It would be nice if investment advice came with warnings like pharmaceuticals. After all, the malpractice of advisers is every bit as dangerous as, say, erections lasting three hours or more.
What brought on this rant (and my creative rendering above) was an article in a recent magazine published by one of the larger brokerage firms. The article described case studies of clients managing their retirements and featured a mid-50 year old couple "leaving a margin of safety" by placing only 80% of their money in stocks. This, by the way, was referred to as the firm's "moderately aggressive" asset allocation model and was rationalized as protection against inflation.
Nowhere in the article was it mentioned that this strategy either has left or would have destroyed at least a third of the baby boomers' savings. Also not mentioned were deflation or the prospects for the portion of the portfolio devoted to fixed income at a time when record high rates of default are being priced into markets.
The only mention of this ruinous path was a single quote from the boomer/investor: "The recent market turmoil may result in a postponement of some of my plans, but I still have the peace of mind that I have some time for my investments to recover."
If I recall my stages of grieving, denial comes early in the process, not toward the end. I suspect we'll see an end to the secular bear market when investors lose the peace of mind associated with buy-and-hold.
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5 comments:
You mean three-hour erections are dangerous?! ;D
Regarding buy and holders, every time I've tried to explain to my friends (I gave up on my dad in 2000) that there's a difference between being in for the long run and simply having no idea of when it's prudent to get out, they simply would not listen: not to the inflation (official and real) adjustment for returns, not to the argument that indexes tend to go up because outperformers are taken out of the index and replaced with stronger stocks, not to the idea that even though you may not be able to predict if tomorrow will be sunny, cloudy or rainy, you can usually tell when a big storm is coming.
Ever since last summer I had been warning them that they should consider a plan B, yet every time that the market made a substantial drop they simply declared it had reached the bottom because it had already "gone down too much". Whenever I tried to explain to them that the market still could go down much more because there had not been a claudication, they would point to the last drop as a sure sign of it. My answer: the market has not claudicated because YOU are still in. Now I'm waiting for them to get out as a contrarian indicator. :(
The problem with most buy and holders is that they do less research than a 20 year old forex scalper and yet they want to hold their stocks as long as Warren Buffet holds his. They may mistake patience for laziness.
Best trading,
Jorge
it is kind of sad to see the lack of competence among financial advisors.
Right on Dr. B!
The incompetence of financial advisors and financial planners has bothered me for some time. I keep protesting to my local newspapers (Chicago Tribune and Sun-Times) whenever a financial columnist quotes such an advisor. The typical advice of 'diversify' or 'buy gold' or 'don't panic and all will be well' proved to be worse than worthless.
There seems to be complacency that the markets will recover soon enough to benefit all who have suffered huge losses. Any why is that true? Because in our recent history all declines were rapidly erased. Ignored are the 1930s and 1970s. Also ignored is the fact that there are simply too few data points to draw any reasonable conclusion about potential recovery.
But, those advisors get paid to offer advice and they, in their ignorance, offer the best advice they can. I surely wish the average individual investor understood how to adopt conservative option strategies to reduce the risk of investing in the stock market. But, advisors and planners either don't know about options, or choose to ignore them and ignore any responsibility when it comes to really helping their clients.
OK. I've ranted along with you. Thanks for the opportunity.
Mark
http://blog.mdwoptions.com/options_for_rookies/
The chinese stock market have fallen from 6000 (shanghai index) to 1800 in one year. Many people who have no konwledge about economy or investment have invested in stocks. Now the price of the stocks which they have invested have fallen to 20%. But they won't sell them, because they think the giant loss won't realize if they don't sell the stocks which they hold. And they think price of the stocks have the possibility to rise if they hold them. But they don't know this is only a dream and they don't want to face the fact. Some people suicided when they can't bear the giant loss.
Cut loss is so important for the trader.
Great perspectives; thanks much--
Brett
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