Are You Practicing Hope Over Realism?

Before I worked in the financial industry and eventually started my company, I largely used financial specialists to shepherd my money just like many readers. It never lasted long. The specialists just weren’t doing the job that I expected, even when they were by all reports among the best in the country.

This is why — even though I was a physician at that time (before my training at investment firms), I could roughly figure out some crucial figures. If I started with point A, the initial investment, and compared it to point B, the result, I could determine the gain in absolute and percentages for a year. Then, I sliced off inflation plus the taxes we paid on any gains taken. After doing this for a period of years, I found I was uniformly disappointed. Sadly, this scenario doesn’t even mention the fact that the firm was charging us money for their services.

So, this is the point. A savvy investor needs to rely on himself more than his investment manager. Otherwise, he only knows the return someone tells him, which could be the gross or net either before or after inflation is taken into account. In addition, ultimate appreciation of return must include the risk taken, which some managers are more opaque about when speaking with clients than others.

So, to me, having a manager is a risk in itself, especially if the client is complacent and the manager is self assured. That likely means that neither one is minding the client’s money with the care or caution that is required for success.

Take this anecdote:

In 1885, William R. Travers, prominent New York businessman and builder of Saratoga Race Track, was taken out for lunch by a Wall Street broker anxious to impress him and win his business. The broker took Travers to a nearby marina to show off his yacht and those of the other brokers who worked for his firm. The businessman looked down the line of beautiful craft and asked, "Where are the clients' yachts?"

The broker didn't have an answer. Travers took his investment business elsewhere.

— quoted from The Legion of Decency blogspot

This story has more truth than most people would like to face. It is because the broker or financial manager makes money no matter which way his or her client’s portfolio goes; the client doesn’t.

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Financial Adviser Secrets Exposed