conversely, Luke confronts his fear in a cave inhabited by the dark side. When it matters most, this training helps Luke do the opposite of what he feels – leading to his father’s redemption and restoring balance to the Force.

We all know most investors are addicted to emotional decision-making. But confronting the emotional effects of prospect theory can help you do the opposite of what you feel, breaking the cycle of fear and greed.

3)  “Unlearn what you have learned.”

The Jedi Council over at Goldman Sachs recently suggested that investors “take a fresh look at alternatives.” For most people, that’s easier said than done. Why?

Longboard research with the Financial Planning Association recently revealed that many financial advisors are confused about alternatives. They’ve learned that REITs are effective diversifiers, when the data shows a very different picture.  

To sound a bit like Yoda: The truth is that all true diversifiers are alternatives, but not all alternatives are true diversifiers.

4) “That is why you fail.”

Even when you know which alternatives truly diversify, we know it’s difficult to accept much less implement. This is like Luke’s disbelief that his tiny teacher had the power to raise an X-wing from the swamp.

Yoda’s response is heavy with double entendre. If Luke doesn’t start believing in the Force, he’ll put himself and possibly the entire galaxy at risk.

One way to strengthen your belief is by understanding which alternatives have historically worked best in different market environments.

5) “Do or do not. There is no try.”

From Yoda’s 800-year-old perspective, this is a pep talk. There’s no half-assing being a Jedi.

The quote also speaks to a truth in investing. Either you allocate enough to alternatives to potentially gain its 3-part benefit, or you do not.

A small allocation may only create more problems.

Our advice? Use the Force. Fulfill your destiny.


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Alternative investments: strategies that produce returns by taking risk other than equity and bond risk.

Bond: A debt security that shows ownership in a corporation or represents a claim in the corporation assets and earnings.

Correlation: a statistical measure of how two securities move in relation to each other.

Long: Buying an asset such as a stock, commodity or currency, with the expectation that the asset will rise in value.

Short: Buying an asset such as a stock, commodity or currency, with the expectation that the asset will decrease in value.

Stock: A security that shows ownership in a corporation or represents a claim in the corporation assets and earnings.

True diversifiers: investment strategies that have historically provided investors with at least 70% of the return of the traditional 60/40 stocks and bonds portfolios while having less than .30 bear correlation to traditional 60/40 stocks and bonds portfolios.