buysellwebHow do you decide on what to buy and sell? And if you delegate that task to a professional, how does your advisor decide? And why?

I’m speaking here of methodology, or how to approach investing. If you have a trusted advisor, do you understand how he thinks? Should you even care?

Too often driven by emotions, investment decisions should be the result of evaluating the most relevant information. But while most people like the idea of careful evaluation, observing the data is not enough. Somewhere between the talking-head analysts and suave sales agents an important question is often missed: what is the most relevant information? And why?

How Not to Approach Investing

Some individuals agree to work with advisors who provide mountains of data. They may have become hopelessly confused or lured into a sort of data-driven hypnosis. Sadly, the “smartest” minds in finance didn’t see the ’07-’09 financial crisis coming, or the Tech Bubble before that. In fact, many elites saw blue skies in 2007 right before the floor dropped out. In other words, don’t trust mister smarty pants.

Other clients, though – more wary of mister smarty pants – are won over by a confident voice and a charismatic personality. They rest their financial security in their ability to discern true financial wisdom. But were you so sure about your advisor at the bottom of the last market decline? Was your advisor reassuring? Did he even answer your phone calls? Bernie Madoff was a master at reassuring people, but a trustworthy guy he was not. As it turns out, he didn’t understand financial markets all that well, either.

During prolonged bull markets these vetting procedures (if you can call them that) may not hurt you. But when turbulent markets arrive the advisor you trust may fold under market pressure. He or she may be exposed as having a shallow understanding of financial markets. When this happens, you may wish you had sought a better explanation of his or her process.

The Heart of the Matter

An advisor’s personality, their skill in analyzing data, and their ability to communicate are very important. However, they are not the most important factors to consider. More fundamental to the success of your investments and your relationship with your advisor is this: beliefs. Beliefs, that is, about the nature of economics and markets as a whole.

While that may sound funny or “philosophical”, beliefs about markets and economics are very practical. So practical, in fact, that they largely determine what, when, and why an advisor buys and sell anything. For example, many advisors implicitly believe that past performance is indicative of future performance. As a result, many tend to buy at high prices and sell at low prices. And to be certain, buying high and selling low is a poor investment strategy even when done by a “professional” investor.

Similarly, if your advisor believes that spending is what grows the economy, then the solution to our current economic problems is more spending; regardless of personal, corporate, or government debts and/or deficits. Thus, he or she may believe the government needs to print even more money than it already has, and by doing so the economy will improve. On the other hand, if your advisor believes that government intervention and deficit spending leads to a misallocation of assets and wealth destruction, his outlook for the US economy will be markedly different.

Put simply, you need to determine what you believe about how markets work before you enter them. And if you don’t have the time, energy, of desire to sufficiently inform yourself then you had better delegate that task wisely. If an advisor can’t succinctly explain to you basic beliefs about the markets and economics, then it’s time to look elsewhere before it’s too late.


The investing world is so complex and fluid that it cannot be explained merely by data analysis. Rather than trusting in a smooth voice or trying to understand your advisor’s technical analysis, you should be asking them to identify and explain their (very practical) economic convictions. And then you should hold your advisor accountable for being consistent with that investment philosophy – since that is ultimately what you are paying for.

Are you feeling a little overwhelmed? Don’t know where to start? Don’t worry. If you want some guidance on where to begin, check out our Investment Philosophy page where we identify and explain some of our guiding convictions. You can then compare them to your convictions or those of your advisor’s. And if you have more questions, contact us and we would happy to discuss further.

Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material contains the current opinions of the author but not necessarily those of Plan Financial and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission. Plan Financial is a trademark or a registered trademark of Plan Life & Wealth Management, Inc., in the United States. © 2015, Plan Financial.