Personal Advice Investing

By: Dominic Mazzone, Managing Partner, Regent Global Funds

We hear it all the time. “Put your money where your mouth is,” “Skin in the game,” and, “Eat your own dog food.” All phrases that talk about the one thing in the investing world that many fund managers try to avoid. Accountability. When you hear the word accountability these days it usually refers to CEO’s that are on their way to jail, or Club Fed as the locals like to call it. Accountability is, however, now starting to creep into the vernacular of investors who wonder whether or not the person that is supposed to be managing their investment believes in it enough to put his own money into it. A recent Morningstar study of approximately 6,000 fund issues showed that 46% of the stock funds reviewed were managed by fund managers with none of their personal money invested in their own funds. Think about that in realistic terms. You have about a 50/50 shot that the person you are trusting to protect and grow your investment doesn’t trust himself to protect and grow his own investment. That is not only a serious problem of accountability, but what about performance? During my formidable years at USC, I took a Business Development class that was being taught by a former Controller of General Motors (I don’t remember his name and it was during the cheap gas good times at GM). He devoted an entire semester to what he felt was the one thing that made people perform at their best. Motivation. Motivation derived from doing well in the eyes of others is a pretty good source, but it’s nothing compared to the personal motivation derived from something like the well being of your own investment account. Some of the arguments we may hear from fund managers are that the types of investments that they manage don’t fit well in their portfolio because of variables like age, risk tolerance, etc. This argument could be made for fund managers in their 30′s and 40′s that don’t invest 30% of their portfolio into the super conservative fixed income fund they are managing like a bond fund, but there is really no excuse for investing zero.

I have seen a few articles on this subject lately and I thought investors would like to hear about this from a fund manager’s perspective. Being a fund manager myself I can tell you that it is personally stressful for me every time we make a decision that will affect the fund and the investor money we are using. I think any fund manager that doesn’t feel this way is either too detached or on prescription medication. Besides the stress of investing someone else’s money, the thought that also goes through my mind like a hammer is how much money I will lose personally if the investment goes bad. This thought is present for the simple reason that I am heavily invested in our fund and any bad decision will affect me personally. I don’t have the option of having a deal go bad, and say “Well Mr. Investor, we’ll try harder for you next time and I am sure glad it wasn’t my own money that was lost.” I think this kind of accountability is the last and most important check in a system of checks and balances that lead a fund manager to a prudent decision.

The other large problem associated with fund managers and their investors is the lack of accessibility to the fund manager. Now I can totally understand how fund managers of large multi-billion dollar funds can’t speak to the multitude of people investing in them. However, I think the comfort level associated with being able to pick up the phone and speak with your fund manager is absolutely irreplaceable. I say this not only so you can ask questions about your investment or get their perspective on the market, but more importantly to get an overall feel of the type of person that is investing your money. So I think we can all agree about the benefits of speaking with your fund manager, but with accessibility there is a flip-side check in the check and balance system. If the fund manager knows you, there is a feeling of personal responsibility that is created, and that responsibility helps create some caution when he is investing your money.

I realize that we live in a virtual world, but some of the age old principles in life need to still apply. Being personally tied to a result creates the motivation for good performance, so make sure your fund manager is personally invested. Lastly, there is still an awful lot you can learn about someone in a five minute conversation. If you have the option, call your fund manager, or prospective fund manager, and talk to him about his investment philosophy and just try to get an overall sense of him/her as a person. The same five minutes wasted while waiting for your computer to boot up, could be five minutes with your fund manager that, in the end, can make or save you an awful lot of money. So stop reading and start calling and find out who is managing your money.

Avoid the Wall Street Wizards

Prudent 401k Investing Advice

The 401k’s great advantage comes from your control over where and how to invest the funds.  Most 401k plans give you a fairly broad array of preferred stocks and sound mutual funds from which to choose.  Although your employer may “match” some of your cash contributions with shares of the company’s stock, the majority of your 401k assets may go into the investment instruments you prefer.

In the spring of 2009, however, as the economy goes into a deadly tail-spin, most people have no good, reassuring plan for choosing the right investments.  During the fall of 2008, 401k’s lost considerable value no matter where or how people had invested—yes, some more than others, but sharp declines across the board.  Pressed to give sound investing advice, the so-called “experts” shrug and suggest, “Hang on to your job, and keep trying to save your money…somehow.”

Giving more practical 401k investing advice, shrewd, prudent investors say that, especially in bad times, you should stick to the most basic common-sense rules of sound investing.

Good 401k Investing Advice

Buy and hold.  Do not move your money around every day, every month, or every year, trying to catch the quick surge or “time” the market.  Instead, choose investments with proven track records, and stick with them.  Do your homework, looking for recession-proof funds or companies.  But once you make a choice, commit to the choice and stay with it.  Over twenty years, almost all stocks and mutual funds outperform more conservative investments like government bonds and certificates of deposit.

Better 401k Investing Advice

Set your risk-tolerance at “moderate.”  Some market sectors and cutting-edge companies seem “poised for explosive growth.”  Poised doesn’t work nearly as well as proven.  If a major corporation has begun expanding its global markets, the corporation and its investors incur some risk; but the same products and principals that have driven the company to industry leadership will sustain it as it goes global.  That’s a “moderate” risk.  Learn a lesson from sad “Bluetooth” investors: Although it was poised for explosive growth, the company that originated and patented the universal technology has not returned more than 2%-3% since it revolutionized wireless communications.

Best 401k Investing Advice

Diversify.  Anyone who ever risked putting all his eggs in one basket probably ended-up with omelets.  Study the market, looking for those companies, sectors, and funds that have held steady while everything else tanked.  Put most of your assets in those stable places–plural.   Then assess which few companies have grown even while the others have lost.  Put a few of your funds there, too.

Although you probably feel discouraged and disheartened that your 401k has lost value in the economic downturn, keep in mind that you still have all the tax advantages from your contributions, and you still have lots of time.  Offering their professional 401k investing advice, experienced investors stress that market contractions evanesce.  The markets keep growing.  The veterans generally suggest you maintain or even increase your 401k contributions; if you have passed fifty, take advantage of your catch-up contributions, and keep getting your 401k investing advice from the people who do not work on Wall Street.