NEW YORK (TheStreet) -- One of the things that I enjoy the most about the financial markets is that there are few "gray" areas. More than any other business, what you see is usually what you get.
You can look at debt on one side and equity (if you're lucky) on the other. On one page there is either a profit or a loss. The financial scale will always favor one side over the other -- that's why it's called a balance sheet.
Hip-hop king, Jay-Z once said, "Women lie, men lie, but numbers don't" -- it can't get any more fundamental than that. So why is it that those whom we trust to manage our money are always looking for justifications for their losses?
I will argue that you should fire any financial expert who finds a way to justify a poor portfolio performance. Don't give it a second thought.
Today it is popular to blame the IPO underwriters or
management for losses incurred in that stock. I guarantee you plenty of managers will blame both at the end of the year.
Before the recent improvement in
stock price, managers were quick to blame the stock's poor performance on writers like me, short-sellers, daytraders, hedge funds and anyone else that had anything negative to say.
It's always been easier to pass the buck during the bad times, but managers want to be considered celebrities when the good times roll.
Not so fast.
, I talked about the importance of making investment decisions more about the bottom line and less about the sometimes unspoken myths that yield little in the way of results.
, we looked at the myths surrounding portfolio diversification.
reminded us that there's a sucker born every minute, while
noted that valuation often means nothing when assessing a potential investment.
Because part 5 discussed the
, I have decided to now look at those whom we have entrusted to manage our finances: those whom we think are smarter than us but are often quick to justify why they performed so poorly.
You Can Do Bad by Yourself
As noted above, the bottom line is all that matters when it comes to investments. At the end of each year, regardless of whether or not it was predominantly a bull or bear market, the last line on the statement tells me whether I've made or lost money.
Recent conversations with a few friends and associates that have relied upon the expertise of money managers suggest that for them, it is not so black-and-white.
In other words, according to some money managers, there is always more to it than the net result. They are stars in good years, and it's someone else's fault in bad years. (That's not to say that all money managers conduct themselves this way.)
Even though you can look at the red bottom line, what you're often left with is their best attempt to remind you that it was not their fault but that somewhere along the way, "The market took a wrong turn."
But I thought they are being paid to anticipate these turns and make the necessary adjustments?
Fact is, investors are often paying money managers for a service that they can likely perform for themselves at no cost and with the only "cost" being a little time devoted to research.
Money managers are being paid to pick stocks, the success of which is always the subject of some heated debates. Their goal is to outperform the markets, but academic studies have shown that this is something they are unable to consistently do.
Why would it have required a money manager to recommend buying a stock such as
three years ago when it traded at $100?
What's more, the rise of Apple almost assuredly signaled the end of
Research In Motion
Would you really have needed a money manager to advise you -- mistakenly -- to hold RIM during that span? Even more egregious was that some managers recommended averaging down as shares of RIM dropped from $80, to $60, to $40 and now to less than $10.
Making matters worse is that during that period, some money managers ignored
because of concerns about its valuation. The stock was said to be too expensive.
But Amazon is up 40% year to date and up more than 170% over the past three years. Yet the money manager insisted on averaging down on RIM while ignoring the promise of a technological juggernaut. Investors could do better or, in this case, could have done bad for free.
Certainly, I am not painting every money manager with this broad brush. Clearly there are plenty of managers who are truthful and honest about their results and understand that they are being held accountable for their performance.
But any manager that looks to make excuses or justify why his or her performance was not his or her fault should be fired immediately.
What's more, investors should run away from any money manager that offers the slightest hint that it was the investors fault for applying "pressure" that caused him or her to make picks that they otherwise would not have made. After all, what are you paying them for?
At the time of publication, the author was long AAPL.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.