I am part of the latest Building the Behavioral Advisor cohort offered by Brian Portnoy, Joy Lere, and the terrific group at Shaping Wealth. It is an intensive, 100-day program to train advisors to guide their clients on timely financial decisions and on timeless considerations of how money fits into a meaningful life. I recommend it highly.
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Michelle Pfeiffer Needs Help?
She was and remains a major movie star. People magazine put her on the cover for its first ever “50 Most Beautiful People” issue. The New York Times, no less, called her “devastatingly gorgeous.” So, when Esquire magazine’s cover asked, “What Michelle Pfeiffer Needs…”, the answer printed on the inside front cover – “…Is Absolutely Nothing” – seemed superfluous at best. She looked perfect.
However, as it turned out, she needed a significant amount of help to appear perfect.
Adbusters magazine obtained a copy of the Esquire editorial memo to their photography retouching company which included detail as specific as “clean up complexion, soften eye lines, soften smile line, add color to lips, trim chin… soften line under ear lobe… add hair to top of head.” Harper’s magazine printed a copy of the bill for retouching services for the two images. The charge? $1525 (back in 1990).
Many portfolio managers must publicly disclose their holdings on a quarterly basis. When I worked institutionally, at the end of every quarter, some managers would prepare to “have their picture taken” by getting rid of problematic holdings. In earlier days, before regulatory mandate eliminated the practice, some managers would “sell” before quarter-end with a “handshake agreement” to buy the same securities back after the reporting was done. Either way, while a few didn’t want their competitors to see everything they were doing, these managers typically didn’t want their investors to see some of their “bets.”
For whatever reason, we humans tend to pick apart the pieces more than appreciate the whole. This problem relates to the fundamental attribution error — the error we make when we overweight the role of the individual and underweight the roles of chance and context when trying to explain successes and failures.
Every retail advisor has experienced the frustration of being able to report good performance overall but having the client fixate on those things that didn’t go so well. That frustration is difficult enough when the underperformance is real. But often the “problem” is nothing of the sort — it’s simply a down period for a particular investment type or sector.
As my friend, Brian Portnoy, likes to say: “Diversification means always having to say you’re sorry.”
A portfolio without assets that aren’t performing well on a nominal basis is not diversified and such diversification is a very good thing indeed. Managing those expectations is a crucial part of the job.
On the other hand, in what universe is an un-retouched Michelle Pfeiffer not good enough? With essentially unlimited media, now easily altered and “improved,” our expectations of beauty are more than a bit excessive.
We have unrealistic expectations about our investments, too. The Natixis Global Survey of Financial Professionals surveys financial professionals worldwide every year on multiple topics including their return expectations and those of their clients. In the latest (2022) iteration, the professionals in the United States were pretty reasonable, expecting 7 percent annual returns. Their clients, on the other hand, expected a whopping 17.5 percent per annum, far in excess of what any investment portfolio is likely to provide over the long-term. Vanguard investors are much more reasonable, but unreasonable expectations are common.
Clients tend to assume that we should be able to forecast market performance in advance. Oh, that it was so. “Expert” forecasts are terrible.
Quite obviously, the “experts” are like the rest of us — they tend to worship at the altar of price momentum in the church of what’s happening now. These experts, like analysts and investors, tend to assume that tomorrow will look a lot like yesterday, moving as a herd toward what is often the wrong conclusion.
Advisors and managers who claim their goal is to outperform during all markets (much less claim to succeed at it) should be treated with great skepticism, because there is no evidence suggesting they can do so over the longer-term. Then again, advisors and fund managers know that’s the great white whale that many investors (and advisors!) are chasing, so they’ll keep offering it to them, even though they can’t deliver. That’s what made Bernie Madoff so beguiling: his apparent (but, of course, fraudulent) ability to deliver consistently high returns regardless of the market environment.
If happiness is reality minus expectations, as Tom Magliozzi, co-host of NPR’s Car Talk radio show, would have it, clients who expect 17.5 percent per year stand to be extremely unhappy. Fortunately, expectations can and do change, if not as quickly or as appropriately as we might like, which means that managing expectations is a crucial part of an advisor’s job.
No diversified portfolio is full of winners all the time. Even winners aren’t winners all the time (Amazon has made long-term holders of its stock an enormous amount of money, but Amazon stock, up over 25 percent all-time, has suffered a drawdown of over 90 percent plus multiple 50 percent setbacks). Such an expectation isn’t just unrealistic — it’s nuts. By any reasonable measure, Michelle Pfeiffer is gorgeous without a bit of touch-up work. Perfectly wonderful portfolios aren’t perfect either.
Totally Worth It
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This and this are the best things I read this week. The loveliest. The sweetest. The scariest. The saddest. The coolest. The funniest thing I saw. The most insane. The most interesting. The most remarkable. The most disgusting. The least surprising. A new eulogy for Michael Gerson. BookTok. Virtually naked. Incredible goals. Gone fishin’. Disinformation for hire. Duh. Dunk contest winner. Wow. Jersey.
Please send me your nominations for this space to rpseawright [at] gmail [dot] com or via Twitter (@rpseawright).
The TBL Spotify playlist, made up of the songs featured here, now includes 250 songs and about 17 hours of great music. I urge you to listen in, sing along, and turn up the volume.
My ongoing thread/music and meaning project: #SongsThatMove
“All the persons of faith I know are sinners, doubters, uneven performers. We are secure not because we are sure of ourselves but because we trust that God is sure of us” (Eugene Peterson).
My daughter and I put the seeds in the dirt And every day now we've been watching the earth For a sign that this death will give way to a birth And the rain keeps falling Down on the soil where the sorrow is laid And the secret of life is igniting the grave And I'm dying to live but I'm learning to wait And the rain is falling Peace, be still Peace, be still
Now unto Him who is able to keep you from falling, and to present you faultless before the presence of His glory with exceeding joy, to the only wise God our Savior, be glory and majesty, dominion and power, both now and forever.
Thanks for reading.
Issue 143 (February 24, 2023)
wisdom ...goose bumps.. and the occasional tear