by Steve on February 20, 2012
Want yet another example of how stock picking is a loser’s game? From the list below, guess the security that has had the highest and lowest returns in 2012:
- SPDR S&P 500 index ETF
- Sears Holdings (SHLD) – the retail giant that recently announced it would close up to 120 of its stores.
- Bank of America (BAC) – the beleaguered financial giant with a backlog of bad house loans.
- First Solar (FSLR) – makes thin film solar modules and became infamous last year for questionable financials related to government subsidies; its stock lost 76% of its value in 2011 and the company President was fired.
- Netflix (NFLX) – the online and mail order video rental business that has repeatedly angered customer by its pricing.
If you guessed that the stock of Sears Holdings is up the most this year, you’d be right. The stock price of this embattled retailer has increased by 72% so far in 2012. The lowest return has been for the SPDR S&P 500 ETF that has increased a “lowly” 8.66% so far in 2012.
Yet, at the beginning of the year, how many investors would have bet that Sears would have increased in value this much? Or how many would have guessed that Bank of America stock would be 38% higher six weeks into the New Year? First Solar stock is up 19% and Netflix stock has gained 68% in 2012. By the way, according to data from Bloomberg, hedge funds, largely unregulated investment pools that aim to make money whether markets rise or fall, have trailed the S&P 500 for the last four months as well.
Just to remind you: no one knows the future and anyone who invests as if they do is playing a loser’s game. The only way to invest without speculation is to own a basket of low-turnover, low cost, well-diversified and passively-managed mutual funds.
by Steve on February 16, 2012
A prospective client asked me the other day what it means when I say that I’m a fiduciary. Good question. I haven’t written about this topic recently, so I thought I’d blog about it now. When I say I’m a fiduciary, it means I follow these principles:
- Work in the best interests of my clients first. This seems obvious, but I want my clients to know that their interests are above my own. I run a business and make no apologies for it; if I act in my clients’ best interest first, it doesn’t mean I can’t also make a profit. It’s not an either/or question; it’s both.
- Act in good faith, meaning behaving honestly and sincerely, without any attempt to deceive. If I know the answer to a question, I’ll tell you; if don’t know the answer to a question, I’ll tell you that too.
- Act prudently with the care, skill and judgment of a professional. I promise to use my professional knowledge and experience in my clients’ best interest (see #1 above) and to stay current with personal finance issues, trends and ideas.
- Avoid conflicts of interest, which will or reasonably may compromise my impartiality or independence, and disclose any others. I can’t eliminate conflicts of interest, but I can avoid the obvious and bad ones and minimize the rest and tell you about any conflicts that come up, even though they are rare.
- Receive no compensation or other remuneration that is contingent on any client’s purchase or sale of a financial product or service. This means I don’t receive a fee or other compensation from another party based on the referral of a client or the client’s business.
- Disclose all material facts. Fee and cost transparency is difficult, but necessary if my clients are going to make informed decisions.
If I was looking for a financial advisor, these are the principles I’d want him or her to follow. I wouldn’t settle for anything less. How about you? Please send me an email at steve@finpath.com and let me know your thoughts about how important it is to you to trust a financial fiducicary.
