Engineering: Who designed and built your portfolio? We all know that there is a large difference between a Pinto and a Porsche. Did your portfolio blowup when this bear market rear-ended you? Unfortunately, most investors’ portfolios suffered major damage because their advisor convinced them that they were driving a Porsche, when they really had a Pinto. If the firm that engineered your portfolio was any good, you should have avoided the damage.
Maintenance: Who takes care of your portfolio? Just like a high-performance automobile needs professional care and consistent maintenance, your portfolio requires attention as well. Portfolio maintenance is making adjustments as market conditions warrant. Most advisors lack the background to adequately build and maintain a portfolio. As such, they hang their hats with large firms that provide them marketing support to grow their client base, analysts to help them suggest investments to clients, and then legal support when things go wrong. Portfolio management is the primary skill that you desire them to have, yet it is precisely the area in which they have little or no real education or experience. Fancy certificates from 3-day seminars at Pebble Beach will not make them a portfolio manager.
Sales: It is through this well marketed business model that most investors have found their advisor and suffered steep investment loses in recent years. In reality, most of these advisors are merely “Used Stock Salesmen” acting as the marketing arm of large financial services firms. Though they are experts at describing features and making us feel comfortable with a purchase, none of us would ever consider taking our cars back to the salesman on the car lot for maintenance. Yet, these firms have convinced their clients that the salesman is really a mechanic as well. Just as selling hundreds of cars does not make the salesman a good mechanic or automotive engineer, convincing hundreds of investors to open accounts does not make the salesman a competent advisor.
While this market will eventually improve, it will not go back to the easy money of the 1995-1999 period. As always, investment skill and risk management will be needed. Consider the past 18 months as your future. If your advisor has guided you through these rough times with little or no damage, you are in good hands. If your advisor let your portfolio suffer during this downturn, then it is time to make a change.
Published in Westlake Magazine – October 2001