“I thought you guys had some sort of insider’s edge and that’s how you get returns for your clients’ investments…?”
My friend was grilling up burgers and dogs for his kid’s birthday party while picking my brain about investing. He was surprised to find out how vanilla our investment philosophy is. No secret sauce. No insider tips. I don’t know a guy who knows a guy. Just control what you can control. A sensible asset allocation and a financial plan puts you ahead of most people.
He was right, though. We do have a special investment technique.
We say no.
We say no to high-cost, low value-add money managers. No to the absurd, overly-complicated, sketchy, and irrelevant. It’s not always an easy no, though. In some cases, we have to work to get to no.
In 2012, we were pitched an energy LP. It was a helluva pitch. Polished presentation. Local guys. The story fit exactly what we were seeing in our own backyard: shale was booming and these guys had the experience and connections to get in on the action. After the presentation, I was sure we were going to be sharing this opportunity with all of our clients.
A couple of days later, they emailed over the fine print. What I read was shocking. The investment process was totally different from what they talked about in the presentation. The fee structure was outrageous and well outside of industry norms. When we pushed back on this and a couple of other concerns, their answers were underwhelming. It was amateur hour. What looked like a slam-dunk investment turned into a solid no.
Beware the Shiny
The investment universe is huge. There’s always something new coming out. There’s always something out there that beat what you own over x timeframe. Constantly chasing what worked over the short term will eat your portfolio alive. Having someone who can do the research and knows what to say no to gives you an edge.
Why it’s an Edge
A fellow dad walked over to the grill.
“I know a guy who bought a couple of weed dispensary penny stocks and made $100,000.”
The light of financial prudence was extinguished. In its place, the twinkling hope of fast money.
“How did he hear about those stocks?” asked my friend.
“He got a random email one day.”
Powerball is $430 million.