As an independent advisor, I am often asked what are the keys to delivering superior investment returns? Or more succinctly, how does one go about beating market indexes? Investors from Simi Valley, Thousand Oaks, Moorpark, Northridge; and investors from all around recognize what those challenges bring to Asset Management. This topic reminds me of an article I read a few years back written by Howard Marks, titled Dare To Be Great. This article discusses the challenges and realities financial advisors and financial planners face when attempting to deliver superior investment results for clients.
One question financial advisors, financial planners, and investors have to ask themselves is the following: Do you employ passive investment strategies that have a high probability of delivering average performance with little risk of falling short performance wise at any given time throughout a market cycle (five to seven years)? Thus, in exchange for safety of not being below average performance at any given time, you sacrifice the opportunity of being above average performance at any given time. In other words, do you Dare to be Great? Are you willing to do things that are necessary to potentially be great? Are you willing to be different, and willing to be wrong at times? You have to be willing to do both to potentially get great investment results. As it is said in Dare To Be Great, “…you can’t take the same actions as everyone else and expect to outperform.”
Another important consideration for Wealth Management and Asset Management firms is that it isn’t easy being different. As Yale’s David Swenson puts it in his book, Pioneering Portfolio Management:
Establishing and maintaining unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom.
Thus, it comes down to not whether financial advisors or financial planners dare to be different or to be wrong, rather do they dare to look wrong. In Dare To Be Great, Mr. Marks points out those who invest money for others – will benefit little from bold decisions that work but will suffer greatly from bold decisions that fail. The possibility of receiving a few “attaboy” for a few winners can’t balance out the risk of being fired after a string of losers.
As economist John Maynard Keynes wrote in The General Theory of Employment, Interest and Money, “worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”
So, what does this mean for financial advisors, financial planners, and investors? Are we becoming more focused on emulating the benchmark portfolios and trading boldness away for the safety in numbers? Do you dare to be great?
I think one of baseball’s greatest base stealers, Lou Brock of the St. Louis Cardinals, said it best: “Show me a guy who’s afraid to look bad, and I’ll show you a guy you can beat every time.” Should you wish to learn more about our approach and experience, please don’t hesitate to contact me directly at (805) 558-8497 or at email@example.com
Investing involves risk including possible loss of principal.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.