- Bob Tyson III
Over the years, individual investors and money managers will read a lot about possible technique, style, and process in their investment career. Along the way it’s impossible to keep track of the amount of times you might have heard “this is the only investment advice you will ever need”. In my case, I made my first investment in 1999 as part of Nintai Partner’s corporate internal fund investment program. Since then, I’ve received so many examples of “the only investment advice you will ever need”, I’d be a millionaire if I got a nickel for each time it was brought up.
I’ve found over time, the basis for these claims is a some get-rich-quick scheme based on several core concepts. These include investing in thinly traded penny stocks, placing bets on rare metals or other commodities, or getting in on the “ground floor” of some new investment venture with a highly dubious claim such converting ore obtained in western Ireland to tons of silver from a 2000-year-old peat bog.
There are other versions of what was once called “the projector’s pitch”. These are proprietary trading systems based on phases of the moon (just kidding!), technical chart patterns known as the “double ended pricing helix” or the “inverted energy power trade” (not kidding!).
All of these suggestions may be the only ones I – or you – might need to lose a lot of money quite quickly in the markets.
There is one last category of individuals who sometimes give the “only investment you need” speech and that is your financial advisor. Occasionally I will have clients who tell me of former financial advisors insisting on a proprietary process that assures a client of a certain return. Many will claim to beat the S&P 500 Index on a regular basis or outshine the BBgBARC US Government TR bond fund each month.
I feel strongly that all of these pieces of advice - some well-meaning and some not – have a glaring omission in their design and claim. The best investment advice should be developed exclusively for the investor’s needs and goals. It doesn’t matter much if investment performance beats the MSCI world index but doesn’t allow the retired investor to pay his Medicare Part B premiums. While much investment advice is relative (meaning measured against some other organization’s or index’s performance, many investors need advice about investing with absolute returns.
The best investment advice I ever received was from a Board of Directors member at Nintai Partners. We had just decided to create an internal fund in which retained earnings would be invested and owned by the employees of the firm. As we pondered the goal of the fund, many ideas centered on performance metrics that measured returns versus the major market indices such as the S&P 500. After one contentious meeting, the Board member asked why relative performance versus the S&P 500 Index was so important. He proceeded to ask a series of questions. When did we need to access proceeds from the fund? What returns were necessary to meet individual retirement needs of the employees? Were there specific dates and times when a draw down might be necessary? He pointed out that none of these were entirely relevant to the S&P 500 returns. Indeed, in some cases, the company’s needs might be in direct contrast to the S&P 500 returns. The best advice was to ignore what all the talking heads cited as successful investment returns, and focus on what met our needs. In regards to how to achieve this, it occurred to me there are several core concepts investors should keep in mind.
To Thine Own Self Be True
No matter how much shouting, prognosticating, or tales of woe/exuberance one might be blasted with while watching financial news networks, nearly none of this noise has an iota to do with your investment goals or strategy. If you can’t sleep at night after purchasing that triple leveraged oil short fund you heard about on “Trader Nation”, then don’t buy it. No amount of trash talking gibberish by so-called trading experts is going to enhance your investment returns or ability to get a good night’s sleep. Either you fully understand your investment thesis and it meets your investment goals or you don’t buy it.
Your Goals Should Drive Investment Decisions
There’s a classic story told by Jack Bogle that’s several individuals were discussing their investment returns over drinks. After one boasted that his investment manager had beaten the S&P 500 by a wide margin, he asked his tablemate how his returns were over the past year. He said, “How the hell do I know? I just know I have enough money to golf every day, go fishing, and spend all the time I want with my grandchildren.” The game of trying to beat the markets has nothing to do with this individual’s performance measures. Never forget you invest for your goals – not Wall Street’s.
The Measure of Performance is My Clients’ Outcomes
As a professional investment manager, my fiduciary responsibility means that I choose the most appropriate investment vehicles to meet my investors’ goals. This means there are no cookie cutter solutions for my clients. Some have 50 to 100-year time horizons where growth is required to keep up with their Trust’s ever-expanding financial commitments. Another client might have a nest egg vital to supplementing their Social Security and pension income. They simply can’t accept substantial drops in their portfolio. Whatever their situation, the best investment advice I can give is to design a portfolio that specifically meets their financial needs. Anything less is a failure in my fiduciary responsibilities.
If you Google “best investment advice” today, you are likely to find hundreds of articles from major publications (Forbes), websites (Motley Fool) or investment managers (Ken Fisher). If you read any of these articles, you will likely get a list of stocks or industries completely detached from any investment goals you might have for you and your family. What help is this? How does this help any person get closer to their personal financial goals? My investment advice? Turn off the TV, switch off the computer, and draw up a list of your financial needs, your risk tolerance, and what investment strategy most meets your personality. Some people love to invest on their own, others are most happy using index funds. Whatever the strategy, make sure it’s your own. Because in the end, only you will know whether you met your financial goals or not.
 In the late 16th and early 17th century a “projector” was defined in the Oxford English Dictionary as “a schemer; one who lives by his wits; a promoter of bubble companies; a speculator, a cheat.”. Perhaps the most famous literary account of projectors is that offered by the author Jonathan Swift in “Gulliver's Travel”. Gulliver is introduced through an entire troupe of projectors in his tour of the Grand Academy of Lagado which is a think-tank populated by inventors of perfectly useless or insane conceptions and contraptions.