due diligence

Short Cuts

© Can Stock Photo / BackyardProduct

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.

Buyer Beware: 4 Tricks to Inform Yourself With

© www.canstockphoto.com / bradcalkins

Investing offers a seemingly infinite range of approaches, methods, products, services, and theories. The abundance of alternatives can be confusing, or even paralyzing. We can equip you with four ideas that may help you to winnow the choices down to ones that are more likely to help you.

  1. Some of the highest-cost products attract the most persistent sales people. If you are being pursued by a seller who is willing to spend a great deal of time and effort and travel to connect with you, assume that there is a very healthy paycheck in the deal and know that you’re ultimately the one who will pay for it.
  2. Sellers love to spend a lot of time with the glossy sales brochures that are full of hope and promise, not the prospectus. You will learn about the dangers and risks and conflicts of interest and the costs from the prospectus, not the brochures. Two things to do: read the front cover of the prospectus, and have a knowledgeable third party review the whole document. If you encounter resistance to the idea of studying the prospectus, you know there is information in there that you should have.
  3. Some financial firms have gotten into the business of manufacturing their own ‘house brand’ products. These products may be impossible to move from that firm should you later elect to do business elsewhere. And companies that manufacture and distribute products have conflicts that independent firms do not. Beware of house brands.
  4. Second opinions do not cost, and may reward you. If you have any questions or concerns about a product being sold to you, call us for a complimentary review.

Bottom line, avoid being “sold.” Take advantage of the legally required disclosures in the prospectus. Beware of house brands. Seek second opinions.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.