I was recently having lunch with a client after a lively discussion in our office. “I guess there is no magic bullet” is how he began lunch. It got me wondering why I had never put the idea of long-term investing in those exact words.
My client was kind enough to admit that he had some funds away from CORDA (yes we do allow for that from time to time, wink wink) and that he considered a rough 2015 a good thing over all. When I asked why, the answer was a profound one. These outside funds were with an asset allocator. The pitch from that firm was that if you put enough non-correlated assets in your basket you end up with a portfolio incapable of coming down quickly in value. The idea is that historically these assets have hedged each other and as long as they are out along the efficient frontier (Google it!!) they will grow optimally versus the risk accepted. Sounds great, right?! Of course the 2% Copper position will perfectly hedge the 2% Developed World Intermediate Term Bond fund. Or the high beta technology holdings will be hedged by the real estate investment trust holdings. Yadda yadda yadda (for all you Seinfeld experts).
The problem is that theory and real life are often miles apart and this non-correlated account did awful in 2015. To make matters worse, as 2016 came into play and his CORDA account began to rise… the other account did not. Here he had been told about this “magic bullet” as it were. A no lose proposition. And yet he was losing in real life. It was at that point he learned there was no magic bullet and that lesson is the “good” he was referring to when talking about a rough 2015. This blog is not being written to pick on asset allocators or anyone else. It is also not written because CORDA is immune to a tough time. Rather it is to make the point THERE IS NO MAGIC BULLET. If you have one takeaway from reading this, please let it be that. With all the algorithms, Ivy League hedge fund guys, new and optimized Exchange-Traded Funds, and so on, we would have stumbled on to a magic investing bullet if there was one to be found. So far as I know, there is not. So control what you can control.
Back to our lunch… The client kept going with his story saying, when he got panicky last year and came in to visit, CORDA was still of the opinion to stay the course, almost annoyingly so. He now has some appreciation for that stance. His idea was that there must be something we could do to his account to get things heading up again! He now realizes that without a crystal ball there was certainly no obvious answer and in fact history would tell you to stay on track. Do not act just to do something. Keep looking for quality and value and stick to your guns and things generally work out. That is CORDA in an overly simplified nutshell. Control what you can control.
Finally, something I and the rest of the team try to bring to our relationships at CORDA is a sense of trust. Sometimes that means admitting error, admitting you are not 100% sure what is coming up ahead, admitting things could have been better, or even worse. In my humble opinion those sentences are all about trust. I have zero interest in general in working with someone who cannot just say they were wrong. It comes off as narcissistic and phony. Give me a person that can tell me what happened, tell me how they are looking to improve and that they truly have our shared interests at the forefront and I am with them for life. Trust is an important item in every relationship. Marriage, kids, employer, employee, financial advisor, attorney, psychiatrist, etc. Control what you can control and be accountable.
THERE IS NO MAGIC BULLET
CONTROL WHAT YOU CAN CONTROL
FIND A STRATEGY THAT YOU UNDERSTAND AND FITS YOUR GOALS
STAY THE COURSE
FIND A PARTNER YOU TRUST
THERE IS NO MAGIC BULLET
just like looking for a new job , you have to look at the entire compensation package not just the pay stub.
there are no mistakes, only learning experiences