Why Do We Bother?

Overheard:

Oh, yeah, they have model asset allocations at that firm. But the models are all overweight international equity so no one actually uses them.

I’d like to have this framed for my office. Someone I work with said his mom cross-stitches. I told him I’d pay for her to cross-stitch this quote so I could frame it for my office. I wasn’t kidding. I don’t think there’s a more perfect illustration of the behavioral investment issues at the heart of the investment advice complex.

Great quantities of money and effort are expended to produce research, models and recommendations.

A great show is made of customized financial advice. We make a fetish of independent thinking. Of “not being afraid to stand apart from the crowd.” Of “sticking to our process.”

But in the end, it’s usually the sales process that drives investment decisions.

Permanent capital is probably the greatest edge you can have as an investment professional. If I could choose between being 50 IQ points smarter, having a massive research budget or a modest amount of permanent capital to manage I would take a modest amount of permanent capital every time.

Every. Single. Time.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s