I had a secondary school classmate that I will call Mushroom. He was not known to have a scintillating personality and I found that he had a personal nature that was quite grasping and "kiasu" in nature. For some strange reasons, my friends in Engineering school turned out to be close to him because they did NS together and I was able to catch up with his dating life as an undergraduate in NUS. Mushroom is, after all, an old classmate.
According to what I learnt as an undergrad in Engineering school, Mushroom had issues with dating women in spite of a decent paying job. I thought, in my arrogance then, that maybe he was boring and lacked the ability to communicate.
A few years after work, I was flabbergasted to learn that Mushroom managed to not only find a girlfriend, he was on the way to getting married. This is a few years before I even met my wife and it definitely led me to suffer some amount of cognitive dissonance in those days.
SO I WAS BEATEN TO THE DATING GAME BY MUSHROOM!
SOMETHING MUST BE WRONG WITH ME!
I found out from a pal that Mushroom had a specific and powerful strategy to trap his girlfriend in his grasping appendages.
He met her in SDU and the moment he got his first date, he kept telling her that future events are a waste of time and they were going to be very unpleasant. According to my pal who provided the intelligence, he dominated so much of her time that she was unable to review other better matches in SDU which was why he ultimately won.
Commissioned Financial Advisors also find success in utilizing the Mushroom Strategy, basically covering their clients in so much shit and keeping them in the dark so that they can't achieve any financial agency on their own.
One mechanism to do this is the Dalbar study. The idea is that while low-cost ETFs may outperform actively managed unit trusts, in practice, retail investors do not have the willpower to buy and hold to realise these gains. So according to Dalbar, the Average Equity Fund Investor underperforms the market indices.
I would not want my daughter to be smothered by human fungi when she reaches dating age, so I'd like to share some ideas on how to disarm the Dalbar study.
a) What is the extent of this underperformance?
The most obvious answer is the question of what this gap is. According to this link. The gap is around 1.11%. So one counterargument is that even if an investor underperforms, the underperformance is lower than the difference in management fees of ILPs and unit trusts compared to ETFs.
This argument is good, but the gap changes over time and your FA may pick a study where the gap exceeds the management fee.
b) Underperforming the index on your own does not directly mean that you have to buy from this FA.
Mushroom will try to convince his girlfriend that the SDU outings suck and she won't get a better deal, but SDU is not the only game in town. She can visit a matchmaker or she can follow my approach by signing up for multiple language classes to find a mate.
Similarly, robo-advisors are killing it in the markets with some quasi-active portfolio plans. There are also services provided by non-commissioned FAs.
c) Bayesian Inference can still show that you can still win in a DIY game.
The Dalbar study shows the outcomes for an average investor, but you really know where you actually stand in a population. There are possible factors to suggest that you can potentially do better such as a higher intelligence and a higher conscientiousness.
If you have a degree, you already exceed the minimum requirements to become a financial advisor. If you read investment forums, you already know more than the average person. If you are crazy enough to invest time to follow an investment talk. If you own and have read a copy of The Intelligent Investor. If you read my blog, even more so!
All these factors may suggest that you will do well when dealing with your own investment.
If readers encounter more strategies used by FAs please share them with me and I will happily work towards debunking them.
One of the saddest developments in the financial blogosphere is that my source of research ideas is down at the moment.
FAs' product pushing is the epitome of active investing, often pushing overvalued flavour of the month, or worse, whichever products that are running extra commissions on closings.
ReplyDeleteJust point them to the SPIVA semi-annual scorecard, which consistently shows active managers underperforming indexes for decades. Since FAs' approach is pretty much the worst sort of active, it follows that following them will result in even worse results than the SPIVA and Dalbar reports indicate.