Last month, Bloomberg featured a research report on why Hedge funds continue to attract investors despite lackluster performance (https://www.bloomberg.com/view/articles/2018-06-26/is-hedge-fund-love-in-our-dna). Because of their complexity and secrecy, Hedge Funds have an attraction that appeals to our illusion of control. We don’t want to believe that investing is as simple as having low-cost, broad exposure to a lot of different assets. It can’t be as simple as buying an ETF and patiently rebalancing over time, can it? It has to be harder, more than just clear rules and discipline. No, we deserve for it to be harder. Now that we have made money, there should be a platoon of analysts poring over annual reports, Jim Cramer barking orders in the background, and ticker tape flying as money is made. That’s how “fast money” works, right?
The researchers found that even if we aren’t in control, we want to think that there are smart people who have it all taken care of. Ah, smart people. Sometimes I worry that our peers in this industry are considered by our clients to be the smart folks who have it all figured out. The truth is, the pros working as advisors have to fight every day for the humility to invest well. “The patience to get rich slowly” as Warren Buffett would put it. We compete for relationships against those who would convince investors that there is an easy way, accomplished by magical finance geniuses. There are quite a few times in the year when we have to debunk a clever story about how someone has the solution figured out and defend our disciplined approach. I would not have it any other way. In the long term, discipline wins out.
The most reassuring comment I hear from clients is: “I know what you will say about this but I needed to ask you anyway…” That tells me that we have gotten through to them. They recognize the noise for what it is. They have seen tempting, sure-fire fads come and go and they are confident that they won’t be marks for the fast money, the geniuses, or the hedge funds.