Is It Really That Simple?

I wasn’t planning to write about discipline and diversification again but an article in Bloomberg Businessweek over the weekend caught my eye.  The article (Investor, Heal Thyself) is about CalPERS, America’s largest public pension fund, and how the fund’s total value is back to pre-recession levels.  And how was this accomplished?   According to Joseph Dear, CalPERS Chief Investment Officer, it was “discipline.”  “We believed the markets were going to come back and we held our allocation.”

Give Joseph and his staff the credit they deserve for staying focused on the long-term.  And according to this article, their returns were almost as good as the S&P 500.  So I was thinking, “How many investment professionals does it take to earn the returns of the S&P 500?”  Maybe one part-timer!

Good investment professionals (and you know CalPERS can afford the best) know how important it is to remain disciplined.  What they also know is the benefit of simple “passive strategies.”  But unfortunately for them, it’s a job killer.  Don’t expect that to change any time soon.

But you don’t have to worry about that.  You can get the benefits of both discipline and passive management without anyone losing their job.  (Well maybe your broker/financial consultant.)

It always amazes me how difficult it is to convince people, even while showing them overwhelming evidence supporting this simple strategy.  Years ago an advisor attending one of our London conferences gave me a quote from Leo Tolstoy that helps explain the challenge.  I am passing it along to you.

“I know that most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truths if it would oblige them to admit the falsity of conclusions with which they have delighted in explaining to colleagues, proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives.”

I call it the “foolish ego!”  But isn’t it nice to know you can do just as well, if not better, than CalPERS with your investment portfolio just by getting your ego and the egos of others out of the process.

Note:  A great quote from Tolstoy that would never survive in our Twitter World.


Filed under Advisors, Investments, Investors

4 responses to “Is It Really That Simple?

  1. Dan,

    I wrote an article about CalPERS last year and said almost the exact same thing! A basic 70/30 portfolio easily beat the CalPERS return over 10 years. Let me know what you think.

  2. Frank Lehane AIF, Fullerton CA

    Love this: “You can get the benefits of both discipline and passive management without anyone losing their job. (Well maybe your broker/financial consultant.)” I’m so glad I ‘fired myself” from my former Wall St. firm, redesigned my practice by eliminating all commission-based investments and tying my wagon to the U. of Chicago dudes i.e. Fama, French, etc.. and DFA!

  3. It’s amazing how investors still trust Wall Street and think the media really knows where the market is going. Investing is complicated, but it doesn’t have to be. Simply put, own equities, diversify, and rebalance. Passive investing will prove out over the long term and ease the tension, if you can shut out the media and listening to friends who don’t really know more than you.

  4. Hi Dan-

    We met through Pat Sweeny and Dave Connelly once. I just want you to know how much I appreciate and glean from your posts.

    Thank you for your time and effort!

    Phil Henry
    Henry Wealth Management, LLC
    Pittsburgh, PA

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