Level3 Investing Strikes a Chord

Since 1978, AAII founder and chairman Jim Cloonan has been working to empower individual investors with thoroughly researched and clearly presented investment education. Now, on the brink of retirement, he’s published a culmination of all he’s learned in the last 40+ years, taking his decades of research in a new direction in a book called “Investing at Level3.”

In the book, Jim outlines why modern portfolio theory is no longer applicable to the real world and the limits of established methods of fundamental and technical analysis. He proposes a different style of investing, which he calls Level3, that more accurately takes into account the conditions of the current investing landscape.

The book challenges investors to reconsider their conceptions of risk and volatility, and lays out a new path to achieving high returns in an age where information is everywhere and individual investors can take advantage of a long-term view and a nimble approach that institutional investors cannot match.

In a recent anonymous survey of AAII members, we asked whether they would recommend “Investing at Level3” to a friend or loved one. Eighty-seven percent of respondents said yes. A number of these expanded on their thoughts even further. Below are some of their comments.

Response to the New Approach to the Markets

Members appreciated Jim’s unique approach to investing and the markets, and the fresh perspective on an increasingly competitive investing landscape: “Very simply, Jim Cloonan tells it like it is. He cuts to the chase.” This member continued, “He has taken a contrarian approach to traditional investment strategies.”

Another said, “His analysis and perspective of bear markets is different than what most investors probably believe. He does bring new ideas to the table that challenge an investor’s thinking.” “It is a reasoned, well-documented approach that overturned my Level 2 applecart,” wrote one investor. Another reader opined: “I think it could encourage investors to be more aggressive when they have a long time before retirement. Also, it shows investors how to plan better so they can maintain Level3 stocks into retirement with minimal risk.”

“The book makes a compelling case that you can beat Mr. Market.”

Thoughts on the Different Take on Risk and Allocation

Jim’s new perspective on portfolio theory and risk received particular attention. “It is a compelling case to consider departing from the traditional asset allocation models,” said one member. “The definition of risk is very groundbreaking. The whole book really gets one thinking about how they are investing and whether they should rethink traditional portfolio theory.”

One respondent, a former financial analyst with Morgan Stanley and Merrill Lynch, wrote, “The book changed my investing style and I am now sharing it with family and friends. I am building a combo passive and active Level3 portfolio…The withdrawal approach was especially helpful. Jim did an excellent job presenting a fact-based case for Level3 investing. I am a believer.”

Comments on Who Can Benefit From Book

One theme that emerged repeatedly in the survey was the book’s usefulness for investors at any age. While a majority of AAII members (75.7% of survey respondents) are retired, many expressed that the advice would have been useful throughout their investment career, and mentioned that they’d be passing it on to children or grandchildren. “Useful read for a beginner, or an investor with 30 years of experience.”

One member described it as follows: “If you are in the accumulative years, the book shows how to direct your contribution to receive an optimal return. If you are in the withdrawal years, the book provides a strategy to be implemented so that a reasonable withdrawal rate can be achieved, without depleting your funds.”

 

“It gives me a reputable source for my children to plan their finances,” said one member, while another said “For me, this is a life-changing book. I have shared it with my daughter (for her to share with her cousins), siblings and friends. I believe it will give time-challenged professionals an alternative to achieving life-changing investment returns.”

“It brings high-level concepts and practices to a general audience.”

In general, the book has been a hit with AAII members; AAII is proud to extend our mission of educating and empowering individual investors with this work. “His overall strategy is very consistent with mine of the past 30 years, but he presents the strategy in a clearer and more thorough manner. I do not like offering others investment advice, but now I can recommend Level3.”

AAII Financial Summary

Annually, AAII publishes its year-end balance sheet for members and life members interested in the finances of the association. Prior years’ balance sheets can be found online in the Member News sections of past AAII Journals.

American Association of Individual Investors
Unaudited Balance Sheet for the period of December 31, 2016

Note: Deferred membership revenue is recognized periodically as income over the membership period. Deferred life membership is recognized periodically as income over a 25-year period. This accrual method of accounting reflects the Association’s long-term obligation to its members.

AAII Investor Conference 2017: Great Speakers and an Exciting Venue

This November AAII will be hosting our Investor Conference in Orlando, Florida, and we are pleased to announce that our lineup of speakers and the impressive venue are bigger and better than ever!

Bruce Johnstone
Senior Investment Strategist Fidelity Investments

“Business Confidence Rejuvenated? Could Economic Growth and Markets Follow?”

Johnstone is a former Navy officer with degrees from Harvard who has had a colorful and successful career managing money and directing strategy at Fidelity Investments. Bruce’s claims to fame include:

• Managing the Fidelity Equity-Income Fund from 1972–1990, where he achieved a return of nearly twice that of the S&P 500 index. His performance ranked him the #1 equity-income fund manager in the nation for the 19-year period.

• Money magazine calls him, “the best income investor.”

Special Presentations

Karen Altfest
Vice President, Altfest Personal Wealth Management

“Life After Loss: Tough Issues for Surviving Spouses”

David M. Blanchett
Head of Retirement Research, Morningstar Investment Management

“An Overview of Retirement Income Strategies”

The Perfect Venue

Loews Royal Pacific Resort in Orlando, Florida

Hotel rooms are available to AAII conference attendees at Loews Royal Pacific Resort for the discounted rate of $179 for a single or double room (includes complimentary fitness center and in-room Wi-Fi). Restaurants, entertainment and shopping are located in this resort-style hotel, plus you’re just a quick jaunt away from the adjacent CityWalk shopping and entertainment area.

 

The 2017 AAII Investor Conference is being held at the Loews Royal Pacific Resort in Orlando from Friday, November 3, to Sunday, November 5. The event features over 25 educational presentations and 30 investor workshops. Attendees receive full access to all presentations, the keynote luncheon, our welcome reception, a Forbes panel discussion, the Exhibit Hall and complimentary continental breakfasts.

To learn more about this special AAII event, please visit www.aaii.com/conference.

Supplemental Benefit: The AAII Discover Bank Program

AAII is partnered with Discover Bank to give you access to certificates of deposit (CDs), IRA CDs, money market accounts and online savings accounts earning preferred members-only rates that are higher than the nationally advertised rates on comparable Discover accounts.

Though you may know the company for its credit products, Discover has actually been in the banking business since 1911—and today, it’s emerging as one of the nation’s leading direct banks.

Visit https://aaii.discoverbank.com or call Discover at (800) 347-7513 to learn more about these products and the preferred members-only rates you’ll earn.

As an AAII member saving with Discover, you’ll benefit from:

• Rates that have consistently exceeded the national average¹
• No minimum opening deposit requirement
• Easy and convenient online account management
• 24/7 customer service, both online and by phone
• Accounts insured up to FDIC limits, currently $250,000

¹ Based on top 50 U.S. banks by deposit provided by Informa Research Services Inc. as of 5/9/2017.

Academic Awards: Fostering Investment Education and Research

Five papers won awards for investment research from AAII in 2016. The awards are presented as part of AAII’s ongoing effort to encourage education and research in the area of investments and are given for papers that provide insight into investing.

The awards are made in conjunction with the meetings of major finance associations around the country. The best academic paper presented at these meetings is selected by a committee of investment research experts.

AAII awards the writers of winning papers. Papers are selected based on the quality and thoroughness of research and on the contribution to shaping effective investment decisions.

Since the program began in 1983, more than 150 awards have been presented. Recent award-winning papers and recipients include:

“Playing Favorites: Conflicts of Interest in Mutual Fund Management,” by Diane Del Guercio of the University of Oregon, Egemen Genc of Erasmus University and Hai Tran of Loyola Marymount University, awarded by the Financial Management Association.

“Mispriced Index Options Portfolios,” by George Constantinides of the University of Chicago and Michal Czerwonko and Stylianos Perrakis of Concordia University, awarded by the Midwest Finance Association.

“Do Politicians ‘Put Their Money Where Their Mouth Is?’ Ideology and Portfolio Choice,” by Adam Aiken of Elon University, Jesse Ellis of North Carolina State University and Minjeong Kang of the Pohang University of Science and Technology, awarded by the Southern Finance Association.

“What Does Media Tone Tell About Aggregate Stock Returns?” by Sha Liu of University College Dublin and Jingguang Han of Accenture Technology Labs, awarded by the Southwestern Finance Association.

“City Goes Dark: Aggregated Market Quality Implications of Dark Trading,” by Gbenga Ibikunle and Ivan Diaz-Rainey of the University of Edinburgh, awarded by the Eastern Finance Association.

These papers are technical; however, the AAII Journal does publish the findings of papers that are of particular interest to individual investors.

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