August 30, 2006 –
There are no greater flawed investment strategies than those pushed by 99% of investment firms all over the world. This is why most individual investors have no idea what returns they should really expect from their portfolios — because it’s certainly not the 6% to 8% annual returns you’ve been led to believe.
To illustrate this point, let me tell you a story.
I remember having an interview once with a nationally recognized investment firm in the U.S. located in California with over $20 billion of assets under management. During the course of my interview, I gave my interviewer answers that he did not want to hear. For example, he thought that by asking me where the Dow was that day, that that tested my knowledge of the stock market. I answered I don’t know and I don’t care because it’s irrelevant. I then politely responded with, “Can you please tell me where the London Stock Exchange is trading at today? Can you tell me where the SET at Thailand closed yesterday? Can you tell me where the Nikkei 225 closed at today? And, Can you tell me where the TSX in Canada is currently at?”
I asked him those questions to make my point that big investment firms such as his were dinosaurs. Firms that claimed to be revolutionary and creative (I believe their website used those words or similar words to describe themselves) but yet were bogged down in statistics and other things that would never help a single soul discover a phenomenal stock opportunity.
His useless interview questions conjured up memories of other useless things I had learned during my career from big corporate America, such as how to uncover companies that had just laid off tons of workers so I could call on their human resource departments to discover if anyone was advising their employees about what they should do about their 401 (k) plans. His questions reminded me of these same sales focused sales tactics because that is what statistical mumbo jumbo’s intended use is. It is intended to impress potential or current clients about how knowledgeable you are regarding the stock market while teaching you nothing about how to uncover great stocks that will produce great returns for clients.
Unsurprisingly, my answers did not please my interviewer, so he continued to pepper me with even more remarkably unfocused and useless questions. “Do you think the market is a bull or bear market?” he asked next.
“What country and in what industry?” I replied. “Real estate, technology, pharmaceutical, precious metals, or oil and gas?”
He didn’t answer for a moment, stunned that I would even need to ask that question. In fact, he started to get flustered because he didn’t know how to answer my questions. Finally he spoke. “In general, a bull or bear market? And in the U.S. of course, where else?” he replied, conveniently ignoring my clarification request for industries.
“Well it doesn’t really matter to me, because I look for stock opportunities globally, so to me it’s too narrow-minded just to focus on the U.S. market’s potential.”
Needless to say, the questions never got any better, and I did not receive a second interview. However, I was in disbelief that this guy was a senior level person at a firm that managed more than $20 billion of assets. All I could think, is, “That’s a whole lot of high net worth individuals and institutions that are receiving some less than average advice regarding their stock investments.”
But the fact is most investment firms would not have hired me with those answers. Even though if he asked Warren Buffet the same first question, Mr. Buffet would have given him the same answer as I. Warren Buffet often says that he doesn’t follow the Dow, only the companies that he owns. The point is, if I really wanted the job, I knew exactly what answers the interviewer was looking for, and I could have very well given them to him to demonstrate my potential as a great salesman.
However, I was so irritated by his typical cookie-cutter questions, questions that were in direct opposition to the creative and revolutionary concepts that the firm had advertised, that I chose to give my honest opinions instead. So what’s the moral of this story?
The amount of non-conventional thinkers in the investment world are very few and far between. Learn to invest in the stock market yourself or find a creative financial consultant if you ever want to maximize the full potential of your stock portfolio. Before I started to have real success with my own portfolio, in the range of 20% to 40% annual returns, I had to “unlearn” virtually everything that I had been taught by nationally recognized investment houses and formulate my own ideas, my own strategies, and utilize creativity. Huge investment firms are mired in their ways as sales organizations. Consequently, they’ve worked much harder in their transformation to become better sales organizations versus better stock-return maximizers.
Stick with them, and you’re bound to receive conventional returns predicated on a steady diet of conventional thinking. Until next time, follow the moneymites to make real money!
“Miso No Koro” J.S. You know what this means? It means “a mind like still water.” In martial arts, you have a lot of practitioners that never become “zen” and despite being adults, continue to behave like petulant, attention-needy, misbehaved children. It is said that everyone that has ever met Mas Oyama, the Korean founder of Kyokyushinkai karate is at once in awe of the sense of tranquility that hangs over him. Oyama has stated, “Karate is not a game. It is not a sport. It is not even a system of self-defense.Karate is half physical exercise and half spiritual. The karateist who has given the necessary years of exercise and meditation is a tranquil person. He is unafraid. He can be calm in a burning building.”
My own martial arts instructor once said that had I stuck with him (I only left his instruction because I moved to a different part of the country), that he would teach me to lose all sense of fear. That someone could walk up to me, put a gun to my head, and that my heartrate would never even rise. I only wish I had been able to train with him long enough to reach that state. So yes, J.S., I understand your frustration with large investment firms. But remember that their goal is the bottom line. So Miso No Koro and find your own way in investing.