In my previous message I discussed process and superstitions. Now I would like to expound on that discussion. Many of us continue to believe that the investment manager makes the difference between a good return and poor returns. These investors believe that they can find the manager that will help them ‘beat’ the market. Or more importantly ‘beat’ their neighbor, friend, relative……….
As I mentioned previously people that go to a casino believe they have a system but it ends up they have thinly veiled superstitions. Many investors are lured by ‘experts’ with a system. These typically include a ‘system’ to predict when to get into and out of the market or a particular asset class or a particular hot stock. Somehow these ‘experts’ have determined a particular indicator or indicator(s) that can predict what the markets will do next.
What these ‘experts’ forgot or more likely don’t know to tell investors is that there is NO correlation between past events and future results. The markets are random and unpredictable. These ‘experts’ actually believe they have found the ‘holy’ grail or at least they want to convince investors that they have found the grail. These ‘experts’ fall into one of two groups, group one does not know what will happen next and group two does not know that they do not know what will happen next.
Some ‘experts’ will lead you to believe that they have watched and studied the markets for so long that they can ‘feel’ the pulse of the market. These ‘feelings’ are nothing more than thinly veiled superstitions.
Any adviser that cannot tell you the expected return and expected volatility (risk) of the recommended portfolio is speculating and gambling with your money and not investing.
Many of these ‘experts’ made a correct prediction once or twice and have convinced themselves and potential investors that they can do it again and again. Well these predictions were a matter of luck and not skill. The academics have proven time and again that the markets are random and unpredictable.
Sure some of these ‘experts’ get lucky but do you want to invest your money based on someone’s luck or based on academic research? Investing is a long term process ideally a lifelong process that has its ups and downs.
To reach your long term financial goals you need the assistance of an investor coach/fiduciary adviser. Your coach will help you build the right portfolio for you and your family. Most importantly your coach will keep you disciplined during market extremes, both up and down.
Keep in mind your coach will, at times, ask you to do something you do not want to do. Your coach may ask you to sell a good performing asset class and buy a poor performing asset class. This is called rebalancing and at times this requires discipline to go against the financial media.
If your adviser does whatever you tell them to do, what good are they? What are you really paying them for? You need to ask yourself if you are seeking advice or validation. An investor coach/fiduciary adviser is just that your coach not your facilitator.