Successful Investing Takes Time, Skill and Good Luck
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How would your client react if you suggested retaining a money manager with no experience? Better yet, how about one who isn’t licensed to manage money? Better yet than that, what if this money manager has never had a client? Your client would be his first. Out of the question, right?
Well that’s exactly what an investor does when he decides to manage his own money.
Successfully managing money takes years of experience, a great deal of skill and more than a fair amount of luck. It’s a rare client who qualifies. Yes, some clients can do it. Most cannot.
Decisions are emotional. A logical argument, no matter how well presented, is not going to deter a client determined to go it alone. You must stir up his emotions if you are to dissuade him. You must explain to him that having the acumen is half the battle. The other half is divorcing himself from his emotions. He may possess the former. He cannot do the latter. He’d find it easier to manage your money than his.
Let’s talk about the skill part.
How are you at calculating present value, Mr. Client? How about future value? How much money will you need at retirement age? How are you with numbers? Are you going to buy mutual funds or build your own portfolio? Do you believe in index funds? What exactly is proper diversification? Are you going to create an asset allocation model? When should you shift from stocks to bonds? Are you going to ladder your bond portfolios? How do you plan to weight the various assert classes? How are you at avoiding mistakes? You are about to enter the arena, going up against the collective wisdom of Wall Street. Are you insane?
Now let’s discuss the emotional part.
Bailard, Biehl and Kaiser created a behavioral model based on a combination of method of action and level of confidence. Where will you put yourself, Mrs. Client? Are you risk averse, focused on capital preservation? Do you feel adventurous? Do you prefer to buy the favorite stocks at the time? Are you careful? Are you confident? Are you a little bit of all these things? Can you resist being compulsive? Will you get paralyzed by mountains of data? Which should you cut loose, your winners or your losers? Are you strong enough emotionally to be the first investor in history to get out of a bad market and get back in at the right time? (Wait, that may not be the emotional part. That may be the luck part). Can you resist temptation? Are you an old hand at media hype? How about fear? Do you do fear well? Can you tamp down your regret?
You see, Mr. Client, your money is lost before you realize it.
By the time you realize you need to act, it’s too late. That’s the killer problem. By the time you read on the wire services about the bad news, you’ve already lost your money. It’s the lag time that kills you.
You know, Mr. Client, forget what I just said. Forget the drudgery of sitting in front of your computer all day. Let me instead borrow a line from Dirty Harry.
Mr. Client, do you feel lucky? I’ll tell you why I ask.
Because the minute you decide to manage your own money, you’re betting you’re good at it. Are you willing to bet the welfare and security of your family that you are good at it?
You’re not just running your own account, Mrs. Client. You’re most likely hocking your future.
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