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When you step back and look at the investment landscape, it is helpful to ask yourself if anything really is different this time, to try to determine what has changed.
The usual answers point to recent return gyrations: the tech bubble's spectacular burst ten years ago, the near-death experience of global capitalism in 2008-2009. But the truth is, we've seen all this before in one form or another.
Michael Aronstein, who manages the Marketfield Fund, offers an interestingly different take on what is fundamentally different today. In his presentation at the NAPFA Practice Management & Investments (PMI) Conference in San Diego, he connected two dots that most of us are aware of intuitively, but may not have consciously considered. He says that the primary challenge for investment advisors, financial planners and money managers today, which is different from the challenges you faced in the past, is the sheer amount of attention that investors are now able to pay to the ups and downs in their portfolios.
"In the last 15 years," he said, "we have moved from an era where people who were not in the business would check stock quotes, if at all, in the morning when they got their newspaper. Sometimes, you would listen to a radio program on your way home from work, and it might tell you where the Dow Jones Industrial Average closed."
Compare that with today, when an investment client might have a running ticker at the bottom of his or her computer screen, or a portrait of the investment portfolio continuously updating its various components and arriving at new values every 15 minutes. At the same time, news, information and even fundamental analysis might be flowing into the client's brain through various sources. "Regarding the economy and its various indicators, there are probably ten thousand data points that we could be looking at in real time," Aronstein continued. "Combine that with hundreds and hundreds of opinions being thrown around as important every day, and it is a formula for driving everybody insane – and I think that really is what is happening to the retail investing public."
Put in its simplest terms, your clients are being driven to an unbalanced mental state by the sheer amount of information and opinions that are piling into their awareness at increasing speed, and nobody has a vested interest in telling them that paying attention is highly unlikely to improve their investing lives, and may well be sabotaging their returns.
In fact, the incentives are exactly the reverse. Aronstein pointed out that it has become a pretty good business to give out doomsday information and frighten investors, and a lot of people have become pretty good at it. "It is rare to spend a day watching CNBC or any of the other financial reality programs," he said, "and not hear somebody come out with the most disastrous, frightening, extreme forecast about what is going on in the world and in peoples' portfolios."
