Financial Advisor Update
Kass: Six Questions for Your Financial Adviser
Doug Kass
08/20/08 - 11:59 AM EDT
This blog post originally appeared on RealMoney Silver on Aug. 20 at 7:18 a.m. EDT.
"Common sense is not so common." -- VoltaireIn the final analysis, 2008 is turning out to be an environment in which serious and adaptable investors are separating their performance from those that have historically gone on the ride (and have worn analytical blinders) of ever-rising share prices. As a result, weak investment processes will be uncovered, as will poor logic of argument and even laziness. Money tends to go where it is best treated, as measured by an asset class, hedge fund or by a traditional investment adviser. As a result, a lot of money will be shifting by year-end, and it is bound to have a disruptive market effect as well as likely to feed continued volatility. If you delegate investing to an adviser, here are several questions that you may consider asking during a 2008 year-end review of your investment performance:
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1. What were your adviser's expectations for the stock market's returns in 2008, and how did these expectations compare to the actual results?
2. How did your investment performance compare to that of the major indices? In what areas did you outperform, and in what areas did you underperform -- and why?
3. What was your adviser's economic and credit expectations, and how did these expectations compare to the actual events? Where and why were his assumptions wrong?
4. Did your adviser change his strategy as economic and financial events changed? If he didn't, ask why?
5. Did you experience outsized individual stock or large specific industry or sector share price losses? Did your adviser institute a discipline to stop losses, or were your losses allowed to compound? Did your adviser "double down" on poor investments?
6. Ask your adviser whether he "eats his own cooking" -- that is, did he invest along with you in the same investments, and are both of your interests aligned?