Dec 23, 2013

Make your money (and your financial advisor) work for you

In 1852, young John Davison Rockefeller, the future founder of the Standard Oil Company, took on a ten-hour workday job digging potatoes for a local farmer. As Rockefeller soon calculated, he "could get as much interest for fifty dollars loaned (to a bank) ... as (he) could earn by digging potatoes for 100 days." (Tarbell, 2010). He added that "the impression was gaining ground with me that it was a good thing to let the money be my slave and not make myself a slave to money" (Tarbell, 2010).

Today we seem to forget this sound advice. We entrust our capital to a financial advisor, and he merely tells us about the benefits of diversification, which can be read about in hundreds of books and websites; builds a stock and bond portfolio for us using software, which will be available for free download in a few years, if not already now; optimizes our taxes, assures us that everything is good, and perhaps makes a return on our portfolio, although this accomplishment does not depend on the advisor's skills, but on the market performance and the precision of investment analysts' forecast reports the advisor reads for us. No doubt that in the eyes of Mr. Rockefeller, this would have been a rather poor return on capital.

This is why we have got to make our advisors do more work for us. Or even better, our money should make financial advisors do more work for us.

Advisors, in essence, are intermediaries between our capital and investment analysts who conduct research on financial markets. (Indeed, it is always a good idea to think about our capital being the client, not us personally). Investment analysts provide market research not only to financial advisors, but also to institutional clients, such asset managers, hedge funds, large corporations, and foundations. These clients receive highly insightful, detailed, and targeted analyses of the stock market and the economy. What we receive is our advisor's understanding of the simplified version of investment reports that institutional clients receive. After all, financial advisors do not read the highly technical stuff they do not understand, neither do they read the empirical research produced by the Fed, the IMF, or the US Treasury. But the devil is in the details, and our advisors miss most details outright.

This does not make our advisors inadequate for managing money. We just need to ensure that our money gets the level of services it deserves, namely, more insightful research that will preserve and enhance our capital not only in the times of prosperity, but also in crises.

Therefore, why not ask for targeted research from our advisors, who in turn will make analysts research the specifics. We can literally ask our advisors to monitor and evaluative certain parts of the market. Furthermore, we can team up with other clients who are serviced by the same financial advisory firm to reinforce our request power and minimize research expenses.

Why not ask for targeted research from our advisors, who in turn will make analysts research the specifics.

Throughout this website there are numerous suggestions on what questions to pose to financial advisors. We can start by asking our advisors to examine these three issues (see VLTCM, 2013). Of course, these issues are only relevant for very LT investors. Speculators require a different set of measurements to trace.


Tarbell, I. (2010). The History of the Standard Oil Company. New York, NY: Cosimo Classics.

VLTCM (2013). The "equally safe" phenomenon.


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