Naked Strategies 4, Traditional Approach 0
I recently had a chance to talk to Dr. Richard Marston, the widely respected economics professor from The Wharton School, and what he told me will have major implications for investors considering "naked strategies."
Dr. Marston told me he had been hired by four family offices to oversee their investment managers. (A family office is a private investment company that manages the wealth of a single family.) Only the super-wealthy can afford family offices and gain access to this kind of investment advice. These four families clearly went the low-risk-taking, "belt-and-suspenders" route by hiring Dr. Marston to watch the people who they hired to watch their money.
You would think with all this money being spent on investment advice, the family office would have made some really top-notch investment decisions, wouldn't you? Well, it didn't work out that way.
Dr. Marston said he advised all the families earlier this February to rebalance their portfolios to their stated asset allocation. This would have meant adding money to equities. Not one of the families followed his advice. And as we all know, the market has advanced substantially since then.
While each of the families had spent a fortune on investment advice, they had not developed any "behavioral strategies" to deal with the emotional unease that comes with making investment decisions during a bear market.
These families just didn't realize that their decision-making stategies were fundmentally flawed. And they made the same thinking errors that thousands of less affluent investors make all the time that sabotage their investment results (See chapter 9 of The Naked Portfolio Manager for more information).
If those families had implemented "naked strategies" (rule-based, mechanical approaches to decision-making that are efficient, effective, and economical - you know the drill. . .), they could have avoided the types of emotionally-driven decision-making - or in this case, NON-decision-making - that even a brilliant MIT Ph.D. can't fix.
Dr. Marston told me he had been hired by four family offices to oversee their investment managers. (A family office is a private investment company that manages the wealth of a single family.) Only the super-wealthy can afford family offices and gain access to this kind of investment advice. These four families clearly went the low-risk-taking, "belt-and-suspenders" route by hiring Dr. Marston to watch the people who they hired to watch their money.
You would think with all this money being spent on investment advice, the family office would have made some really top-notch investment decisions, wouldn't you? Well, it didn't work out that way.
Dr. Marston said he advised all the families earlier this February to rebalance their portfolios to their stated asset allocation. This would have meant adding money to equities. Not one of the families followed his advice. And as we all know, the market has advanced substantially since then.
While each of the families had spent a fortune on investment advice, they had not developed any "behavioral strategies" to deal with the emotional unease that comes with making investment decisions during a bear market.
These families just didn't realize that their decision-making stategies were fundmentally flawed. And they made the same thinking errors that thousands of less affluent investors make all the time that sabotage their investment results (See chapter 9 of The Naked Portfolio Manager for more information).
If those families had implemented "naked strategies" (rule-based, mechanical approaches to decision-making that are efficient, effective, and economical - you know the drill. . .), they could have avoided the types of emotionally-driven decision-making - or in this case, NON-decision-making - that even a brilliant MIT Ph.D. can't fix.
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