Beware of Soothsayers

I am often told there are “professionals” around us who claim to know the exact moment when things in the market are going to change; that somehow they always know the right time to get in or out of the market. To that comment I would engage in a bit of critical thinking to see where it takes us. Here are a few things that came to mind, that I believe are worth considering:


  • Human nature dictates that we want to feel in control of things.  This would explain our desire to seek out these soothsayers, even though we know they are no more likely to be right than anyone else. Yet we tend to give in to the perceived peace we achieve from finally finding the answer.  (In case you need to dust off the memory banks, conduct a quick web search for Maslow – remember the guy with the hierarchy?)


  • We are followers.  Remember the idea of safety in numbers?  If someone can convince enough of us that they know what they are doing, people will start to listen.  Look no further than Bill Miller of Legg Mason.  At his best (he was once named by Morningstar as “Fund Manager of the Decade”), his fund had over $21 Billion in assets.  He was replaced this year as he hit rock bottom by knowing what the “next best thing” would be, and coincidently, the fund he managed has fallen to under $3 Billion in assets.  Does this make you wonder if investors in his fund may have bought high and sold low?


  • Our industry makes it easy to say “See, I knew it”.  Volatile markets leave lots of opportunities for any opinion to be right at some point.  The best marketers know how to tout the right calls and forget the wrong ones.  Think about yourself and the last time you engaged in some small talk at a party…did you talk up your successes or dwell on your losses?  Again, human nature at it’s finest!


  • As the saying goes, “the proof is in the pudding”.  I took a few moments on the internet to search recent S&P 500 behaviors. (The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered to be representative of the Large US stock market).  For those who told us it was a great time to get in or get out, the window appears to have been pretty small leaving great opportunities for Bulls and Bears alike.  In 2010, the best day in that index fell ten days apart from the worst (May 10 and 20).  For 2011, it was back to back between August 8th and 9th, and so far this year that spread is five days apart (June 1 and 6).

So what is one to do you ask?  First you must ask yourself if you believe that Capital Markets work.  If you do, then realize a diversified approach to owning in the Capital Markets is a sensible approach.  When a professional advisor discusses returns and talks about how smart they are regarding their returns; RUN!  But most importantly, understand that when you’re dealing with your overall wealth, investments make up only part of what matters.  Seek an advisor who can work collaboratively with your entire reality, so as not to undo any planning that your CPA, Estate Attorney or favorite charity may have already helped you accomplish.  Once you see the big picture, you will discover that you are defined by how sensibly you approach your financial needs, not by your portfolio.  This is just one more way you can “Take Hold Of Your Wealth”.