Selecting an Investment Advisor
Selecting an investment advisor can be a difficult challenge. There are many
firms across the country and around the world offering these services. Each firm
has its own unique philosophy and style. It can be hard for an individual to
make distinctions among firms and to decide which one is best suited to his or
her needs and circumstances. This difficulty was highlighted by Claude Rosenberg,
the founder of Rosenberg Capital Management and a highly-regarded "elder
statesman" of the investment counseling industry; in his book Investing
with the Best:
|"Finding the best person or
the best organization to invest your money is one of the most important financial
decisions you'll ever make. It's also one of the toughest. The right manager
for someone else may not be the right manager for you, nor can you reasonably
expect to find many objective, or even reliable, sources to help you narrow your
choices. You will be bombarded with figures, charts, and statistics that seek
to sell you on each adviser's services
The sad fact is that too often you
cannot even believe what has been presented to you."
-Claude N. Rosenberg,
(Investing with the Best, John Wiley & Sons, Inc., 1986)
Fortunately, one of the best resources available to prospective clients of
an investment adviser is Mr. Rosenberg's book. In addition to discussing the
selection process, it includes important information on how to have a successful
relationship with your investment manager by becoming a good client. It includes
a number of guides, questionnaires and templates to assist you in the evaluation,
selection and monitoring process.
An article in The Journal of Investing (Vol. 8, No. 1, Spring
1999, pp. 65-74) by Andrew Weiss entitled "Why Institutions Systematically
Under perform Broadly Based Marked Indexes" contained a questionnaire
that can be used to assist prospective clients in choosing an investment
Perhaps the most critical element in a successful advisor/client relationship,
though, is the client him/herself. A book that we urge each of our clients
read is "Winning the Losers Game, Fifth Edition: Timeless Strategies
for Successful Investing" by Charles Ellis (McGraw Hill, 2009).
This short, highly readable volume provides very important information on the
an investment policy and then implementing it consistently. As Mr. Ellis states:
|"To fulfill their responsibilities
to themselves, clients need three characteristics: (1) a genuine interest in developing
an understanding of their own true interests and objectives, (2) an appreciation
of the fundamental nature of capital markets and investments, and (3) the discipline
to work out the basic policies that will, over time, succeed in achieving their
realistic investment objectives."
Another book that we highly recommend to our clients is "Extraordinary
Popular Delusions and the Madness of Crowds" by Charles MacKay,
LL.D. (First published in 1841). This informative, funny collection of popular
delusions, from Alchemy to Tulipomania, has become a classic a study of
mass manias, crowd behavior and human folly. As its author says:
|"Every age has its peculiar folly;
some scheme, project, or fantasy into which it plunges, spurred by the love of
gain, the necessity of excitement, or the mere force of imitation."
Our approach at Cypress Asset Management is to work with prospective clients
by taking as much time as is necessary for the client to understand our philosophy
and approach and for us to understand our client and his/her style, needs and
goals. Often this process can take weeks or months. Our objective is to build
long, lasting relationships. We are willing to invest as much time and energy
and to provide as much information as necessary in order to establish a solid
basis for such a long term relationship.
Books or Articles
"The Social Life of Money" by Nigel Dodd (Princeton University Press, 2014)
"Debt: The First 5000 Years by David Graeber (Melville House Publishing, 2014)
"The Investment Answer" by Daniel C. Goldie and Gordon S. Murray (Business Plus, 2011)
"The Elements of Investing" by Burton G. Malkiel and Charles D. Ellis (Wiley & Sons, Inc. 2010)
"Fault Lines" by Raghuram G. Rajan (Princeton University Press, 2010)
"This Time is Different: Eight Centuries of Financial Folly" by Carmen M. Reinhart and Kenneth S. Rogoff (Princeton Univeristy Press, 2009)
"The Sages: Warren Buffett, George Soros, Paul Volker, and
the Maelstrom of Markets" by Charles R. Morris (Public Affairs,
"The Myth of Rational Market: A History of Risk, Reward
and Delusion on Wall Street" by Justin Fox (Harper Collins
"The Wealth in Families" by Charles W. Collier (Harvard
"Predictably Irrational: The Hidden Forces that Shape
Our Decisions" by Dan Ariely (Harper, 2008)
"The Black Swan: The Impact of the Highly Improbable" by Nassim
Nicholas Taleb (Random House, 2007)
"Unconventional Success: A Fundamental Approach to Personal
Investment" by David F. Swensen (Free Press, 2005)
"Freakonomics" by Steven D. Levitt and Stephen
J. Dubner (William Morrow, 2005)
"Fooled by Randomness" b Nassim Nicholas Taleb (Random House, 2004)
"Asset Prices and Portfolio Choice," William F.
Sharpe; Princeton Lectures in Finance, May 2004 (www.stanford.edu/~wfsharpe/art/princeton/prince0.htm)
"The New Financial Order" by Robert J. Shiller
(Princeton University Press, 2003)
"Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay (Harmony Books, 1980)
"The Advantages of Tax-Managed Investing," Ludwig
Chincarini and Daechwan; The Journal of Portfolio Management;
"Equity Portfolio Structure and Design in the Presence
of Taxes," David M. Stein; Journal of Wealth Management;
"Loss Harvesting: Whats It Worth to the Taxable
Investor?" Robert D. Arnott, Andrew L. Berkin, and Jia
Ye; The Journal of Portfolio Management; Spring 2001.
"Mutual Fund Investment Performance," William G.
Droms and David A. Walker, The Quarterly Review of Economics
and Finance, Vol. 36 No. 3, Fall 1996.
"Determinants of Persistence in Relative Performance
of Mutual Funds," David A. Volkman and Mark E. Wohar,
The Journal of Financial Research, Vol. XVIII, No. 4, Winter
"Does Historical Performance Predict Future Performance,"
Ronald N. Kahn and Andrew Rudd, BARRA Newsletter, Spring 1995.
"Do Winners Repeat?," William N. Goetzmann and Roger
G. Ibbotson, The Journal of Portfolio Management, Winter 1994.
"The Judgment of Economic Science On Rational Portfolio
Management: Indexing, Timing, and Long-Horizon Effects,"
Paul A. Samuelson, The Journal of Portfolio Management, Fall
"Challange to Judgment," Paul A. Samuelson, The
Journal of Portfolio Management, Fall 1974.
"Efficient Capital Markets: A Review of Theory and Empirical
Work," Journal of Finance, May 1970.
"Capital Asset Prices: a Theory of Market Equilibrium
Under Conditions of Risk," William F. Sharpe, Journal
of Finance, September 1964.
"Portfolio Selection," Harry M. Markowitz, Journal
of Finance, March 1952.
"Survivorship Bias and Mutual Fund Performance,"
Edwin J. Elton, Martin J. Gruber and Christopher R. Blake,
The Review of Financial Studies, Vol. 9, No. 4, 1996, pp.