“…even Buffett knows that the point of professional money management is not to simply beat the S&P 500.” – Jared Dillian
Jared Dillian, a recovering Wall Street trader, is near the top of our list of financial writers. His newsletters are both entertaining and dripping with insights that we don’t get anywhere else. This week we are linking to one of his recent publications in which he calls out some of the hypocrisy prevalent in our industry’s “conventional wisdom”.
He uses Warren Buffett’s infamous bet (see our recent Insight, Buffett’s Bet) as a springboard for the discussion, quickly pointing out that the very point of active management is often misunderstood.
But even Buffett knows that the point of professional money management is not to simply beat the S&P 500. The point is also to minimize volatility. Because if you can’t handle the volatility, then you’re likely to vomit out of your investment at the worst possible time—on the lows.
He also points out that the average investor does not really have much in common with the Oracle of Omaha.
Buffett likes to say that you should buy and hold stuff forever, like he does, but not everyone is Buffett. Not everyone has permanent capital, not everyone has godlike status among his shareholders, and quite frankly, not everyone has the constitution Buffett has.
Mr. Dillian then takes exception with a handful of the commonly held views out there in the financial industry, including the idea that brokers and hedge fund managers never add value.
The most important function of a broker or investment advisor is to save you from your own worst instincts.
If hedge funds really added no value, then why would the richest people in the world invest in them? Are they all stupid?
Click the link below to read the full article. We hope you enjoy it as much as we did, and as always we welcome your feedback and comments.
Author David Houle, CFA is a founding member of Season Investments. He serves as the firm's Chief Compliance Officer as well as sitting on the investment committee overseeing the management of client assets. David spent nearly ten years in various roles primarily managing individual client assets prior to co-founding Season Investments. David graduated with a degree in Finance from Colorado University in Colorado Springs in 2003 and earned the Chartered Financial Analyst (CFA) designation in 2006. David and his wife Mandy have three children and spend most of their free time with friends and family.
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