Below you will find the second and rather pitiful part of the comment in lacartadelabolsa.com from Don Iñaki, an investor who felt the ground vanish from under his feet when his bank manager was suddenly struck by a fit of honesty and sold off his entire portfolio (at rock-bottom prices, incidentally). You can read the first part again at Fried Anchovies (6) and, just as in that article, we’ll offer some insightful reflections at the end:
«Dear Editor: The fund manager who sold me the portfolio just as the stock market was already taking a hit (remember that the year’s lows were recorded on 9 March) has not only not been sacked, but has actually had his salary increased. Apart from the financial and emotional devastation this affair has caused me – and mind you, I’ve been through crises and market crashes before, as well as many bullish highs! – which, I’m told, has also happened to many other investors, it has made me reflect on a few things, such as:
*The lack of professionalism among financial managers is directly proportional to the ignorance of most people when it comes to financial matters. We buy when everyone else is buying and sell when everyone else is selling. In the end, there’s chaos all round and we’re left with our tails between our legs.
*The financial services industry continues to treat the world—and globalisation—with utter contempt. Basically, it couldn’t care less. Everything moves so fast that yesterday doesn’t count. That’s why this madman has had his salary increased. He still wears smart suits, drinks water with his meals, doesn’t smoke, and has the build of a shop-window mannequin, a pearly-white smile and a nice scent. That, I’m told, happens all over the world. It’s not unique to Spain.
*What governments and major supranational institutions said needed to be done, and what needed to be learnt from this Great Crisis, has neither been done nor learnt: derivatives continue, toxic products continue, bubbles continue, executives are giving themselves pay rises, companies that should be suspending dividends are maintaining them, creative accounting has reared its head again, propaganda overwhelms us… Nothing has changed
*But unemployment is rising, factories are closing, unpaid bills are piling up, businesses are shutting down, and people aren’t travelling or buying cars
*Once again, the great divide between the real economy and the financial economy. It’s always the same people who lose out.
Best regards from »Iñaki"
(A brief aside: Iñaki, andAs for property prices and their impression that «nothing has changed», just wait and see. This is only the beginning.
Let’s get straight to our commentary: First of all, we must congratulate Mr Iñaki because the stock market has rebounded since his «fund manager» sold off all his positions. Yes, yes, I did say «congratulate’. Because if, the day after selling his portfolio, the markets had crashed, today Mr Iñaki would be kissing the feet of the ‘a hothead who’s had a pay rise, still wears smart suits, drinks water with his meals, doesn’t smoke, and has the build of a shop window mannequin, a pearly-white smile and a nice scent.»And of course, they would continue to believe the slogans of their brand-new firebrand hook, line and sinker, until the next disappointment or heavy loss. An absurd seesaw of trust and sentimentality, from which financial institutions and their hordes of salespeople thrive.”.
May this «advisor» Whether he gets it right or wrong, the fundamental error remains the same. For an investor to sign a management mandate (more dangerous than a loaded gun) with someone who is paid based on the profit generated by their portfolio is to leave the wolf—more or less capable, but a wolf nonetheless—in charge of the flock. If they are paid based on the profit they generate for the organisation they work for (bank manager), only personal ethics will set limits on personal and professional greed. Even when hiring independent advisers who are paid exclusively on a performance-based commission, the distortion in proper management will persist, as a moderate result will be disregarded and the only option sought by the manager will be high returns, with the consequent undesirable and excessive risks that may end very well or very badly.
I would like to reiterate my congratulations on that mistake, provided it helps you to rethink your approach to financial advice. You didn’t just choose the wrong adviser or manager; above all, you got the whole concept wrong.
Mr Iñaki, only by paying for his advice will he secure the independence and prudence of someone who will invest his family’s assets as if they were their own. And the cost will be the same, whether he makes a profit or a loss. From there, all that remains is the «small matter» of choosing the right adviser or manager. The problem is that only the passage of time and the performance of your wealth (and not just your portfolio) will prove whether you were right or wrong in your choice of advisers.
All other approaches merely lead to dangerous euphoria (on the part of both the client and the advisor) when things are going well, and to harrowing letters like yours when hard times strike. The fact is, Mr Iñaki, your profit and loss account should not be linked to that of the banks where you deposit your money, nor to your manager’s or adviser’s incentives, because then what happens, happens.