I don’t know much about stocks!

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Sometimes when people find out I’m a financial planner they immediately ask me questions about individual stocks or the market. When I don’t know anything about the stock in question, they sometimes act surprised.

They say things to me like, “you’re in finance and deal with the stock market, how did you not hear about this?” “How come you didn’t hear about the merger between SO&SO and Them&US?” “You didn’t see that XYZ stock dropped 6 points today?”

The answer is quite simple

I tend to focus my attention elsewhere and have little interest in individual stocks or bonds for the most part. It’s not my job to know how to throw a nasty slider. (don’t worry that line will make sense later in this post) I also don’t care to give off the impression that I’m aware of the next hot short-term stock or direction of the next big market move. I certainly have my opinions but try and voice them in the proper context.

If someone is disappointed by my lack of stock knowledge, I’m Ok with that, they can always tune into Mad Money. I’m not looking to get (myself or my clients) caught up in the performance rat race, I’m not looking to commoditize my business model… I’ll let the mutual fund companies compete with each other in that arena.

Market research

The funny thing these days is, I do more reading and researching then I’ve ever done. Especially, when it comes to financial news and blogs, but focus very little on individual company stories. I peruse the news headlines in the morning but in most cases ignore them. I tend to focus more on the larger macro trends and allocation issues that impact my clients over the long haul.

If your investment time frame is short-term then by all means you must pay close attention to the daily markets; if your time-frame is anywhere between 5 and 50 years, then much of this volatility is just background noise. This doesn’t mean that I take a completely passive approach to investment management because I don’t. My approach would be considered passive aggressive. (I’ll explain that more tomorrow)

At one point last week, the DJIA was off 1,000 points from its high of just 3 weeks ago. Last Thursday (August 16th) you could feel the panic in the air. Do you know how many phone calls I’ve received from clients worried about their investments? The answer is zero. Why? Partly because I’m lucky.

Or maybe because they see things in terms of their long term goals and are not overly concerned about the recent sub prime worries. Realistically, neither myself or my clients are robots and I don’t like to see these big market swings, but if you are able to put things in perspective and use the financial plan as your guide, you have one hell of a coping mechanism…

Pitching is not my job

Let’s try and wrap this post with a baseball analogy. The client is the equivalent of Yankee owner George Steinbrenner; I’m the equivalent of general manager Brian Cashman. I’m responsible for putting the right managers in place to manage the every day baseball decisions (i.e. Joe Torre, Donnie Baseball ,etc.)

Now you don’t see Brian Cashman playing shortstop for the New York Yankees or learning how to throw a nasty splitter, that’s not his job. His job is to make sure team resources are properly allocated; to look for new talent that may bring something new (or non-correlated) to the team.

His job is to manage the team and put the best manager and players on the field every night, therefore, increasing the odds of attaining success over the course of many seasons. Remember, chance favors the prepared mind…

In conclusion, I am not scared to say to people, I don’t know much about individual stocks…

P.S. - For a couple years, I actually traded quite a bit for my personal investment account (not any longer) and when I was doing this I was very up to date on stocks. You could ask me about most stocks, especially those in the news, and I’d have an opinion or could get you one after looking at a few charts. I fancied myself quite the market technician, but in the long run my results were mixed. From what I can tell, there is only a small percentage of traders that are successful doing this.

Tags: Featured, Psychology Behind Financial Planning