Thursday, October 11, 2012

The Magic Words of Money Management Part 7: “Insights”

The Magic Words of Money Management Part 7:  “Insights”

It’s taken a week’s worth of posts for me to cover the key words in a twenty-minute investment management pitch.  As about a dozen colorful Power Point slides glided by, I’ve offered you a unique investment proposition.  I summed up the proposal as follows,  “We offer exclusive access to a customized portfolio of our best ideas generated through proprietary research.” 

I’ve described the comfortable relationship you’ll enter into when you invest with my firm, which is best summarized as,  “We want to be completely transparent and fully aligned with our investment partners.”

Napkin 22

In closing the deal and giving my product and firm an intellectual veneer, I’m going to offer you my firm’s insights into the financial markets and the economy.  Almost all money management firms offer market insights as a fringe benefit of being a client or even a prospect.  I’m sure most of you receive quarterly investment letters, whether you are a big-time institutional investor or a run-of-the-mill retail investor.  I’ll also offer you numerous invitations to hear an economist or portfolio manager opine on the future of the Euro or the outlook for energy prices.  A retail investor will be invited to the local brokerage office or country club for wine and cheese served in plastic cups and on plastic plates.  The institutional investor will be lured to more exotic locations in the mountains or at a beach resort, where glass and china are used for the refreshments.

 Somewhere in all those newsletters and investment seminars there will be some useful information.  It might be a useful tax strategy or a cogent explanation of a particular investment product.  However, most of these “insights” are at best entertainment and at worst thinly disguised marketing pitches.

I’ll be offering our insights as meaningful assistance, but our predictions for the direction of the markets, the outlook for the economy, or the outcome of political elections are merely guesses.  Our views on these matters seem utterly plausible because we state them with utmost conviction and accompany them with a raft of charts and graphs.  If you read our material carefully or listen closely, you’ll discover that we are adept at telling you what just happened, but we’re as clueless as you are about what will happen next.  Isn’t it nice, however, to think that somebody knows what lurks just over the horizon?  The difference between you and a money manager is that we make these predictions all the time, so some of insights are bound to be right.  As you take in our predictions, you should be particularly wary if we continually refer to the accuracy of our previous prognostications before hitting you with our latest insights.

While our insights are packaged as useful and free advice, they very often are infomercials for our firm’s other products.  For example, we might offer you an essay on the virtues of value investing or distressed real estate.  Wouldn’t you know it, in a matter of weeks we’re ready to launch a new value oriented mutual fund or distressed real estate fund.

Please understand that we can’t help it.  We think we’re really smart, and we want you to believe it as well.  Our “insights” are a convenient way to convince of you of our intelligence, if not our investing acumen.  Most of us also have an insatiable appetite to manage more money, because it’s the principal way we get rich.  Therefore, we’re going to use every opportunity to get a bigger share of your wallet.

Market insights are going to come with most any investment product you purchase.  If you’re having trouble falling a sleep on an airplane, you might take a few along.  Otherwise, focus on the performance of the product you purchased; that is what you are really paying for.  Believe it or not, I still read a few investment newsletters despite my skepticism.  The best of them raise more questions than they answer and draw upon market and economic history, not the latest twist or turn in last quarter’s market.

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