mhj3.com
Premise |
mhj3.com is intended for those investment advisors who — thinking that they can be better, much better and do better, much better, knowing that investors deserve more, much more, and wanting to escape the 'long investing performance rhetoric, short investing performance results' black hole of investment advising — feel "I'm as mad as hell and I'm not going to take this anymore."' — Howard Beale, Network, 1976; determined to drill down to investing performance bedrock to address the substantive issues of advising and investing that actually do determine investing outcomes. During my 50 years of investment advising and investing, I continuously asked myself:
I have made the following observations and have drawn the following conclusions as to what's wrong, what to do, and how to do it. What's Wrong In general, there are many types of investments, investment strategies, and investment tools that are profoundly flawed, fictitious, treacherous, and often predatory. Specifically: I: Investment Advisors have generally devolved from being fiercely independent, self reliant, skilled investment advising practitioners to being investment advising generalists who are merely superficially and conversationally competent in many wealth management related issues and masters of none; trained to focus more on the marketing, gathering, and moving of capital than on the advising, building, and protecting of capital — products and transactions rather than portfolios and processes. Extinction of the noble and important profession of investment advising, as we know it, is a distinct possibility because all markets eventually close, are closing the inefficiency gaps between value and price, competent and unqualified, skilled and unskilled, serving and self-serving, and most of all, good investment advising judgment and management skills and bad investment advising judgment and management skills. II: Monthly statements and investment portfolios most often look much like the 'Winchester Mystery House' without consistency, discipline, direction, continuity, control, or theme; neither structurally sound nor competitive. III: Investors are often exposed to "hit and run" investment advice, being "sold" random, isolated, sometimes frequent transactions with no clear investment goal in mind — adrift, results more by chance than by design. IV: There is no theory, modern or otherwise, that can be ordained, no computer that can be programmed, no software that can be designed, no investing tool that can be contrived, and no equation that can be divined to quantify, evaluate, and predict the primary forces that drive the financial markets and investment prices; human consensus, mood, and behavior; intelligent and not, knowledgeable and not, reasoned and not, rational and not, and logical and not. V: If the techniques, tools, and theories surgeons trusted and used were of the same quality and integrity in their specific fields of medical expertise as those used by Wall Street, many investment firms, most investment advisors — and almost all individual investors who invest for themselves — in their respective circles of responsibilities, an Apple-A-Day would be a wonder drug, Ouija Boards and Crystal Balls would be considered advanced medical tools, and Voodoo, Séances, and Witchcraft would be Pulitzer Prize winning Modern Medical Theories. VI: Many investment advisors have succumbed to the latest inane investing wisdom of the day; passive 'buy, hold, and forget,' untimed, unmanaged index funds, exchange traded funds investing — unknowledgeable, unskilled, undisciplined, unmanaged, untimed investing, an investing performance oxymoron. Adopting this investing strategy is tacit admission to clients that you are unknowledgeable, unskilled, and undisciplined, that you can't do what you were hired to do — bring value added to the investing performance equation by managing and timing investments — and that you will most likely underperform (and, because all markets ultimately recognize and remove inefficiencies, that you will ultimately become extinct as more and more investors rely on the investment advising Internet). 'True, but have you seen my pie charts?' VII: Investment Advisors continuously seek the nonexistent wellhead of the 'fountain of perfect investment ideas, investing strategies, and, investment timing sources' in the mistaken belief that the best investing performance can only come from better investment ideas while not acknowledging that they themselves are the weakest investing performance cog. VIII: Investment advisors are always closer to random investment selection than they think they are; because, whether doing one's investment selection due diligence or whether selecting investments at random, the results from both — careful investment selection and random investment selection — will be about the same most of the time (sure, the exceptions of some great times when you can do nothing wrong; but, always offset at some point when you seemingly can do nothing right); both generating good and bad investment selections and both yielding similar investment performance distributions; some up and some down — most a little, some quite a bit, and a few a lot; the problems, of course, being not knowing in advance what each investment will do; what direction, when, how far, and for how long. IX: Investment advisors announce the required, responsible, and absolutely true investment footnote, "Past performance is not a guarantee of, is not necessarily indicative of, is not a true indicator of future investment results," and then proceed to use past performance as the primary basis for making investment recommendations and projecting future investment results. X: All economic opinion and market forecasting will range from terrible, to close, to a few lucky calls. XI: Modern Portfolio Theory, the Olestra™ of advising and investing, and all of its illegitimate relatives Monte Carlo Analysis, Efficient Frontier Analysis, Beta, Brinson's Asset Allocation, Pie Charts, and a distant relative, Technical Analysis (worth a glance) using yesterday's news as an investment crutch, are just other ways to record and to illustrate investment history without valid analytical, interpretive, deductive, predictive, or directional investment value because they assume and suggest, incorrectly, that the financial markets' cycles of the past and the valuations of underlying investments in the past because they are somehow mysteriously connected as part of an orderly, sequential financial system will repeat themselves similarly or exactly in the future as they did in the past in much the same order and with the same frequencies, durations, levels, relative valuations, and volatilities; suggesting, contrary to fact and law, that investing hindsight is, indeed, investing insight and investing foresight — absurd, as anyone who has spent a nanosecond in the financial markets would, should know. XII:
All investment
advisors and investors must accept, understand, and agree that, on occasion, they
will be both right and wrong because investing has being right and wrong built
into it.
What To Do The conclusions are as clear and inescapable as are any other investing performance priorities indefensible. Piece the investing puzzle together by creating an organized, efficient, and disciplined investment advising and investing performance environment in which each investor, regardless of investment need, knowledge, experience, and the amount of investment capital, will be honorably, properly, intelligently, and efficiently served. Envision an investment advising world in which investment advisors spent as much time in developing their own investment advising management skills as they do in looking for the perfect investment and as much time as Wall Street's marketing 'imagineers' spend in designing and packaging so-called 'new and improved' investments and 'unpackaged,' 'exotic' derivatives where the value added most often accrues directly and immediately to investment firms and advisors in the form of 'new and improved' revenues for the former and 'exotic' commissions and fees for the latter; however, without adding substantive investment value to investors' investment portfolios at any time while, in most cases, masking increased investment risk. The centerpiece of one's investment advising and investing skills — the unique proprietary value of an investment advisor and the primary reasons investors come to us in the first place — must be to build and to protect investors' investment capital by first creating unique, structurally sound investment portfolios that match suitable, hopefully timely investment sectors, investment categories, and individual, underlying investments with different investor investment profiles (different investor investment risk tolerances, different income and capital growth objectives, and different time horizons) and then to keep investment portfolios competitive by managing, modifying, monitoring, and measuring investment portfolios — one at a time, a few at a time, or all portfolios all at once —as investors' investment profiles, the current market conditions, the market outlook, and relative investment values change. The ongoing and vigilant investment management and timing processes of what you do with investments as you select them, buy them, own them, and sell them in the context of creating and maintaining structurally sound and competitive investment portfolios — as determined and governed by both investment selection and management and portfolio management disciplines, rules, and procedures — are the primary determinants of investing performance success; the investing performance edge; the absence of which are the root causes of the best kept secret in the profession of investment advising — the oblivion of rampant investment portfolio performance mediocrity for most individual investors most of the time. The logic of the foundation for a disciplined investing philosophy is as follows: If I were required to select investments at random rather than going through the normal investment selection 'vetting' steps that we all take, my very first steps would be to thoughtfully define, relentlessly apply, and rigidly enforce my own portfolio management disciplines, rules, and procedures:
Principle I: Investments selected at random and governed by just basic/ the minimum user defined Portfolio Management Disciplines, Rules, and Procedures will outperform carefully selected investments generally ungoverned; can't get in trouble:
Now change the rules and allow me, as we all can and do, to analyze, sort, and select investments by whatever means I choose. Should I, would I stop applying portfolio management disciplines, rules, and procedures? Clearly not because disciplines rules and procedures — the details of the what, when, why, why not, how, and what ifs of the the investing game plan — define the ongoing decision making action taking investment selection and management and portfolio management processes that will help me to take the investor to his or her investing destination. Principle II: Carefully selected and weighted investments placed in structurally sound and competitive investment portfolios as determined by and governed by both user defined investment selection and management disciplines, rules, and procedures and user defined portfolio management disciplines, rules, and procedures will outperform most market indexes almost all of the time:
Principle III: To the extent that one has a 'sense of the markets' and to the degree that investment timing can be improved, investing performance will improve exponentially. How To Do It Use investing performance software to help you drill down to investment selection and management, portfolio management, and investing performance bedrock: Investor's CalcStation: Define, modify, and manage the investing task at hand; a walk in the park, just a bump in the road, or climb Mt. Everest — investor's current and projected Budgets (Income - Expenses), Assets, Liabilities, Personal Cash Flows, Balance Sheets, and Net Worth Investment Goal Analyses over selected analysis periods using the investor's actual and projected sources and uses of funds and the advisor's actual and projected capital growth rates, interest rates, and inflation rates. Investor's WorkStation: Create, manage, modify, monitor, maintain and measure unique, structurally sound and competitive investment as investor investment profiles, current market conditions, the market outlook, and relative investment values change. PerfCalc: Evaluate how you have done. You will never look back. |