Paul Meloan – Vested Interest

In many industries and professions, a practitioner is advised to describe his ideal client, and try to describe the attributes of that client in as much detail as practical.  The thinking is that once you identify these traits, they will be easier to spot in prospects and you can replicate your ideal client over and over again.

I have decided to come at this from a different angle: what are the attributes of a client that would cause me to run, screaming, in the opposite direction?

My next few entries will describe the type of person doomed to failure and disappointment.

Type: I need to beat the market.

As has been written many times in other places, “beating the market” is not an actual financial goal or objective.  Look at it another way: if the market went up 3% and you went up 5%, would you be more happy or less happy than if the market went up 12% and you went up 11%?  The first scenario, while certainly possible, is hardly realistic, and is much, much more likely to be the result of imprudent risk taking, or just dumb luck.

While luck is certainly a powerful force in the short run (statisticians call it “variance”) it is not a reliable long-term strategy.

In the second scenario, the investor got the market return minus investment costs.  It’s dependable, and repeatable.  It didn’t require aggression or luck, it required the opposite of those discipline and humility.

Another key, and you will be forgiven if you missed it: in the second scenario, the investor ends up with more money.  Go back and look again: 11% is greater than 5%.  Of course, to get that 11% return our investor probably invested in assets with higher potential for growth, and therefore the higher possibility of loss, at least in the short run.

While “having more money” is not a financial goal either, it does bring other, real, financial goals into consideration (like travel, philanthropy, and assisting family members).

Final thing about market beaters: the number of persons who proved they could do it often enough that it was probably not luck could be counted on one hand.  You are not one of them, and neither am I.

Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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