Peanut butter, jelly, and Wall St

I remember years ago watching a Wall St. analyst praise a corporate merger. The J.M. Smuckers Corporation had decided to buy the peanut butter brand Jif. This analyst was excited, expounding at length on national television as to why it made sense for the jelly company to add the peanut butter company to its portfolio. As I watched this display of certainty, I couldn't help but think "How much does this guy get paid?"


There are many people I know in the financial business with deeper insights than "the peanut butter and jelly go well together both in culinary and corporate forms." It's important to understand that when you trade a security, one of those individuals or a computer he or she programmed may be on the other side of the trade. The trade is a digital argument of sorts, and someone else is taking the other side of your argument.

This is not a comforting thought to me. As much as I gently critique the actions of the financial industry, I do not want to be on a level playing field against certain individuals. Many of them are extremely bright, they are driven, and like it or not, they are the competitor.

Did you see how I worked in "level" playing field? It's not that I don't want to be on the field, I just want the field bending, in a downward-sloping, parabolic way, toward the goal I'm shooting on. Something resembling a funnel.

So that was the first step: designing an approach that used the characteristics of the competitors against them. For example:

1. When you are a highly paid Wall St fund manager, the societal elevator to the top may have reinforced the belief that you are the sharpest knife in the drawer. Yet there is a long history of financial markets obliterating investors with egos. Adopting an investment paradigm that removes ego from the process is step one.

2. The quarterly and yearly performance reporting periods to which Wall St subjects its employees are arbitrary. Generally they are too short, and they line up with calendar quarters, because that is how performance is reported. Consumers don't work or buy in calendar quarters though, and well-run businesses often plan in years.

3. Professional investors work for firms with profit mandates that are difficult to resist. Publicly traded investment firms have a voracious appetite for increasing profit, and it gets worse if the firm is run by managers who see their tenure as limited. Structures to minimize margins and profits are difficult to establish in a publicly held business.

Addressing these items structurally gives us an advantage over time. An investment field where we are running downhill is my kind of field.

Dan Cunningham

Return to Articles
DIFFERENTIATORS
GETTING STARTED
MATERIALS
How We Are Different
Understanding Your Financial Statement
Investing with Low Cost Index Funds
Pay Yourself First
Articles by Dan Cunningham
Vermont Financial Planning
Investor Resources
Quarterly Booklets
Why Use a Fiduciary Financial Advisor?
Financial Planning
Investment Tools
Financial Firm Comparison
The Investment Process
One Day In July in the Media
Local Financial Advisor
How to Switch Financial Advisors
Fee Calculator
Frequently Asked Questions
Types of Investors
Book Recommendations
Square Mailers
SERVICES
Types of Accounts We Manage
Options for Self-Employed Retirement Plans
Saving Strategies
What to do When Receiving a Pension
Investment Tax Strategy: Tax Loss Harvesting
Vermont Investment Management
How to Invest an Inheritance
Investment Tax Strategy: Tax Lot Optimization
Vermont Retirement Planning
How to Make the Best 401k Selections
Investing for Retirement: 401k and More
Vermont Wealth Management
How to Rollover a 401k to an IRA
Investing in Bennington, VT
Vermont Financial Advisors
Investing in Albany, NY
Investing in Saratoga Springs, NY
New Hampshire Financial Advisors
INVESTING THOUGHTS
Should I Try to Time the Stock Market?
Mutual Funds vs. ETFs
Inflation
The Cycle of Investor Emotion
Countering Arguments Against Index Funds
Annuities - Why We Don't Sell Them
Taxes on Investments
How Financial Firms Bill
Low Investment Fees
Retirement Financial Planning
Investing in a Bear Market
Investing in Gold
Is Your Investment Advisor Worth One Percent?
Active vs. Passive Investment Management
Investment Risk vs. Investment Return
Who Supports Index Funds?
Investing Concepts
Does Stock Picking Work?
The Growth and Importance of Female Investors
Behavioral Economics
The Forward P/E Ratio
Donor-Advised Fund vs. Private Foundation

Vergennes, VT Financial Advisors

206 Main Street, Suite 20

Vergennes, VT 05491

(802) 777-9768

Wayne, PA Financial Advisors

851 Duportail Rd, 2nd Floor

Chesterbrook, PA 19087

(610) 673-0074

Burlington, VT Financial Advisors

77 College Street, Suite 3A

Burlington, VT 05401

(802) 503-8280

Hanover, NH Financial Advisors

26 South Main Street, Suite 4

Hanover, NH 03755

(802) 341-0188

Rutland, VT Financial Advisors

734 E US Route 4, Suite 7

Rutland, VT 05701

(802) 829-6954


v 2.4.67 | © One Day In July LLC. All Rights Reserved.