Do you think choosing the right investment advisor or implementing the best investment strategies is as important as choosing your doctor? Your answer probably depends on whether you consider your financial health as important or close to being as important as your physical and mental health.
A new book, The Investor’s Paradox The Power of Simplicity in a World of Overwhelming Choice by Brian Portnoy, offers four areas of consider and questions to ask yourself when selecting a professional to select stocks and other investments that will improve your financial health.
The author writes, “I believe there are four questions that structure investment due diligence. These are the topics on which we form expectations about the experts we hire and then adapt over time to changes in them, the world around us and ourselves.”
Trust, risk, skill, and fit are the areas the author suggests focusing on. He writes about the book itself, “The overriding goal of The Investor’s Paradox is to simplify complex investment choices.”
Portnoy offers these four questions to ask when determining when an investment advisor is right for your individual portfolio or investment situation:
- Can I trust you?
- What do you do?
- Are you good at your job?
- Are you the right fit for me?
While the book’s focus is on helping investors make the right choices, Portnoy divides the book into two sections, part one looks at the challenges of investing today. Part two offers solutions.
He writes about critical topics including the investors’ food chain, being prepared by asking questions, listening and not being afraid to be stupid. He writes that investors generate returns by taking risks and outperform “by taking risks that are different in size and scope from others.”
He suggests there are “five risk dimensions worth investigation” involved with due diligence including:
Understanding investing and becoming successful at investing is not for the faint-hearted. It takes perseverance and tenacity. Nothing changes faster in this world than the stock market and investments. An investor can be profitable in the morning hours and loose their shirt by late afternoon of the same day.
It takes research and working with an advisor (even if that person is yourself) who understands you and takes your life into consideration when making decisions for you. This book takes a good look at what it takes to make such decisions. It is written in a highly understandable manner. The author does a particularly good job of winding the ups and downs of investing around real life stories.
The book starts with a story about “the lessons of strawberry jam” and how offering too many choices only confuse the consumer or the investor. The story illustrates how offering too many samples at the grocery store for consumers to taste tends to turn them away instead of drawing them in.
The last paragraph in the book is one of the strongest tidbits of advice offered. In part it reads, “In turbulent times, therefore, I believe that true investment success starts with ourselves. We struggle to overcome our built-in biases, look to experts to help solve problems, and hope to eventually find the right path forward. If that path involves choosing the best manager and trying to beat the market, we will fail. If we take sober stock of the problems each of us — as individuals or institutions — is trying to solve, the chances of success grows considerably.”
Portnoy has been researching, advising and investing in hedge funds and mutual funds for more than 14 years. Currently, he is head of Alternative Investments and Strategic Initiatives for Chicago Equity Partners.
He writes about his “oddball career” and how he entered the market “at the beginning of the end” in early 2000 and became a hedge fund analyst. He writes, “I was not alone in my accidental vocation. There are hundreds of thousands of professional investors and financial advisors worldwide who spend a good chunk of their time researching, selecting and monitoring money managers — from traditional mutual funds to more complex hedge funds.”Powered by Sidelines