Post of the Day
June 1, 2000

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Rule Breaker - Strategies

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Subject:  An Important Distinction
Author:  TMFBuster

The other day, Snoop posted these thought-provoking sentences:

I'm not in the business of advocating anything. Rather, for some strange reason I derive utility from evaluating other peoples advice.

My first instinct was to pose a playful response. Like, for instance:

Sure, I can agree with this, with just a few trivial caveats. All we have to do is constrain the definition of "anything," in this investing context, to exclude the measurement of portfolio risk, the best benchmark for risky investment strategies, the predictive value of past returns, strategies for portfolio allocation, the value of diversification, useful testing and reporting of mechanical investing strategy results, the voice of past data on stock price momentum, what TMF means when it says "buy and hold" and the future happiness of TMFJeff (artistic license claimed on last entry).

But, prudently, I held back, and thought some more. And eventually I realized that there is something important in Snoop's message that was driving my thoughts -- a theme worth stressing. It has to do with his role versus that of an "official" TMFer and how this difference (or non-difference) is viewed by those who here seeking education.

Here's the deal. If I were a Financial Planner of the traditional variety, I would recommend that my customers broadly diversify their investments. I'd probably try to get all my long-time-till-I-need-the-money clients to just buy index funds. At least that's all I'd put "on the record."

What!? You think I'm a lying, two-timing hypocrite? Maybe.

I'd argue, instead, that I just know people. Broad diversification happens to be the generally accepted, golden idol of financial planning. I read somewhere on these boards that for some kind of financial planner accreditation, one has to answer test questions in a way that supports diversification -- as represented by traditional Wall Street line -- in order to pass.

Given these facts, I'd be cuckoo to suggest alternate strategies to clients. All investing strategies are subject to the unknown (every single one). If I turn out to be right, well, no biggie, that's what they paid me for. But if I'm wrong (or unlucky), I'm in a McDonalds commercial with a "Former Financial Planner" subtitle under my friendly, action-oriented clip.

I don't relish the idea of sitting on one side of a desk (no matter how long or high), some day, trying to explain to an unhappy client why my own non-standard, unique take on the market has caused them to lose half of their equity. Suffice it to say that this would be a lousy time for a philosophical treatise on average long-term returns in past markets, the power of compounding or how much better off they were, as people, for the learning experience. And I really think it would be a bad time to say "I never advocated anything. I was just giving you some ideas."

But at the same time I was giving out boilerplate financial advice to others, I'd be taking educated risks with my own money. Personally, I think it makes more sense. And I understand me. My kids next meal doesn't depend on my potentially irrational opinion of me. That's one of the great things about working here, as opposed to working as a financial planner. We're free to think out loud and speculate -- to engage ourselves in the broader debate.

I really try not to come across as a sycophantic, slogan-toting mush head, but I have to say, here, that this is exactly what The Motley Fool is all about -- taking appropriate risks with our own money, as opposed to allowing others to make these decisions for us. If you prefer to follow the standard advice, buy index funds (just watch the fees and turnover). There's absolutely no shame in this.

I realize that Snoop and QWERTY and others will say that this is hogwash and that the RB port is in the business of recommending the strategy (in the fincancial planner sense). And I can't blame them. It's not as obvious as it could be that this is not the case. We should continue to work towards making it really obvious that we're just like Snoop - we don't really advocate anything.

At the same time, though, we can't let this fear cause us to suppress our true opinions, especially given that the results of our opinions are shown in full view, with greater accountability than any financial planner will ever be held to. Read our stuff, participate in our discussions and consider alternate viewpoints. Remember, if you come back to us, later, with a complaint, we'll sit across from you at our very broad virtual desk and say, like Snoop, that "we never advocated anything."

So take it or leave it. You're on your own. This is exactly! what Foolishness is all about.

Best Foolish Wishes,
Buster
...just another Fool with an opinion...


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