On 6 October 2014 16:39, Shyam Sunder <[email protected]> wrote:

> >> Good advisors too don't know what will happen, and tend to get into the
> herd mentality, the crowd, the loss aversion and all those little
> behavioural biases that  screw up our investments.
>
> This is a bit like saying "good surgeons will leave their scalpels in your
> chest and stitch you up."
>
> You are describing terrible advisors here, not good ones.
>
> A good advisor should not only NOT be subject to the crowd and herd
> mentality, but also help you protect yourself from these as well as the
> greed vs. fear pendulum swings that cause behavioural biases. An asset
> allocation driven approach to portfolio management will easily achieve this.
>
>
"Should".

But behavioural biases happen to everyone, even the best among us. I say
you can't avoid it - at best, you figure out when it hits you. In the
trading world, there's a whole area of psychological awareness of how to
understand these biases and how they manifest in other circumstances. The
fable that Soros gets out of a bad trade when his back starts hurting is
partly true. I could go on but that would be digressing.

Asset allocation is useful for most people but many advisors get it very
wrong - for instance advising that all those at retirement or close to it
must have only a small allocation to equity. Generic advice based on risk
assessment, age and social profile can be "robotized" - automated advice is
starting to change the world anyhow, with sites like wealthfront.  (For
full disclosure I'm working on something like this so I'm biased) Even the
Bogle folks have found a simple asset allocation method that's fully
automated - like target year funds (so if you are retiring in 2042, you
just buy a 2042 fund, which auto allocates between debt and equity and what
not)

However, robotic advice isn't useful for many people. My dad passed away in
1997 and left mom a house and shares of about 20 companies Only about 8 of
them survive today. Most robo advice would have looked at her age, her risk
profile etc. and told her to sell those shares and put money into an FD.
Today what she gets as dividend is about the value of the shares in 1997.
So advisors can do a good job here by looking into the situation in a more
detailed manner and not use templatized assessments. Unfortunately this is
not very scalable as a business, or I haven't found the right way, because
I've been looking at it closely.

Back into gyan mode - The biggest thing that individuals who aren't clued
into the market have, is diversification. But, and to paraphrase a saying,
there is such a thing as "di-worse-ification". Meaning, you buy different
things but they give you the same result as buying one thing. I know people
with 15 mutual funds. Fifteen. This is insane because most of those mutual
funds are buying the same underlying stocks! (I go like "buy two. If you
can't be happy with two funds you'll probably want to buy the stocks
yourself") And you should probably not buy more than 15 anyhow; I nearly
die tracking more than 12.

The problem with going with advisors is that you have to spend a lot of
time (and many times, money) finding the right advisor, especially when
most of their track records are only reference based. Biggies like Citi
Wealth are just terrible (I have not seen a single person who has had a
satisfactory return from their practice), and within the small guys there
is no way to easily measure performance or get independent assessments. And
if you don't have enough money, you can't afford the really good advisors
who will prefer to only have a limited number of clients.

So if you have a small amount of money (less than 5-10 lakh of investible
capital) you might find it better to just skip the whole advisor thing and
go generic/direct. And it does seem that a large set of people fall into
that metric...

Reply via email to