If you are paying any attention to the media the last few weeks you know at least two things: China and the United States are having a tariff standoff, and the market (AKA all things tradeable) is having a rough end to the summer. On the latter point, why does volatility to the downside drive so much hysteria and so many prime time CNBC specials? I believe it is simply because we are all human.
At Blueprint, we spend a lot of time articulating the ‘why’ behind our systematic, process-driven investment approach. Our communications with advisors frequently emphasize behavioral finance because we believe that having a transparent process and educating our partners about exactly what to expect leads to better investment outcomes for their clients. Today’s note focuses on another, equally emphasized subject of our writings: advisor practice management. Please read on.
In 1931, the New York Times, celebrating its 80th birthday invited eight American innovators to predict what life would be like in 80 years. Among them, Dr. William Ogburn, a sociologist, predicted that "people will become more nervous and mental disorders will rise for a time, but by 2011 mental hygienists will probably have the upper hand.” W.J. Mayo, the founder of the Mayo Clinic, said that by 2011, the average life span, then only 54, would rise to 70 (it was 78). As we have written before, market predictions are generally useless even when correct. Why is there such a fascination with predictions to begin with?
In 2009, few could have imagined a 10-year bull market, the longest in U.S. history. To the delight of multitudes of investors (those who remained invested anyway), here we stand, giddy from experiencing record-high stock prices and record-low volatility.
But will it last?
Research shows that two-thirds of institutional investors believe the bull market in stocks will reach its end this year. Further, they expect the next financial crisis to come in one to five years, according to a Natixis survey.
The eternal question for financial advisors:
How do you instill discipline in clients when they face emotionally charged environments?
Blueprint believes a major preoccupation for investment advisors and financial planners has become their clients’ emotional quotient (EQ), as it surpasses the intelligence quotient (IQ) in the advisor value chain.
Advisors studying the Blueprint approach to systematic investing often ask the question of how Blueprint’s investment methodology differs from Smart Beta strategies that similarly rely on quantitative modeling.
Before answering this question, allow us to provide some context.