Should I avoid a Wealth Management Advisor?

[CRLLS]

I simply do not understand how FAs can beat or even just meet the benchmarks over time. If the benchmark it the reference point, why not simply skip the middle-man and buy the benchmark? Further. the withdrawal stage of life, coincidentally requires an amount of growth. Assuming for a moment that the 4% rule is valid and an FA will consistently meet the benchmark over your future lifetime, why give him/her/them ~25% or your annual withdrawals. It simply doesn't make financial sense to me.

As one might tell from the above, I am not an active investor, nor do I have an FA on AUM.

 

[Chuckanut]

It's like rolling dice or flipping coins. There is always the probability of a long streak of one result, but the longer you go the less likely that the streak will be unbroken.

In the book The Only Investment Guide You Will Ever Need the author tells the story of lining up 256 people, giving them a fair coin, and asking them to flip heads 8 times in a row. Amazingly, one guy did it! What skill! What concentration! What courage! No.... What nonsense!!!!!!! Even worse is the assumption that since Mr. Jones managed to flip heads eight times in a row, he is more likely to do it again than the others.

The only guy I ever invested with who seemed to consistently beat the average fund was a fellow named Micheal Price who ran a fund called Mutual Shares. The fund invested in distressed and bankrupt companies. It did great. I sold after Mutual Shares was bought by another fund outfit.

Unfortunately, Mr. Price died about two weeks ago.

https://www.bloombergquint.com/markets/michael-price-who-saw-value-in-companies-struggles-dies-at-70

He searched for value amid beaten-down companies. “We like to buy a security only if we think it is selling for at least 25% less than its market value,” he told Fortune magazine for a 1996 profile.




“When a company gets into trouble and starts to miss its earnings, analysts drop coverage because they don’t want to embarrass their firm with bad calls,” he told Fortune. “So mainstream Wall Street isn’t looking anymore. Which pond would you rather fish in, one with a lot of fishermen or only a few?”

He searched for value amid beaten-down companies. “We like to buy a security only if we think it is selling for at least 25% less than its market value,” he told Fortune magazine for a 1996 profile. “When a company gets into trouble and starts to miss its earnings, analysts drop coverage because they don’t want to embarrass their firm with bad calls,” he told Fortune. “So mainstream Wall Street

Read more at: https://www.bloombergquint.com/markets/michael-price-who-saw-value-in-companies-struggles-dies-at-70
Copyright © BloombergQuint
He searched for value amid beaten-down companies. “We like to buy a security only if we think it is selling for at least 25% less than its market value,” he told Fortune magazine for a 1996 profile. “When a company gets into trouble and starts to miss its earnings, analysts drop coverage because they don’t want to embarrass their firm with bad calls,” he told Fortune. “So mainstream Wall Street

Read more at: https://www.bloombergquint.com/markets/michael-price-who-saw-value-in-companies-struggles-dies-at-70
Copyright © BloombergQuint
He searched for value amid beaten-down companies. “We like to buy a security only if we think it is selling for at least 25% less than its market value,” he told Fortune magazine for a 1996 profile. “When a company gets into trouble and starts to miss its earnings, analysts drop coverage because they don’t want to embarrass their firm with bad calls,” he told Fortune. “So mainstream Wall Street

Read more at: https://www.bloombergquint.com/markets/michael-price-who-saw-value-in-companies-struggles-dies-at-70
Copyright © BloombergQuint

 

[HarryHawk]

I simply do not understand how FAs can beat or even just meet the benchmarks over time. If the benchmark it the reference point, why not simply skip the middle-man and buy the benchmark? Further. the withdrawal stage of life, coincidentally requires an amount of growth. Assuming for a moment that the 4% rule is valid and an FA will consistently meet the benchmark over your future lifetime, why give him/her/them ~25% or your annual withdrawals. It simply doesn't make financial sense to me.

As one might tell from the above, I am not an active investor, nor do I have an FA on AUM.

I agree that if your assumptions are true, and it is impossible to beat a benchmark of buying and holding a wide spectrum of stocks, both good and bad, then it makes no sense to use an advisor.

 

[OldShooter]

I ... The only guy I ever invested with who seemed to consistently beat the average fund was a fellow named Micheal Price who ran a fund called Mutual Shares. The fund invested in distressed and bankrupt companies. It did great. ... He searched for value amid beaten-down companies. “We like to buy a security only if we think it is selling for at least 25% less than its market value,” he told Fortune magazine for a 1996 profile. “When a company gets into trouble and starts to miss its earnings, analysts drop coverage because they don’t want to embarrass their firm with bad calls,” he told Fortune. “So mainstream Wall Street ...

Sadly, that era may be over. Here is the father of value investing, Ben Graham in a 1976 interview: " ... I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors [The Efficient Market Hypothesis}."

 

[target2019]

I simply do not understand how FAs can beat or even just meet the benchmarks over time. If the benchmark it the reference point, why not simply skip the middle-man and buy the benchmark? Further. the withdrawal stage of life, coincidentally requires an amount of growth. Assuming for a moment that the 4% rule is valid and an FA will consistently meet the benchmark over your future lifetime, why give him/her/them ~25% or your annual withdrawals. It simply doesn't make financial sense to me.

As one might tell from the above, I am not an active investor, nor do I have an FA on AUM.

In theory you are correct. In practical experience most investors are not you and me. Here's an example.

In 2018 mid-year I was asked my opinion about what an FA was offering to a younger investor. So I went through the recommended funds, and created an index that agreed to a large extent in assets. Instead of 9 funds, I had three. This was to replicate the same portfolio with low-cost index funds, saving the excess fund fees (this is included in the total), and FA fees (not shown).

Periodically I'd email some screens, and not hear much in return. Obviously he decided to go with his father's FA. This did not bother me.

Since then I occasionally go into the portfolio and update dividends. It has probably been a year, and the results are shown below.

I know that changes to the funds selected or allocation were made, but I just wanted to keep the original comparison running, and see from time to time how smart I am. In the early recovery I know that the FA was ahead, so I'm surprised to now see how much different the index balance is. Subtract FA AUM and it gets worse.

But I am not him. His reasons for focusing on business and just picking up the phone to hear what FA says from time to time is another view. It's not what I do, but we're not all the same.