Sunday, June 5, 2011

You Don't Know What You Don't Know - Part 2 of 2

Below are emails I have exchanged with the CEO's of Coast Capital, Vancity, Prospera, and Envision. Also included are emails exchanged with Helmut Pastrick, chief economist of Credit Union Central of B.C., and Mark Carney, the Governor of the Bank of Canada:

(Click on them to get a more readable copy. If you still cannot read it, increase the zoom on your computer, or print out the picture.)

Another link I hope you will find informative.

Have You Herd? Your Adviser Is Scared to Set You Straight - Wall Street Journal

...instead of holding your hand, some advisers might prefer to pull you by the hand in the direction you are already headed.

In 2008, researchers led by Antoinette Schoar, an economist at the Massachusetts Institute of Technology, trained two dozen mystery shoppers in the basics of investing. Masquerading as potential clients, the shoppers had initial meetings with nearly 300 financial advisers in the Boston area.

Each "client" showed up with a portfolio and a preferred investing strategy. About a third pretended to like chasing hot returns.

"Instead of undoing or leaning against that bias," says Prof. Schoar, "advisers were actually very supportive of chasing past returns." The more a prospective client had pursued hot performance, says Prof. Schoar, the less likely the average adviser was to suggest a different approach.

"Chasing past returns is kind of a nice bias from an adviser's point of view," she adds. "It generates more fees"—especially for advisers who earn commissions each time they sell stocks or mutual funds.

One danger is that if you voice a strong opinion, your adviser might not give you a second opinion. He might merely echo your own, making you think he is smart because he agrees with you—and clearing the path of least resistance to his next commission. Sometimes, acting like a sheep just pays better.

Sukh's Thoughts: And by letting you chase past returns, not only does the advisor "earn" his or her commission by just doing whatever makes you happy, but when these "investments" disappoint, they get to tell you that you only have yourself to blame, because this is what you wanted to do.

Please take the time to go through all the entries I have posted on this blog. I think investors need to know this information as we go forward into an era where buy-and-hold will only be profitable for those that sell you the mutual funds, and those that manage the mutual funds. Those that actually invest in them, well, they're likely, over time, to become very disappointed with their investments, and unfortunately will most likely sell at the exact wrong time (only when they have lost complete confidence in the "advice" they get from the person that sold them these mutual fund "investments").

The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author.

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