When I was a child, a friend and I were off on some adventure or other. We arrived back at his home quite a bit later than expected. His mother was waiting, and demanded an explanation. My friend’s answer was Marx Brothers-quality dialogue: “We took a short-cut!”
His mother seemed to think that a short cut ought to reduce travel time, not increase it.
Some financial professionals and investment advisors take a very similar short cut. They adopt the view that it is either not possible to do better than the market averages, or not worth the effort of trying.
The reasons sound plausible, but may not stand up under examination. Human nature often encourages counterproductive behavior. We believe untrained human nature is a poor guide to investing; training and education may improve investor behavior, which may improve investment results. But the short-cutters seem to pander to human nature in its untrained state.
Active investment managers typically underperform the market averages, and this is often cited as evidence “it is too hard to beat the market.” What many fail to see is that active managers have human beings as customers, so may include popular investments and avoid out-of-favor sectors in order to draw more funds to manage. These tactics, of course, may be detrimental to actual investment results.
So that human nature thing enters into that argument, as well.
Life is straightforward for the short-cutters. They typically avoid the hard work of researching specific investment opportunities; they spend no time reading SEC filings, press releases, and conference call transcripts. They have no reason to try to understand the role of emotion driving money into different market sectors.
Hey, it is a free country and we are glad it is. Each person is entitled to his or her own opinion; investors are free to use or ignore any advice or advisors.
The short-cutters have become very popular. At the same time, with your help, our business has continued to grow and prosper. We do not mind the existence of short-cutters; they may actually reduce the competition for favorable opportunities. But we do want you to understand what we are talking about, and why.
If you have questions or comments on how this may apply to your situation, please write or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.