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Perhaps the only area outside the financial world where performance
is so closely measured is the Olympics. Competition is fierce, and
with events measured to the hundredths of a second, athletes go to
great lengths to gain even the slightest edge. The Olympics can
teach us a lot about investing.
Take skiing for example. Whether it’s for cross country or the
downhill, each ski team has a group of specialists with one job and
one job only: to put the right wax on the skis. They carefully take
multiple measurements of factors such as temperature, humidity and
even the shape of the snow crystals to determine which wax formula
will give their athletes optimum performance. Regardless of the
athletes training and ability, it’s the skills of the wax technician
that will determine whether the racer wins or loses.
These technicians have a number of waxes to choose from and it’s not
that one wax is always better than another. Rather, that day’s
conditions and the unique needs of each athlete will determine which
wax is the top choice. You’d never have a wax specialist say that
“Wax A” is always the best, or that only fools would use “Wax B”.
They keep their options open and are always looking for new coatings
to maximize performance.
The job of a wax technician is far different from that of a wax
salesman. Picture the wax salesman trying to sell the skier on using
his wax (or one of the waxes he sells). The wax salesman isn’t
trying to convince the skier that his wax is the best for current
conditions, but that it should be relied on in all conditions.
Obviously, I’m taking some liberty with the analogy, but can you
imagine the skiers’ reaction?
As a investor—whether you are putting your money into a CD, an
annuity, mutual fund or stock—knowing the difference between the
advisor who functions as a wax technician and the one that is a wax
salesman is vital to your success. Any advisor who recommends an
investment that requires you to keep it for several years is a
financial wax salesman. That advisor isn’t trying to help you win
the race, he/she is trying to sell wax. There are numerous conflicts
of interest between you and a salesman, few between yourself and a
technician.
There are those of us who realize our job is to be the financial wax
technician for our clients. We aren’t committed to any one product
or even a particular strategy. We are committed to your success. We
recognize that our job is to understand the market and economic
conditions, along with your personal situation and risk tolerance.
Only then can we recommend the financial wax designed to help you
win.
It’s easy to understand that an advisor shouldn’t be committed to
any specific product. It’s more important to make sure the advisor
isn’t committed to a single underlying strategy. For instance, Buy &
Hold is an investment strategy. Index investing is an investment
strategy. Active management is an investing strategy. Many advisors
base their entire practice on a single strategy. That’s like the wax
technician that will only use one kind of wax.
Financial wax technicians are wise enough to recognize that there
aren’t any perfect investments and that there aren’t any perfect
strategies. Each investment and each strategy has strengths and
weaknesses. Unlike the wax technician, we don’t look at conditions
the next few hours, but we recognize that what occurs in the next
couple of years can be far different from what happens over the next
7-10 years. We form a long-term strategy but make tactical
adjustments based on shorter-term (1-3 years) conditions.
I’ve developed several proprietary strategies that I use in my
clients’ accounts. That doesn’t mean I always use them. Some years
they have a larger place, other years a smaller one. It all depends
on the client and current conditions. More importantly, I’m willing
to admit when something isn’t working and to make adjustments.
A skier’s success is dependent on his/her wax technician. Likewise,
your financial success is greatly influenced by the advisor you work
with. Choose wisely and you’ll have a podium finish!
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to www.guardingyourwealth.com and click
on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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