Even though I’ve only been in the business for a few years, colleagues tell me there has never been an investing environment as tough as this one. Modern Portfolio Theory has failed over the short-term. Diversification really didn’t matter as stocks, bonds, commodities, REITs, and international markets are all down substantially this year. You were either in cash… or hosed.
As I talk with other in the industry, the stress is palpable. I feel it every day and the bulk of the stress does not come from frustrated clients, but is generated internally as I look at statements and wonder what else I could have done. So I take that stress and multiply it by 4 or 5 to understand what is being felt by the industry veterans who have large books of business and hundreds of clients with differing time horizons and risk tolerances. I’ve heard the stories of sleeplessness, anxiety, stomach problems, chest pains, etc. Understand what your advisor is going through.
In a perfect world, the relationship between a client and advisor is one of partnership. You voicing your fears and concerns to your advisor… and your advisor protecting you from selling at the wrong time while still allowing you to sleep at night. You are correct to hold your advisor to a high standard, but not an impossible standard. Before you ask the question “Why didn’t you see this coming?”… review the following:
* Goldman Sachs, the crown jewel of Wall Street, earlier this year called for oil to hit $200 a barrel. Oil is currently trading below $55/barrel.
* The Harvard Endowment… even with it’s myriad of Nobel Laureates, PhDs, and fleet of analysts… is down more than 30% this year.
* Warren Buffett, the Oracle of Omaha, the most respected investor of a generation, invested billions into Goldman Sachs just two months ago at a price level of $115/share. Goldman is now trading at less than $60/share.
To Buffet’s credit, he did say upon making the investment that he did not know where Goldman Sachs would be priced 3-6 months from now, but that he believed 5 to 10 years down the line he would be very happy with his investment. That long-term viewis what sustains all of us. It’s hard to quantify the fear in this market. In the same way there was once “irrational exuberance” in the market, today there is “unfettered pessimism.” In the end, many of us believe we work in a capitalistic economy that can get off-kilter, but in the end rewards those who take risks. If this economy can survive terror attacks and world wars, we will find our way out of this mess too.
