Jerry Seinfeld and Chris Rock do a funny and kinda deep riff on marriage on Comedians In Cars Getting Coffee.
Seinfeld says,”When you’re single you think, ‘I’ve really got to find the right person so my marriage works out.’ Once you really know how to do marriage, you could be with anyone…”
Rock turns to two women sitting at the nearby table and says, “Will you marry us?” and the women say, “Sure, our husbands wouldn’t care.”
“Yeah,” says Seinfeld, “our wives wouldn’t care either.”
When we contemplate getting married we look for the one. In Yiddish that person is called our bashert. It’s a romantic notion that somewhere in the big, wide world lives our Talmudic better half, someone who will complete us.
But as Seinfeld and Rock point out, being married is a skill. It’s like driving, once you’ve figured it out, you can do it with a shiny new Cadillac or a dusty old Chevy.
Could the analogy work for investing too? Do you really need to find the one portfolio manager in order to have success?
The investment industry likes to romanticize its brethren. Star stock pickers and asset managers receive glowing profiles in the business press and attract a devoted fan base. They’re courted by potential clients begging them to manage their money. But what if there is no equivalent to a bashert when it comes to investing?
A recent S&P Dow Jones Indices study reported in The New York Times, showed that active mutual fund managers underperform a series of random choices. Or, to put it another way, a blindfolded monkey throwing darts at the financial pages would have had a slightly better investment outcome than trained money managers in monkey suits. Yup.
So what does this mean?
First, get off your romantic cloud. There’s no special someone who’s going to be your perfect portfolio manager. Warren Buffett is as close to your money soul mate as they come and he’s not taking any customers. Everyone else is bound to disappoint you at least some of the time, just like your marriage partner does.
Second, always keep an eye on management fees. Low-cost , diversified index or mutual funds, or a low-cost portfolio manager is the way to go. Never over pay as this will erode your returns over time. (If your fancy investment firm includes a concierge service for sporting and cultural events, buy your own theatre tickets and pocket the fifty basis points.)
Third, did you know that from 1926 to 2013 US stocks averaged a 9.2 percent return? Ditto for Canadian and international stocks. Yes, the markets have been extraordinarily kind these past five years, especially for those who are at a later life stage and are cashing out. But, c’mon, 20-percent annually! That’s not sustainable. If your portfolio manager can get you a steady ten percent over the long-term, just say, “thank you” and go live your life.
As in marriage, when choosing an investment advisor it helps to have le coup d’oeil—a good eye. Then, as the song says, love the one you’re with.