The Liberty Portfolio: Money Managers Don’t Know What They Don’t Know

Posted: Jan 09, 2018 10:40 AM
The Liberty Portfolio: Money Managers Don’t Know What They Don’t Know

This will sound like a strange way to start an article on investing, but I am very upset right now. I’m upset that I have to write this article, because if brokers and money managers were truly doing their jobs, this article wouldn’t be necessary. Not only that, if you are managing your own portfolio, you’ve been given rotten advice on what having a “long term diversified portfolio” really means.

This is the first in a long series of articles entitled “The Liberty Portfolio” that will be critical to your survival in the market, especially if you are retired or will be in the next ten years. That’s because all of these articles are going to be about hidden risk. You are carrying far, far too much risk in your portfolio.

And the huge rise in the market this year is making you feel more comfortable than you should be. 

The brokers and money managers and investment bankers who are supposed to be taking care of your money – taking care of your future – literally have no idea what they are doing. Even worse, they don’t know what they don’t know.

Nobody should ever go to bed not knowing what to expect from their investment portfolio. Nobody should have to suffer from poor investment performance.

Yet people all across the United States are suffering, because the people they have entrusted with their life savings have no idea how to properly assess the risk and expected return of your portfolio. This has been going for decades and it hasn’t changed.

Until now. I’m ending it.

I am here to save you from the bad brokers and money managers in the brokerage and money management industry -- which is pretty much everybody. If you manage your own money, I’m going to help you fix your portfolio.

I’m going to do this by showing you exactly where the problems are in the industry, why they exist, and then I’m going to give you one simple tool that will give you control over your investments and put your broker to shame.

The Big Broker Lie

Brokers at big firms are not really portfolio managers. They are salespeople. They do what their Name-Brand Investment Firm told them to do. What idiot wouldn’t do what Name-Brand Investment Firm told them to do?

If you ask your broker, they will all say the same thing. Nobody is trained how to construct and manage a portfolio. They think they are trained to do so, but they really aren’t. They can’t be by definition, because nobody at these jobs has a way to truly quantify risk.

Everyone believes they are doing a good job and helping their clients because they all worked at Name-Brand Investment Firm selling financial products.

Just ask to see the training sessions for brokers. Not a single moment is spent on the topic of portfolio construction. All these firms want is for brokers to gather money, and give it to the firm to manage. 

The reason for this is, in 1984, Merrill Lynch hired McKinsey & Co. to evaluate their wealth management division. The advice was hire as many brokers as possible. In the first year, 25% would fail out, but would leave behind the assets they had accumulated.25% would fail the next year, and leave those assets behind with Merrill.

So, firms needed to have lots of offices, and make sure they were close to the demographics of people who could become potential clients. The closer a firm’s office is to people, the more they will come to the firm’s brokers out of convenience.

With all these offices, that meant that that the firms had to hire lots of managers. 

These managers had to be licensed. Where could a firm find such personnel? Well, how about all those people who flunked out as brokers because they couldn't handle it, because they weren’t good salesmen, and they couldn’t bring in new business, but were good people? They knew the industry. They just needed management training. 

That’s whom the firms went with as office managers.

Think about that for a second. The people managing these wealth management offices are failed brokers. 

As the business changed, the firms wanted to call change the name of their employees to something other than “financial advisors” or “brokers”. They could not legally say “portfolio managers”, but they could say “wealth managers”, even though they didn't know the first thing about managing wealth.

The dirty little secret of wealth management is that none of these wealth managers has had a lick of training on managing money or portfolio construction, or any of the other skills needed to do right by their clients. 

They don’t know what they don’t know. These are the people managing your portfolio, and advising you. These are the people telling you how to construct a portfolio on your own.

Have you recognized a major risk in your portfolio construction now?I hope so. We’ve got a long way to go. The good news is that The Liberty Portfolio will teach you how to reallocate your portfolio to properly manage risk.