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Jason Zweig: An Investors’ Credo To Live By: What Would Mom Buy?
I like Jason Zweig. He is at or near the top of my ranking of all financial writers. Indeed, I like Jason Zweig a lot.
Although I’ve never kept score, I probably agree with 95% of his writings without reservation. But I do take exception to his current WSJ article. I believe that it is far off target.
Sure, asking financial advisors and analysts to be “prudent, honest, and ethical” is equivalent to motherhood, but I believe many more are so inclined than are commonly credited. Those who are not so dedicated are eventually discovered and they disappear from the landscape. Should standards be higher? Of course they should, but that too is pure motherhood.
Just a little due diligence allows us to choose those who satisfy our needs and to discard those who are suspiciously self-promoters. I’m not alarmed that only about half of those asked risk recommending anyone as a financial guru. What satisfies me will likely not satisfy someone else, given our disparate timescales, investment styles, education, and investment goals. Why run that risk?
All of Zweig’s 4 main points in his article are weak arguments and fail to make his case.
Costs always matter, and every investor is fully aware of that crippling handicap. If asset managers overcharge for their services, they will simply not survive the fierce competition.
Many fund managers fully recognize market size constraints and adopt appropriate strategies to navigate these limitations. Again, if they fail to do so, their returns suffer and they ultimately fail. The marketplace is a cruel disciplinarian.
I don’t believe financial firms try an endless array of investment strategies to select one that statistically worked in the past. That approach is putting the cart before the horse. It’s recognized as a losing method. I believe these firms formulate an investing idea, a concept, a candidate strategy first, and next they challenge its worthiness using backtesting approaches for verification and selling purposes.
A firm is not long for this world if it does not invest in its own product. Savvy investors always check that item early in their down-selection process.
I would have closed the article with yet another “ethical acronym”. Permit me to add WWWB to the article’s short list. In this instance I mean What Would Warren Buy? I trust his wisdom more than my Mom only when investing is the issue.
This is just one man’s opinion. Zweig must have been hard pressed to complete this column facing an eminent publishing deadline. What is your assessment?
I respectfully disagree. While much of the content superficially resembles motherhood, the column is supported by references and encapsulation that is seen too infrequently.
Mr. Zweig reports on the acceptance status of a professional code of conduct. Did you know that most firms won't sign on? Were you even aware of this code? I wasn't.
If investment firms are already as ethical as you feel, why do they fight so hard against putting that in writing? Whether that is being held to a fiduciary standard, or to the loyalty standard in this code: to "place client interests before their own".
Asset managers competing on costs or dying? Too many high cost families thriving to support that. Which gets us back to ethics - these high cost funds exist in part because advisers sell them as "suitable", they're just not the best for their clients.
I do find that Mr. Zweig may be pining a bit too much for the "good old days". Around 1960, it is true that the vast majority of equity funds charged 0.50%. But rather than representing competition, this uniformity was viewed by an SEC study as evidence of lack of competition.
That study (The Wharton Report) also noted that many funds were actually owned by brokerages (e.g. the Dreyfus Fund). My suspicion, though I'm still wading through all of this, is that brokerage commissions (which were much higher in 1960) is where a good chunk of the profits came from. Total fund expenses (including trading commissions) were possibly as high as today.
Asset management companies have always gotten their fees. They've just moved them around from one form to another as the industry has changed. Schwab gets rid of load funds but continues to increase the fees it collects on NTF funds. Advisers charge wrap fees instead of collecting loads. Different structure, similar cost.
Thank you for your post. It is always a benefit to hear the case for a divergent opinion. In investing, like in most everything else, the rule rather than the exception is “Different Strokes for Different Folks”. To use another mundane and popular idiom, “We March to a Different Drummer”.
It would be an unlikely and a unique set of circumstances if we all agreed on investment decisions and financial advice. That’s not the way of a free and informed marketplace.
I am an amateur investor without any specific formal financial education except for college-level economics course work. When I started investing over 60 years ago, I knew next to nothing. The few things that I thought I knew were more wrong than right.
During my very early learning years, private financial advisers and powerhouse mutual fund heavy organizations like Fidelity introduced me to the ins-and-outs of the investment game in a fair and balanced way.
Sure the folks I was exposed to were aggressive, but they were also honest. Perhaps I was lucky; I suspect not. There are far more honest and trustworthy folks than frauds and cheaters. That’s true in all professional disciplines like engineering, construction work, doctoring, lawyering, and in the financial communities.
Yes, some bad apples exist and prosper for awhile, but not for very long. Justice happens; scoundrels go to jail. Today, the Information Age exposes them rapidly, and the charlatans and short-changers don’t survive.
I don’t want to seem especially Pollyanna in the investment arena. Some hucksters are always present and offering deals that are too good to be true. Caution and prudence must be exercised in all instances. A healthy skepticism and some fundamental research is a workable preventive cure with just a little effort.
I suspect that you and I agree on some of the points made by Jason Zweig in this article and on most of his viewpoints in his general writings. He does document his work with great care. By the way, I was aware of the advisor code’s existence, but am not familiar with its details.
Thanks again for agreeably presenting the other side of the equation to balance this discussion.
Comments
Derf
I like Jason Zweig. He is at or near the top of my ranking of all financial writers. Indeed, I like Jason Zweig a lot.
Although I’ve never kept score, I probably agree with 95% of his writings without reservation. But I do take exception to his current WSJ article. I believe that it is far off target.
Sure, asking financial advisors and analysts to be “prudent, honest, and ethical” is equivalent to motherhood, but I believe many more are so inclined than are commonly credited. Those who are not so dedicated are eventually discovered and they disappear from the landscape. Should standards be higher? Of course they should, but that too is pure motherhood.
Just a little due diligence allows us to choose those who satisfy our needs and to discard those who are suspiciously self-promoters. I’m not alarmed that only about half of those asked risk recommending anyone as a financial guru. What satisfies me will likely not satisfy someone else, given our disparate timescales, investment styles, education, and investment goals. Why run that risk?
All of Zweig’s 4 main points in his article are weak arguments and fail to make his case.
Costs always matter, and every investor is fully aware of that crippling handicap. If asset managers overcharge for their services, they will simply not survive the fierce competition.
Many fund managers fully recognize market size constraints and adopt appropriate strategies to navigate these limitations. Again, if they fail to do so, their returns suffer and they ultimately fail. The marketplace is a cruel disciplinarian.
I don’t believe financial firms try an endless array of investment strategies to select one that statistically worked in the past. That approach is putting the cart before the horse. It’s recognized as a losing method. I believe these firms formulate an investing idea, a concept, a candidate strategy first, and next they challenge its worthiness using backtesting approaches for verification and selling purposes.
A firm is not long for this world if it does not invest in its own product. Savvy investors always check that item early in their down-selection process.
I would have closed the article with yet another “ethical acronym”. Permit me to add WWWB to the article’s short list. In this instance I mean What Would Warren Buy? I trust his wisdom more than my Mom only when investing is the issue.
This is just one man’s opinion. Zweig must have been hard pressed to complete this column facing an eminent publishing deadline. What is your assessment?
Best Regards.
Mr. Zweig reports on the acceptance status of a professional code of conduct. Did you know that most firms won't sign on? Were you even aware of this code? I wasn't.
If investment firms are already as ethical as you feel, why do they fight so hard against putting that in writing? Whether that is being held to a fiduciary standard, or to the loyalty standard in this code: to "place client interests before their own".
Asset managers competing on costs or dying? Too many high cost families thriving to support that. Which gets us back to ethics - these high cost funds exist in part because advisers sell them as "suitable", they're just not the best for their clients.
I do find that Mr. Zweig may be pining a bit too much for the "good old days". Around 1960, it is true that the vast majority of equity funds charged 0.50%. But rather than representing competition, this uniformity was viewed by an SEC study as evidence of lack of competition.
That study (The Wharton Report) also noted that many funds were actually owned by brokerages (e.g. the Dreyfus Fund). My suspicion, though I'm still wading through all of this, is that brokerage commissions (which were much higher in 1960) is where a good chunk of the profits came from. Total fund expenses (including trading commissions) were possibly as high as today.
Asset management companies have always gotten their fees. They've just moved them around from one form to another as the industry has changed. Schwab gets rid of load funds but continues to increase the fees it collects on NTF funds. Advisers charge wrap fees instead of collecting loads. Different structure, similar cost.
Thank you for your post. It is always a benefit to hear the case for a divergent opinion. In investing, like in most everything else, the rule rather than the exception is “Different Strokes for Different Folks”. To use another mundane and popular idiom, “We March to a Different Drummer”.
It would be an unlikely and a unique set of circumstances if we all agreed on investment decisions and financial advice. That’s not the way of a free and informed marketplace.
I am an amateur investor without any specific formal financial education except for college-level economics course work. When I started investing over 60 years ago, I knew next to nothing. The few things that I thought I knew were more wrong than right.
During my very early learning years, private financial advisers and powerhouse mutual fund heavy organizations like Fidelity introduced me to the ins-and-outs of the investment game in a fair and balanced way.
Sure the folks I was exposed to were aggressive, but they were also honest. Perhaps I was lucky; I suspect not. There are far more honest and trustworthy folks than frauds and cheaters. That’s true in all professional disciplines like engineering, construction work, doctoring, lawyering, and in the financial communities.
Yes, some bad apples exist and prosper for awhile, but not for very long. Justice happens; scoundrels go to jail. Today, the Information Age exposes them rapidly, and the charlatans and short-changers don’t survive.
I don’t want to seem especially Pollyanna in the investment arena. Some hucksters are always present and offering deals that are too good to be true. Caution and prudence must be exercised in all instances. A healthy skepticism and some fundamental research is a workable preventive cure with just a little effort.
I suspect that you and I agree on some of the points made by Jason Zweig in this article and on most of his viewpoints in his general writings. He does document his work with great care. By the way, I was aware of the advisor code’s existence, but am not familiar with its details.
Thanks again for agreeably presenting the other side of the equation to balance this discussion.
Best Wishes.