Wrong! My Mistakes Over a 20-Year Advisory Career

In the last two decades as an investment advisor, I’ve often been wrong – about markets, products and their providers, investors, the government, and the advisory business. Here are my top 10 items I’ve got wrong.


1. International stocks should do as well as U.S. stocks. Nearly 20 years ago, I had my first meeting with the late Vanguard founder, John C. Bogle. One of the things we discussed was his view that international stocks should either be excluded from the portfolio or be no more than 20% of the stock portion of a portfolio. Bogle believed U.S. stocks doing business abroad had enough exposure to international markets. I pointed out that if U.S. stocks had enough international exposure, we wouldn’t be seeing such different performance between the two.

In a way, I was right (as performance was wildly different going forward). But in the only way that matters, Bogle was right, as international stocks badly lagged U.S. stocks. I still believe that we live in a global economy and capitalism works across the planet. I’m not abandoning international stocks.

2. Factors should best market beta. Early on in my practice, I attended a DFA seminar with Ken French as one of the presenters. It was very enticing, but the work from Fama and French made it clear to me that factors weren’t a free lunch. Rather, they were compensation for taking on more risk. Other than a small experiment with my own money, I embraced "dumb beta,” electing to take more beta risk with lower fees and higher tax-efficiency.

Smart beta became the rage and there were soon hundreds of so-called factors. Before long, there were so many factors that even Research Affiliates’ Rob Arnott was sounding the alarm that smart beta can go horribly wrong. As it happened, just about every factor failed going forward, at least over the past 15 years.