Sentiment Speaks: Most Money Managers Gamble With Your Money
Summary
- The reasons as to why money managers do something often make me scratch my head.
- Money managers are not often aligned with your goals.
- It's time to take stock (pun intended) as to whether your goals are aligned with your money manager's.
- This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Learn More »
I really wonder how many of you that read this article entrust your hard-earned money to money managers? My next question is, of those that do, how many of you really understand your money managers' approach to managing money? And, my last question is if you believe that your money managers' goals are not aligned with yours?
Since the first question I asked at the start of this article is more rhetorical in nature, as I simply cannot answer it, I will move to the second question.
Of late, I have been reading articles published by money managers and I have honestly scratched my head. In fact, if you have been reading articles by them over the last 12 months, you would likely be scratching your head as well.
Last year, I remember one money manager on Seeking Alpha told his clients to sell their positions as we were approaching the bottom in March 2020, and then during the rally, said money manager strongly urged his clients to aggressively short the market all the way to the September high, when he then proceeded to turn bullish. And, that was exactly when the market began a two-month pullback.
I have read other money managers patting themselves on the back for telling their clients to stay invested during the 35% correction because "the Fed has our back." While they certainly outperformed the money manager described in the last paragraph, I am just flabbergasted that someone's "advise" is to stay invested because of a belief in the Fed.
And, just the other day, I read one money manager explain in his article that he was suggesting long positions when the market hit 4000 because "April is traditionally a bullish month." I may also note that this money manager has been quite bearishly inclined as well.
I could go on and on as to what money managers tell their clients, and it just makes me shake my head in disbelief. At the end of the day, you should realize that you are likely entrusting your money to someone who really does not know more about the market than you.
And, it is actually worse than that. This brings me to answer my third question to you. In saying what I am about to say, I will likely make many money managers quite angry with me: Your money manager's goals are not aligned with yours. You see, your money managers goal is to increase his AUM (Assets Under Management). The larger his AUM, the more money he makes. Do you think he has an incentive to tell you to come out of the market?
Believe it or not, it is even worse than that. You see, your asset manager does not have the tools to understand when a period of market volatility is on the horizon until after it is too late. Moreover, he has no incentive to appropriately position you for market volatility.
Consider that even if he had the tools to suggest you prepare for market volatility, he has no incentive to go out on a limb to do anything about it. If he tells you to raise cash, and the market continues to go up, he will look like an idiot, which money managers call the "risk of underperformance." This is something that money managers avoid like the plague.
But, let's say they keep you invested during a major market draw down, they will simply say to their clients that "everyone got caught in this downturn, and we need to ride it out." Sound familiar?
So, I will ask you again - do you think your goals are aligned with your money manager?
Now, don't get me wrong. There are good money managers out there who put in a significant amount of effort and time to appropriately advise and protect their clients. In fact, we have almost 1000 money manager clients, and I have seen what the good ones do for their clients.
But, the reason I am writing this article is that I want people to begin to prepare for what can be a long and hard bear market which I think can begin in a few years. For those that have read my analysis, it should be no surprise to you that my ideal long-term target for the bull market which began in 2009 is the 6000SPX region.
By the time we reach my target, I can assure you that you will hear talk of a "new paradigm," and how the Fed has "conquered the business cycle." The belief in the Fed and US Treasury to control the financial market will be absolutely ubiquitous. And, that will be exactly when we will hit a long-term top and begin a major bear market, the likes of which we have not seen since the Great Depression.
So, now is the time you have to begin to ask yourself if your goals are truly aligned with that of your money manager. It is likely that at least one of you will not remain standing as we head into the 2030's, and there is strong potential that you both many not.
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This article was written by
Avi Gilburt, CPA., is an accountant and lawyer by training and the founder of Elliot Wave Trader, where along with his team of analysts, he specializes in identifying the major turning points and market trends so you can invest more confidently while applying appropriate risk management.
Avi is the leader of the investing group The Market Pinball Wizard where they help members gain a more real-time understanding of where the market is likely heading. Features of the group include: daily S&P 500 directional analysis, intraweek metals analysis, weekly expanded analysis on the S&P 500, metals, USO, and USD, weekly live webinars where we walk you through the charts we are tracking, and community chat with direct access to Avi and his team of analysts to ask questions. Learn More.Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (141)
we get old because we stop gamble.
Money managers don't get older, they are only occasionally replaced by younger ones.Most investors often have no choice but to believe because, despite what they knowledge, they don't really know whether they know. ... and because of these reasons, the repetition is the mother of eternal wisdom.BM has spoken. My service for you. ;-)
I would prefer to not be included within the same list of some of the analysts you mention above.
