The Purpose-Built Portfolio
If you were a doctor, would you prescribe medicine to a patient if you knew they wouldn’t take it—even with a spoonful of sugar?
Would you invest the additional time and effort into understanding why your patient doesn’t want to follow your plan of treatment or be satisfied with the knowledge that your prescription would have worked if the patient followed it?
If your goal is to help your patient overcome their illness, wouldn’t you choose the former even if it means putting your relationship with the patient at risk?
Unsuccessful investors exhibit similar patient behavior. It is less stressful to invest when everyone else is making money. It soothes your emotions to panic if everyone else is panicking too. It is easier to ignore the future than it is to address it today.
Financial planners offer a number of prescriptions to help individuals realize their goals. The problem is some clients don’t follow the plan, and their planner lacks the motivation to help clients break their old unsuccessful habits.
Dave Ramsey has earned fame and fortune by telling people what they more than likely already know but don’t action. His radio show does this on a daily basis in an entertaining way that slowly brings about behavioral change in his listeners.
In the 1950’s, finance professors developed robust investing models that encapsulated decades of historical returns into concepts like the “Efficient Market Hypothesis” and “Modern Portfolio Theory.” In return, many investment products today adhere to these finance theories even while most investors don’t or can’t. Should your financial planner prescribe a plan of action if they suspect you won’t follow it?
LeConte Wealth Management strives to develop portfolios for clients that address the inherent conflict between what investors should do and what they will do when markets become “inefficient.” We developed our approach through 25 years of observing how the emotions of well-intentioned investors derail their decision-making process at the precise moment when a well-defined process should provide clarity.
We spend even more time working with clients AFTER we prescribe a course of action, so we can help them channel counter-productive behavioral shortcomings into productive thinking. I encourage you to utilize a trusted adviser who will do the same for you.
If successful investing was simply a matter of following a 60-year-old insufficient theory of finance, you probably would have skipped this column.