March 31, 2009
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Bob, you once again demonstrate a wisdom and insight that is too frequently lacking in the investment advisory industry. Thank you for cogently summarizing the realities of the challenges that advisors have faced in the onslaught of a truly unprecedented downward slide in world wide markets. Having said that, I do have a bone to pick with you regarding your article, “Casting No Stones,” in Advisor Perspectives on March 10, 2009.
I have been in the financial planning and investment business in one form or another for 29 years. I have seen a lot and learned much along the way. You indicated in your article that the advisor who changed strategies as the market fell was more “sophisticated” than the advisor who stayed committed to their original strategy. I propose that your “more sophisticated” advisor, who succumbed to the fear of the day and made radical changes to client portfolios after steep drops in market prices, is the less sophisticated of the two major groups of advisors, not the other way around.
I believe the more sophisticated group consists of those who stayed calm and rational in the face of a stampeding herd spooked by fears that things could only get worse. This group understands that at the end of any given day, all the information available has been factored into the markets. Like water flowing downhill, information (most especially bad news) finds its way into pricing just as quickly as it possibly can. It doesn’t take days or weeks for the market to reflect the latest news…it takes minutes.
Sophisticated advisors rightfully realize that, as long as their strategy allowed for a long term holding period (i.e. clients have plenty of liquidity or available cash flow to last a number of years in a down market), gambling on a continuing stream of new bad news could very well be in their clients’ worst interest. A decision to stay with an investment strategy is as much an overt and assertive action (maybe more so) as is the decision to run for the hills along with the stampeding herd.Display article as PDF for printing.
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