Friday, November 6, 2009

A Letter to “Do –It- Yourself” Investors

I was on a radio show today and I was asked, once again, to give advice to listeners who were contemplating active management for their portfolios. This may sound self-serving, but I’ve given the matter a great deal of thought and the best advice I can give is don’t do it. If you are going to invest your own funds and you are not willing to spend hours studying the financial markets each day, then my best advice is to diversify your portfolio and buy and hold. Yes, I am the author of a book called, Buy and Hold is Dead (AGAIN), but it simply makes no sense to attempt to tactically or actively manage a portfolio without a huge investment of your time.

Why? Because actively managing money today is one of the most difficult crafts you could possibly try to learn. The combination of being in a secular bear market where risk assets are likely to deliver less than average returns combined with a financial environment fraught with any number of new and hard to understand risks makes active management itself a high risk proposition - if you don’t know what you are doing. I have spent the last decade unlearning buy and hold investing strategies and learning how to actively manage money. I do it for a living. I am surrounded by professional analysts who do nothing but eat and sleep investment research all day long. And when we meet to discuss today’s bewildering market environment where there are so many variables to consider, so many risks to discount, and so many possible outcomes to consider, our discussions require our very best in terms of experience, expertise, and judgment. I know that individual investors don’t want to hear this, but for the most part they should stay out of the way. Professional investors like me will take your money in the arena of the marketplace.

It’s time to let a professional actively manage your portfolio. I know you’ve managed your portfolio by yourself for years, and yes I know that you had a bad result with financial advisors in the past. But if truth be told you probably haven’t made much money over the past decade, and there is a good chance the financial markets won’t bail you out for years to come. It’s time to let someone who knows what they are doing manage your money. If you still insist on doing it yourself, then buy and hold. Diversify your assets and take what the market will give you. It isn’t the best strategy, and it could cost you your retirement if the bear market continues, but at least you won’t screw up and make a big mistake trying to actively manage your portfolio in difficult markets like these.