Welcome to the sausage factory
I was at an event the other day sitting with a group that included both a portfolio manager (person who manages a mutual fund) and financial advisor (person like me) from a well known institution.
To help others at the table understand each other’s jobs, the financial advisor innocently put it like this, “She makes the sausage, I sell the sausage.”
“She makes the sausage, you sell the sausage?” Huh? Come again? What part of this is about helping people achieve goals they otherwise couldn’t? Am I missing something?
But the more I thought about the analogy, the more fitting I realized it was, and the more disappointed I got.
Here’s the sad truth: The role of a financial advisor has largely become that of a product pusher, selling products that aren’t always best suited for their clients, when it should be that of a financial coach who helps clients get places they could not get to on their own.
Let me unravel that analogy for you a bit further, because as upset as it makes me, it works really well to describe the majority of the industry.
Let’s assume some or all of this describes you:
-You are an educated consumer with your purchases.
-You read Amazon reviews before making decisions.
-Yelp reviews help you decide what restaurants you go to.
-You are not the type of person who jumps right into buying a tv or a car without doing your research first.
-You like to educate yourself so you aren’t taken advantage of.
Onto my disappointment.
The sausage starts as a pig, or maybe a cow, or a turkey, or chicken…you get the point. It starts as a living, breathing thing.
The stock starts as a share, or partial ownership, of a company.
The animal then goes to the slaughterhouse, gets butchered, graded, and eventually bought by grocery stores.
The stock gets evaluated based on size, growth type, risk profile, and about a million other reasons you aren’t privy to and eventually gets bought by a portfolio manager.
The meat is trimmed into the cuts we recognize on the grocery shelves, and often the leftovers, or trimmings, are ground into a sausage.
…But your research says trimmings can be fatty and from parts of the animal you wouldn’t voluntarily eat. Can you find sausages that don’t contain trimmings?
You’ve heard sausages also contain fillers, like water and flour. And what are the casings made of? What about preservatives? Now you’re wondering, what is ACTUALLY in the sausage?
You ask the store clerk, but you can’t get a straight answer from him.
You take matters into your own hands and Google your questions. Your online search for “what’s in a sausage” sends you down one confusing rabbit hole after the other.
After too much time wasted, you decide that organic must be better than non-organic, though your rationale is nothing more than hearsay, so you buy the “organic sausage,” and put it in your refrigerator.
Now let’s think about the stock inside the fund in your investment portfolio.
The stock was put there to help the fund grow, right? The portfolio manager bought the stocks, but does your advisor know what stocks are in the fund? There aren’t any companies inside that fund you wouldn’t want to associate yourself with, are there? When companies are bought and sold in that fund, who pays for it? Your advisor collects a fee, but does that fund also cost something? Who pays for that?
You ask your advisor these questions, but because (s)he doesn’t actually control anything within the fund, you don’t get many straight answers.
Again, Google becomes your guide, and again, you head down way too many confusing rabbit holes. You decide what your advisor is doing sounds exactly what everyone else is doing, so (s)he must be doing the right thing by you.
Though you’re not happy being a sheep (See point number 5 in this article), there the stock sits, inside a fund in your investment portfolio, and you move on.
But just like you deserve to know what’s in the food you eat, you deserve to know what you’re investing in, and more importantly, why.
Just like buying organic sausage over regular sausage, there are a lot of assumptions made by you with your investment portfolio.
But it doesn’t need to be that way…
How much easier is it if you can say to the butcher, “I want that meat right there ground into a sausage.” Or better yet, what if you can go to the farmer and say, “I want to buy that pig and make sausage from the shoulder meat.” Pretty straightforward, right?
The same is true when it comes to your investments. The closer you get to the source, i.e. the stocks themselves, the better you’ll understand what you own and why. The more cooks you have in the kitchen, the more confused you’ll get.
My advice for investing is this: whether you do it on your own or with an advisor, make sure you know exactly what to buy, why you’re buying it, when to sell, why you’re selling it, and what to reinvest in, and why you’re reinvesting in it, every time, without emotion, in perpetuity, like we can at Beck Bode.
And if you can’t, let’s talk.