I have some opinions and advice to share for those feeling a little anxious over the recent market activity.
But to set up the opinion and advice, I need to give it some context. If you know me well, you know the saying…”Dave has a story. He always does.”
But first, did you see that we have a newly launched podcast? With 13 episodes now live, be sure to check out the latest where Jessica Gibbs and I host Erin Hay and Rohit Punyani in a discussion that delves into our Monument Flexible Asset Allocation portfolio strategy. It’s a great listen for anyone who likes a discussion on the nuts and bolts of portfolio management.
As you can imagine, I get questions about all kinds of stuff…lots of them. One popular one with people considering hiring Monument is this: “What makes Monument different than everyone else?”
Well, our value proposition is on our website, but in the interest of not having you click away, I’ll paraphrase it…
It’s our unfiltered opinion and straightforward advice.
No other advisor or firm can copy those two unique Monument things. Opinions and how they inform personalized advice are the things people are truly paying for, and anything else is, well, bullshit “fluff.”
I know this because I’ve recently participated in two separate projects to interview and hire new investment advisors to manage the portfolios of two different foundations. This entailed taking part in 24 different pitches by both big investment firms and independent firms.
Essentially, I got to play the part of “prospective new client”.
After listening to 24 different pitches, most ended up not being much different from the next. Most attempted to differentiate themselves by claiming they had the best firm, the best plans, the best portfolio strategy, and the best client service. Basically, different versions of the same thing, “We are the best, hire us.”
I heard that 24 times. Most of it was “blah, blah, blah”…
The most incredible part was a majority of the presenters never even answered the questions we asked in the RFP. They were so focused on talking about themselves they didn’t bother to address the questions we sent IN ADVANCE.
Right off the bat, they were so focused on selling that they weren’t even listening.
Each foundation ultimately hired a new advisor team, but the eventual determiner was how they presented their opinions, how those opinions informed their processes, and how they translated those into advice.
So why is opinion the real differentiator, and why is it important to clients regarding the advice they are paying for?
Because opinions inform the advice that becomes useful and valuable knowledge that clients do not have or have not been fully considering. That opinion-driven advice closes the knowledge gap by leveraging the experience and skills of an advisor team.
Investors considering any change to managing their wealth will be well suited to focus on the opinions of the advisor team(s) they are considering. Those opinions are vital to finding new solutions to problems and uncovering new opportunities. The advice formed from those opinions is also crucial in helping investors (clients) avoid mistakes or in cases where they have already made a mistake, identify the correct fix and provide guidance on not making future mistakes.
One of the torments of working in wealth management is knowing how the investing world works and when people are screwing it up. <Insert facepalm emoji> because it hurts to see people make mistakes that are of serious consequence.
Investors often misunderstand the investing landscape and the odds they face when they believe they’ve discovered something that provides them an investing edge over others. People think they can gain an advantage and change the odds by “doing research” or uncovering something unseen by others.
Those investors fail to realize what they are up against. The best academic institutions mint graduates with the finest minds in the world every year – undergrads, MBAs, PhDs – and many of them enter careers in finance.
Alas, we see a historical graveyard of investment disasters executed by some of those brilliant people. Here’s a list – and remember, this is just SOME of them. If they don’t ring a bell, Google them.
- Bernie Madoff’s Ponzi scheme tricked some of the best and brightest investors and professionals in the industry.
- SAC Capital, run by Steven Cohen, had $50B in assets and was shut down for insider trading and fined $1.2B.
- Long-term Capital Management, run by Nobel prize-winning economists, went bust selling a strategy based on taking investing risk to zero with an arbitrage strategy.
- Amaranth Advisors managed over $9B and had exceptional returns of around 85% annualized for five years but then lost $6.5B in that 5th trading year.
- Julian Robertson’s $6B Tiger Management failed after identifying and shorting tech stocks with sky-high unrealistic valuations and no earnings, proving that the market can stay stupid longer than any genius can stay solvent.
My point is that instead of trying to buck the odds, going head-to-head against the best and the brightest, why not just systematically work with the opportunities you have, and try to thrive in environments and opportunities that other fools create?
Who are those fools? Traders, gamblers, financial fortune tellers, speculators, market timers, gut-feeling followers, and those who think they have some “edge”.
Patient, disciplined investors have it pretty good. They develop a plan, stick to it, avoid needing cash and selling when the markets are in turmoil and have the flexibility to deploy it when the fools are hard at work doing what they do. These investors realize the most powerful tool at their disposal is compounding returns over a long period and embracing portfolio management strategies that follow rules and leverage the odds of success.
And that, dear reader, is what we call opinion.
If your advisor doesn’t have any opinions or all they do is forward you the opinions from their “research analyst” up in their New York-based “Ivory Tower of Zero Accountability,” start to question what you are paying for.
Keep looking forward.
This first appeared on Monument Wealth Mangement.