{"id":242,"date":"2012-11-19T15:50:27","date_gmt":"2012-11-19T15:50:27","guid":{"rendered":"http:\/\/www.wallstreetandkstreet.com\/?p=242"},"modified":"2012-11-19T16:33:36","modified_gmt":"2012-11-19T16:33:36","slug":"why-you-need-an-investment-advisor-part-i-individuals-vastly-underperform-the-market","status":"publish","type":"post","link":"https:\/\/www.wallstreetandkstreet.com\/?p=242","title":{"rendered":"Why You Need an Investment Advisor Part I \u2013 Individuals Vastly Underperform the Market"},"content":{"rendered":"

Since 1929 U.S. stocks have provided a real return of 5.9% per year.\u00a0 So if you sell a business and have a long time horizon, it makes sense to invest in stocks.\u00a0 The cheapest and easiest way is to buy an index mutual fund or ETF.\u00a0 But that is not<\/strong> the smartest thing to do.\u00a0 It is better to find an experienced, trustworthy investment advisor to help manage your money.<\/p>\n

Why?\u00a0 Not<\/strong> because they will be such great stock pickers that they beat the stock market by a substantial margin.\u00a0 I know a couple of talented professionals who can do that, but it is very difficult because the market is so efficient.\u00a0 AIG\u2019s Hank Greenberg once remarked, \u201cAll I want in life is an unfair advantage.\u201d\u00a0 Me too, but it is hard to find in the stock market, what with every trader, analyst, and broker having available on his desktop, via Bloomberg or FactSet, the income statement, balance sheet, cash flow statement, trading history, SEC filings, ownership data, conference call transcripts, relative valuation metrics, technical charts, event timelines etc. on thousands of companies.<\/p>\n

And keep in mind that advisors who do<\/strong> have a lengthy record of beating the market may have done so by taking too much risk.\u00a0 An example is Legg Mason\u2019s Bill Miller, a talented fellow who beat the S&P 500 for ten years in a row.\u00a0 He made concentrated, contrarian bets on unloved sectors \u2013 which after 2006 included housing stocks and financial stocks. Woops.\u00a0 The fund dropped 55% in 2008; assets declined about 87% between 2007 and 2011 (partly due to withdrawals).<\/p>\n

So why use an advisor if they are not too likely to beat the market significantly?\u00a0 Because individuals, left to their own devices, tend to vastly underperform<\/strong> the stock market.\u00a0 Consider:<\/p>\n