Calling BS On Monday Morning Investment QBs

Calling BS On Monday Morning Investment QBs

August 11, 2016

I had to chuckle. How could I not?

The headline at the top of my Google Finance page read: Here's Proof That ‘Definitely This Is A Stock Pickers Market'.

Finally! The proof we've all been waiting for!

OK, I'm being a bit sarcastic here because the Monday Morning Quarterbacking constantly expressed in articles like these is a good example of what's "easier said than done" when it comes to investing.

Consider the article I found on how stock pickers can supposedly do so much better than the market index. The crux of the piece claims that, over the last year, some companies and sectors have outperformed other ones. If you had invested only in those outperforming sectors, you would have had better results than had you owned the underperforming ones or even the broader market portfolio.

Wow! You mean if someone picks the right stocks in the right industries at the right time, they can do better than the market? Remarkable!

In another recent piece from Fiduciary Financial Partners, we speak to how this kind of talk from media sources, which oversimplifies things in hindsight, can lead to amateur investors getting into the market who think they can single-handedly beat the indexes with ease.

Well, according to studies like the one from Dalbar, Inc., they can't.

What Dalbar found through its 2016 Annual Quantitative Analysis of Investor Behavior was that the average equity investor had returns of 4.67% that were only about half of the S&P 500 index's returns at 8.19%.1

There are a variety of reasons for this great divide between individual performance and index performance. Stock pickers often react emotionally to market fluctuations, causing them to buy high and sell low based on what they're feeling in that moment. To make matters worse, they concentrate on timing the market rather than focusing on their long-term goals – one of the primary reasons they're investing in the first place.

I've never seen the media or advertisers of trading vehicles take any of these aspects of the human element into consideration.

It's as if they assume everyone is or can be a savvy investor overnight because it's just that simple. Jump on in and beat the market! Nice try, but…no. I work with a variety of highly intelligent clients who are quite successful in their careers and still have deep questions about their financial future. They can't go it alone and they wisely recognize that they shouldn't.

Going back to the article of how it's a "stock picker's paradise," one expert was quoted as saying, "As long as the U.S. economy doesn't show some great risk here, I think you'll see rotation in different issues as people deal with different economic concerns as the market grinds higher."

I'm not kidding. That's what he said.

In other words, if nothing bad happens, certain stocks will be sold and others bought as the overall market goes up? My, thanks for those words of wisdom!

In addition to what Dalbar found through its study, a recent article from the Wharton School of Business shares the unbiased data that all but proves the futility of active stock picking. This data is valuable not just for individual investors but also for professional portfolio managers who, year after year, underperform the indexes against which they are benchmarked.

Let's talk about those portfolio managers for a moment because many of them can be contributing to an environment of slick selling with little substance. Namely, they're getting paid to sell investors on the idea that they can beat the market. And you know what? Unfortunately, it's working. Because no matter how much indisputable evidence there is against the effectiveness of trying to pick stocks – or should I say, trying to pick managers who can pick stocks – people want the concept to work so desperately that they deceive themselves into believing it does work. There is still a huge marketing push to make an astounding amount of money from unsuspecting investors. Too many investors are enticed by a belief that they can catch the next hot trend and make a bundle by getting rich. Then combine that with a pitch from a portfolio manager who says he or she is smarter than all the other suckers if you just pay them.

It is absolutely critical to the success of Main Street investors that they work with fiduciary advisors like Fiduciary Financial Partners, who can help them distinguish fact from fiction. It's your money. Stay vigilant. It's easy for media sources who don't have a stake in your investments to toss out a lot of generalized financial advice and speculate to the moon and back. It's not that they're necessarily wrong. It's that they'll never be able to advise you in the customized fashion that your portfolio deserves.

So take that kind of talk with more than a grain of salt but at the same time, don't be afraid to ask us about it either during our meetings or in between. It's all part of helping you Confidently Embrace Your Financial Future. Call Fiduciary Financial Partners at 630.780.1534 or email today.

Miaciah Manuel, CFP®
An associate of Nick Economos and John Hillman prior to joining Fiduciary Financial Partners, Miaciah brings over a decade of financial planning experience to the team. He provides comprehensive financial planning services to FFP private clients, as well as installation and ongoing support for our retirement plan clients.

(1Source: Dalbar's 22nd Annual Quantitative Analysis of Investor Behavior for the period ending 12/31/15)