If you’ve spent any time searching for financial advice online, you’re surely aware that the Internet is replete with Squawkers, talkers, gawkers, and hawkers. From big-company websites to late-night infomercials, there is no shortage of available advice, opinion, and research. Giant financial services firms use it to sell their (highest-margin!) products and services, “unbiased” advice websites use it to drive clicks and sell advertising (usually for the giant financial services companies), content aggregators package and feed it through various social media outlets, and talking heads use it to make themselves look smart on TV. Some of this information is solid and valuable; some of it is not. Some of it is shockingly bad. Most of it is free; some of it is parked behind paywalls. On the whole, the widespread availability of financial research is a good thing for DIY investors, but the mind-boggling number of outlets and options can make even the most stalwart consumers scratch their heads in bemusement (and/or bang them on whatever hard surface happens to be nearby).
The value of personally researching financial instruments for your portfolio is (or should be) self-evident. After all, it’s your money, and if you’ve chosen the path of managing it yourself, it’s wise and prudent to understand as much as you can about how various instruments and markets perform. Markets change, strategies change, economic fortunes change, and risk is everywhere. Outside of partnering with a certified financial planner like Atlantic Capital Management, the willingness and ability to get down in the weeds and research your investments is probably the smartest move you can make if you’re going to manage your own money.
At ACM, we use high-level aggregate analysis of the five major market sectors (domestic and international equities, fixed income, real estate, currency, and commodity and cash equivalents) as the cornerstone of our research methodology, and we incorporate that analysis into all of our client interaction, individualized for every portfolio. (If you’d like to learn more about our investment methodology, you can do so here.) DIY investors sometimes partake in high-level analysis, but our experience shows that most DIY investors tend to focus more on the practical, tactile issues surrounding things like ratings, performance benchmarks, and sector trend analysis. With that in mind, we’ve prepared some useful tips for getting the most out of your research, which you’ll find below.
(As a caveat, we’ll take a moment here to mention that in general, we don’t subscribe to an investment strategy which is focused on “out-performance.” In our view, simply benchmarking against performance indicators doesn’t provide enough context for the management of a truly individualized portfolio. As we’ve said before, focusing solely on “out-performance” gets a lot of people in trouble, because the drive to artificially adhere to an arbitrary performance standard wreaks havoc with a risk tolerance strategy. In a lot of ways, an investment strategy focused on “out-performance” is a lot like stereotypically trying to “keep up with the Joneses.” Most of the time, your own grass is plenty green enough.)
Cross-check opinions and advice from various sources
Treat your research as due diligence. Invest the time necessary to cross-reference advice and opinions relevant to your risk tolerance, asset allocation, and performance strategies. You’ll find that a lot of investment advice, even from reputable firms, has a certain “flavor of the month” aspect to it. If a particular strategy catches your eye, and fits into your various profiles, double-check it for a consensus (or non-consensus) opinion. Try to find practical examples that line up with your approach and expectations. Where possible, directly solicit opinions from others.
Consider the source
Marketing is a necessary evil of the financial services industry. Unfortunately, so is hype. The industry is so crowded with players, big and small, that the penchant for trying to “stand out in the crowd” is prevalent even for the most conservative firms. The “big guys” have a relentless drive to churn out more new products and services every day. The “little guys” often follow along in an attempt to look bigger and more influential. The pundits and talking heads are tasked with capturing clicks, eyeballs, and viewers. Truly objective research is hard to come by. Our advice is to rely as often as possible on the “neutral” information sources like FINRA (Financial Industry Regulatory Agency). That’s not to say that good advice can’t be gleaned from the Charles Schwabs, Fidelitys, and INGs of the world, nor is it to say that the “boutique” investment firms aren’t providing good information, either. You may genuinely be able to gather some good advice from those sources. But remember, that research is designed to sell products and services, not necessarily to inform you on how to best manage your family’s nest egg. Be critical.
Consider paying for it
If you’ve chosen to bypass the services of an investment firm like ACM in favor of doing it on your own, you may want to consider paying for access to high-quality, less-biased (notice we didn’t say “non-biased’) research. Services like Morningstar Premium provide a plethora of “independent” research for a fairly low subscription fee (although you’ll still see plenty of ads for the big financial firms even behind the paywall).
Don’t rely solely on ratings
This is particularly true for equities. Ratings and “stock screener” tools are great for aggregating snapshot research into an easily-digestible format. But ratings and stock screeners are essentially a “one-size-fits-all” proposition. Use them to supplement honest, detailed, and relevant research and advice. Avoid the tendency to over-rely on dashboards and other simplistic widgets. Always make sure that what you’re seeing corresponds to your risk tolerance and overall investment strategies.
Doing your own portfolio research can be an interesting and engaging pursuit, albeit with some pitfalls and things to watch out for. Be wide-ranging, be critical, be diverse, and make sure you’re always benchmarking your research against your goals, strategies, and risk profile.
If you’d like to learn more about our high-level analytical process, we encourage you to contact us to schedule a free consultation today.