Thinking Outside The Street Episode 6 – Investing With Style


In This Episode:  Paul rambles through trying to identify investing styles using a clever matrix (see below) as a starting point to understanding the important differences in how to manage a portfolio.

  • Strategic Investing has meant to develop an allocation model and then to find asset class representation that closely adheres to a benchmark for that asset class. Typically the portfolio is rebalanced periodically to keep the allocations close to the allocation model.
  • Tactical Investing has meant to adjust the asset allocation model based on certain rules or market conditions.
  • These two approaches can be used together with an allocation model that then looks for asset class representation with funds that use active styles to reduce risk or get better returns.
  • OR, a tactical allocation approach can be used with those actively managed funds. This creates a hybrid approach to portfolio management.
  • Using some tactical models, it is possible to change allocations to various asset classes very often.
  • This is important to understand because the style used to manage a portfolio reflects the underlying investment philosophy of the manager (even if that manager is the account owner who is managing his own account).

Our thanks to Michael Kitces of “Nerd’s Eye View” and for permission to use the graphic below. His full article can be found at and is well worth the read.


Thinking Outside The Street Podcast – Episode 5 – Dumb Money Vs. Smart Money


In This Episode:  Paul and Cliff discuss the mistakes many investors make by investing emotionally and not rationally.

  • Most investors wait until it is too late to enter the markets and then exit much  later than they should.
  • The emotional and psychological dynamics of investing are probably the hardest to master.
  • One can always find a justification for the mistakes one is making at any given time.
  • Many investors resort to buy and hold or sit-in-cash strategies because they don’t know any other way to invest.
  • The cocktail party tip approach to investing rarely works in the short term and is not a good long term strategy. How many cocktail parties are you planning on attending?


  • John Nofsinger. The Psychology of Investing. A good book about the psychological dynamics that play into the trading of your account.
Source - Stephan Cheplick

Source – Stephan Cheplick

Thinking Outside the Street Podcast Episode 4 – Staying Active Can Lead to a Fit Portfolio


In This Episode:  Paul and Cliff discuss the concept of active investment management and why it offers opportunities to avoid some risk in your portfolio.

  • Even though Buy and Hold strategies can work over time, most investors actively manage their buy and hold accounts by getting in and out at exaxtly the wrong time.
  • The primary goal of active management is to lower the risk of loss in a portfolio…not to maximize gain. Warren Buffet – “Rule 1: Don”t lose money! Rule 2: See rule one!”
  • Not losing is more important than always winning (the math proves it).
  • These days, active management can be found in highly liquid and transparent accounts.
  • The key to good active management is to have a good strategy (multiple strategies are better) and then to have the discipline to follow the strategy rules .


  • Mark Douglas. Trading In The Zone. A good book about managing the psychology of trading your account.
  • Van Tharp. Trade Your Way To Financial Freedom – Although much of this book is about day trading (which we think is a very hard way to make money) the principles of strategy development, measurement, and discipline are worth the read. Van Tharp has a website with a lot of resource material. If you are a do-it-yourselfer and like to spend a lot of money on books and DVD’s then you will be excited to visit the site. Otherwise, much of his teaching can be had through his several books which are not too expensive.

Thinking Outside the Street Episode 3 – Caring for Orphan 401(k)’s


In This Episode:  Paul and Cliff discuss reasons why you might want to rollover your orphaned 401(k) to an IRA


  • More investment options.
  • Access to professional management of the IRA account.
  • The opportunity to invest with fewer mandatory holding period restrictions on your account.


  • Can’t borrow against an IRA but you can borrow against a 401(k) (if your plan allows it).
  • Access to 401(k) funds without penalty can be as early as age 55, but IRA you need to wait till 59 and 1/2.

Be Careful

  • Do a direct rollover and do not take constructive receipt of the funds.
  • Get a plan in place to wisely manage your IRA or hire a money manager to do it for you.

Volatility is back in the Markets

Wow! A 4% drop in the S&P500 in 4 days! Is this the beginning of the next big bear market?

Wait a minute! Let’s not start trying to predict what is going to happen. Don’t let emotion drive your investing decisions. No one knows what is likely to happen next. This pullback in the markets is part of normal ups and downs (albeit, it is a little volatile right now).

Also, let’s not play the game based on definitions set by others. Whether this is the beginning of a bear or part of a normal Bull market pattern shouldn’t matter to you. You need to control the risk in your portfolio based on how much pain you can tolerate in the form of lost value. The only way to do that is to have a carefully planned exit strategy that will move you (at least partly) to the sidelines when the markets drop too much.

In the realm of technical indicators, the S&P500 did break below its 50 day moving average yesterday, and many strategists use that as a sign to lower their allocations to equities in case it drops further. But, be sure you have a re-entry strategy as well. Because, if you step to the sidelines, you might get caught sitting there way too long if you don’t know when to get back into the game.

Episode 2 – Interview With Jason Wilder about 2014 NAAIM Conference



In This Episode:

  • Incoming President of the National Association of Active Investment Managers (NAAIM), Jason Wilder talks about the value offered by a conference such as the Uncommon Knowledge conference happening in Fort Lauderdale, Florida on May 5 – 7.
  • Paul and Jason talk about the networking opportunities built in the conference schedule.
  • Jason discusses the purpose of the NAAIM organization.
  • Jason reveals the benefits of having a room full of vendors that are eager to help advisors run their businesses well.

NAAIM website

Conference Information

Paul Schatz on CNBC

Our friend, Paul Schatz from Heritage Capital on CNBC this morning.

Episode 1 – Thinking Outside The Street – Huh?

What in the World?


In This Episode:

  • Portfolio managers Cliff and Paul Montgomery talk about the ideas behind starting this blog and podcast.
  • Explain what they mean by Unconventional Wisdom.
  • Talk about how much hair Cliff lost in 2008.
  • Reveal that they live on a farm – Really! They are not Wall Street!
  • Talk about upcoming episodes.

Uncommon Knowledge Conference is just around the corner

The National Association of Active Investment Managers National Conference is coming soon.

UK Conference

Conference in Fort Lauderdale

Next week we will be interviewing Jason Wilder the incoming president of NAAIM about what the conference will offer for attenders. Be sure to come back and listen to the podcast next week.

NAAIM is an organization dedicated to the promotion and understanding of Active Investment Management. Their goal is to help professionals and individuals achieve excellence in managing their portfolios through innovative and dynamic management techniques.

Their conference is usually like drinking from a fire hose in all that is presented. Be sure to attend if you can!