Quote:
Originally Posted by Slava
The other consideration is that portfolio management matters. It’s great that one time someone piled into an asset and made money. That’s not proper management though, and professionals don’t construct portfolios that way for good reason. It’s a lot more than just blindly allocating money to a company because you “have a good feeling about this one”. That’s the kind of thing people can do with their own money, but professionals just can’t even consider. We’re bound by a fiduciary duty, which means we must act in our clients best interests (this is a higher standard than what most financial advisors are held to, which is a whole other discussion).
It’s also great that “anyone can do this” during a bull market. But that’s not the test either. As Buffett said years ago, “everyone’s a genius during a bull market.” So sure, you can follow the hot trend and hope that it never ends and maybe you’ll perform incredibly well. Maybe Tesla will be worth $6 trillion a year from (which about what it would be worth if it repeats last year’s performance). I couldn’t say for sure. When we have a bear market though, the value of professional management and professional portfolio construction is evident.
I also debate whether the passive mandates actually outperform. I still contend that there’s no such thing as passive in the first place. It’s lovely to suggest, but in practice it doesn’t happen. If you’re a Canadian and invest passively, does that mean buying the TSX and just enjoying the ride? As soon as you decide otherwise, you have all kinds of active decision making that enters. How much do you apportion to the various geographical considerations, are you hedging the currency? And is that currency decision ongoing indefinitely or does that need to be monitored or adjusted? Are you using any fixed income or alternative investments? Then you need to assign percentages and monitor all this in case things change (which they always do). To me, that’s the tip of the iceberg. Those decisions and the information and analysis that goes into them is not just a quick yes/no answer. It’s quite literally people’s life savings that’s in question, so it’s rather important!
But I get it. Portfolio management, like being a sports GM, is subject to the scrutiny of a lot of Monday morning quarterbacks. We see all the crazy trade proposals in the FOI forum and of course with perfect hindsight we know that we should’ve drafted one guy over another. It’s a whole other ballgame (I’d imagine), when you’re standing at the podium and the consensus first pick is Alexandre Daigle and you’re about to make it.
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I agree, and I think finding the right advisor is the key to success, whether it be at a bank or otherwise.
I think some of the important factors for an investee and investor to know and understand are:
1. Risk tolerance.
2. Age and stage in life e.g. number of years from retirement
3. Degree of expertise, and ability to invest
4. Physical and mental health, and life expectancy
5. Marital status, dependents, and stability of relationship
6. Financial needs to sustain a certain lifestyle
7. Potential inheritance
8. Etc.