While in elementary school in the San Francisco Bay Area years ago, my 6th grade class had taken a camping retreat/trip to the Santa Cruz Mountains. While I do not recall our particular group counselor's name, I certainly remember a story he told us in our cabin - all while strumming on an acoustic guitar. This particular story was about a man whose life had come to an end & when it did he was given the choice of two "afterlives". When his angel showed him his 1st option, he immediately noticed how unhappy everyone was as they sat down to have a meal together. Upon recognizing this, he noted one important detail: nobody had any elbows. As they tried to feed themselves, they were finding it quite difficult to do so - dropping food from above themselves or having to lean down to the table to eat directly off their plates. There just seemed to be misery everywhere due to this.
Not long after, his angel took him to his 2nd option. Here, he noticed everyone was very happy and enjoying each others' company. However, he again noticed that everyone there was also without elbows. But just as soon as he wondered "why?", he realized the reason they were so happy is they had figured out to properly serve one another. By merely reaching across the table and feeding one another, they had found a way around their "elbow-less" limitation. When the angel turned to the man and asked him which afterlife he preferred to join...the man thought about it for a few seconds, and simply replied, "the first one." A bit awestruck, the angel asked him why. "Because if I choose the first option, I can teach them how to properly serve one another instead of allow them to improperly serve themselves," said the man. The angel grinned, winked at the man...and away they went.
The reason I share this story is, not only do I think about it every now and then, but I also believe it resonates with the highly service-oriented business that is investment advisory. More often than not, any given investor's primary enemies are their own emotions and the resultant behavior as it relates to fluctuations in their investments and overall portfolios. This is evidenced by an in-depth analysis of investor behavior performed by Dalbar every year: their Quantitative Analysis of Investor Behavior (QAIB).
“The investor’s chief problem - and even his worst enemy - is likely to be himself."
— Benjamin Graham
Over the past 30 years, the typical stock mutual fund investor’s performance has badly lagged the S&P 500 index, according to Dalbar’s highly regarded QAIB report. While the average stock mutual fund investor earned 3.79%, the S&P 500 earned 11.06%. How is this so? The underlying problem wasn’t the 1987 stock market crash, the 2000-2002 dot-com bubble bursting, the 2008-09 financial crisis, nor weak economic conditions — but rather investor misbehavior. Even in calendar 2014, while the S&P 500 achieved a return of 13.69%, retail fund investors only achieved a 5.50% return. Investors tend to chase historical performance, buy the wrong funds at the wrong time, as well as selling at low points - the exact opposite of what a successful investor would do.
This all lends significant credence to my strong belief that all investors should have some type of fiduciary overseeing their investment portfolio - someone who, at a very minimum - will keep investors from getting in their own way. And for me, it raises an interesting question: What would our financial markets - and therefore, our world - look like if this were to come to fruition?