Painkillers vs. Vitamins

November 15 is a big date for hedge fund investors and their managers.  November 15 is the date investors must inform managers that they would like their money back in January.  The October statements could scare clients into making the decision to redeem.  Successful investors warn against making emotional decisions we might eventually regret.  While we might block out past erroneous decisions, a good investor and their experienced advisors can be a good sounding board.  This week we will look at resources that can help us make good decisions on November 15 and beyond.

Dalbar

Wealth managers often reference the results of the annual Dalbar study.  The poor results that retail investors continue to experience were at first shocking but have now become ‘Meh”. Our advice is to educate your clients on how they can avoid the Dalbar pit.  We have found that establishing an IPS during calm times and reminding our clients the importance of adhering to the IPS commitments when markets become difficult works for both parties.  Easier written than done but our goal is to stop the 25 year old Dalbar cut and paste 4% return report.  The “buy the dips” painkiller doesn’t work anymore. 

Research

All research is not created equal.  Mr. Spitzer and the global settlement exposed the conflicts of interest in Wall Street equity research.  Unfortunately research for the independent wealth management industry is “better” but still requires we channel Mr. Spitzer’s investigatory methods.  We aren’t looking for large settlements or election to a higher political office, but we need to beat the SEC’s examiners to the punch.  There are numerous conflicts that need to be uncovered.  Experienced professionals can help us ask the questions that no other advisory firms asked.  Mr. Gross was correct.  Independent advisors might have on the cleanest dirty shirt but our shirt is still dirty.

Network

Evan Marwell, my friend and successful serial entrepreneur, details in a November 5 episode of Without Fail that he spends a significant amount of his time everyday caring for his network.  He lists the investment in his network as the top of the three items he attributes to his entrepreneurial success.  This investment allows him to call on the members of his network when he needs a favor.  Making investment decisions requires a village that can prevent lonely emotional decisions. We recommend calling your network before the November 15 deadline.  This won’t guarantee that you will make the right decision, but it will increase your chances of success.

Timing the market has been proven to not work.  Asking experts for help and taking your daily vitamins works. There isn’t an immediate effect but slow and steady compounding wins the race.