BY GLEN TRILLO
As a topic of conversation, investment is like sports. Everyone has an opinion. And the strongest opinions often come from those who spend more time in front of the TV than out on the field. Practitioners, meanwhile, are wary of anything labelled a sure thing.
Indeed, it's one of life's ironies that the people who know least about a subject can sound the most sure of themselves. In investment, these are the ones who prop up bars telling anyone who will listen that they have found the path to certain wealth.
These 'pub philosophers' tend either to be permanent bulls or permanent bears about the market. They have their standard story and they adapt the facts to fit.
By contrast, some of the world's most respected and seasoned investors strike a humbler tone, having learnt from personal experience about the unpredictability of markets and deciding to focus instead on those things within their control.
Take, for instance, the frequently heard line that smart investors should seek to time their entry points to markets and wait for the volatility to clear.
Writing about this in 1979 before one of the biggest bull markets in history, Warren Buffett said: "Before reaching for that crutch (market timing), face up to two unpleasant facts: The future is never clear, and you pay a very high price for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values."
Another line from the pub philosophers is that the job of an investment expert is to spot the best market-beating returns and harvest them before someone else finds out.
Asked about this in 2007, two years before his death, legendary investment consultant and historian Peter Bernstein said it was better to focus on risk than return. "The central role of risk, if anything, has grown rather than diminished," he said. "We really can’t manage returns because we don't know what they're going to be. The only way we can play the game is to decide what kinds of risk we're going to take."
A third perennial pub conversation is the role of stock picking in investment success. The line here is that the key to wealth building lies in painstakingly analysing individual stocks and buying them based on a forecast or even a hunch about their prospects.
Prompted by a newspaper reporter for his opinion on that piece of conventional wisdom, long-time Wall Street observer Charley Ellis, said the truth was quite the opposite.
"The best way to achieve long-term success is not in stock picking and not in market timing and not even in changing portfolio strategy," Ellis said.
"Sure, these approaches all have their current heroes and war stores, but few hero investors last for long and not all the war stories are entirely true. The great pathway to long-term success comes via sound, sustained investment plan, setting the right asset mix and holding onto it."
While that's probably not the kind of message you are likely to hear from the instant experts who prop up your local bar, it may be a more durable and a more useful one.
What's useful for you as an investor is having a financial adviser who relies on academic research shown to be sensible, persistent across different periods, pervasive across markets and capable of being cost-effective.
As a financial adviser, the key thing for me is independent quality advice. Over the years, we've seen investors chasing "hot" sectors/industries and getting fingers burnt. At Stewart Group through diversification, discipline and maintaining a level of flexibility, we can help ensure that a single sector doesn't have a disproportionate influence on your investment outcome.
• Glen Trillo is the head of wealth management and an authorised financial adviser at Stewart Group – a Hawke's Bay-based independent financial advisory firm based in Hastings. Stewart Group provides Wealth Management, KiwiSaver and Personal Insurance solutions to individuals, families and businesses in New Zealand who are committed to pursuing financial planning and wellbeing.
• This article is brought to you in partnership with Dimensional Fund Advisors. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961.