MANY INVESTORS, ESPECIALLY those with significant sums, prefer money managers to oversee their assets. While there are some advantages — namely more control over your tax liability — the problem with separately managed accounts is that, from what I’ve observed, very few are actually managed. So even if you decide not to manage your money, you might need to take some steps to manage your manager.
Let’s define our terms. “Managing” an account doesn’t mean constantly trading it. In fact, one of the primary, yet oft-overlooked, responsibilities of an asset manager is to make sure a client’s portfolio matches his particular risk tolerance. This is usually done when the account is set up, but often stops there. The truth is that this should be an ongoing process.
Like many elements of investing, the concept of “risk tolerance” is often made a heck of a lot more complicated than it need be. Instead of actually focusing on hard numbers, advisers toss around vague descriptions of how much risk they plan to take. Let’s be frank: What exactly does being “aggressive” mean, anyway? (more…)
Investors spend most of their time deciding what stock to buy. They spend little if any time thinking about when and under what circumstances their stock should be sold. This is a serious mistake.
– William O’Neill, 24 Essential Lessons for Investment Success
Consistent profitability is a corollary of the preservation of capital. Now what do I mean by a corollary? A corollary is an idea or a principle which is a direct consequence of another more fundamental principle. In this case, consistent profitability is a corollary of the preservation of capital because capital isn’t a static quantity-it is either gained or lost. To gain capital, you have to be consistently profitable; but to be consistently profitable, you have to preserve gains and minimize losses. Therefore, you must constantly balance the risks and rewards of each decision, scaling your risk according to accumulated profits or losses, thereby increasing the odds of consistent success.
– Victor Sperandeo, Methods of a Wall Street Master
LIKE THE ANTIGLOBALIZATION forum I wrote about last year, the Iraq issue has brought out global protestors en masse.
While I support the right to peaceful assembly, the imagery that associates Bush with Hitler and the swastika with the American flag makes me gag. Despise George Bush’s environmental record? Fine. Want to give UN inspectors another decade? Fine. I don’t care which god you pray to or which language you speak. Associating America with Nazism isn’t merely ignorant — it’s disgustingly stupid.
The United States is the furthest thing from Nazism the world has ever known. Our global leadership isn’t a result of brute force, or political intimidation, or terror. America’s vast wealth, advancements in technology, culture and influence aren’t a result of sacrificing individual rights, as the Nazis did, but of protecting them.
While the right to free speech is most associated with America, I believe our property rights, and our commitment to free-market capitalism, are the truest sources of American strength. For many people, the concept of “property rights” has come to mean quaint suburban squabbles about four inches of the backyard lawn. But property isn’t just your stuff — it’s your life. Your property is the product of your labor, and the brilliance of American democracy is that we’re all free to toil away in any profession we choose. And keep the products of our labor. (more…)
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