The 4 biggest investment performance myths -- and how they can torpedo advisor-client trust
How to sidestep Wall Street mythology and give clients a clarified perspective on the ups and downs of their investments
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June 11, 2019 at 9:49 PM
Morningstar, Inc.
TAMP
Top Executive: Joe Mansueto
Kenneth B. Kann
Very well put. I’ve often tried to get clients and prospects to better understand reported performance meausures relative to specific (vs generalized) time frames.
Robert Boslego
I like your approach about explaining these concepts in easy-to-understand language and the idea of discussing risk comfort levels. Volatility is abstract, so I suggest asking investors for maximum loss, as measured from peak-to-valley percentage, as the main risk tolerance question.
You conclude that MPT is not invalid. If you take the definition of valid being “producing the desired result” or “effective,” there are many reasons it’s not effective for most, if not all practitioners, beginning with the fact that the inputs to the model are unstable and cannot be predicted with much confidence, and so that alone renders the outputs unreliable.
