Yesterday I heard a financial advisor from Wells Fargo speak on what to expect from the markets in 2012 and what to do with one’s portfolio. I normally wouldn’t waste my time, but he is someone I know from a former life and since he was giving “advice” to people in my own backyard, I allowed myself to be curious about what wisdom might be emanating from the all-knowing Wells Fargo these days.
So what advice did he offer? In short, he said we should maintain well-diversified portfolios that are invested in undervalued, high quality companies with good fundamentals, strong cash flows, great balance sheets, good management, and a global footprint. And for an added measure of safety, tilt your equity portfolio heavily toward companies that have large and growing dividends.
Really?!? That’s it?! So, investors aren’t supposed to look for overpriced stocks of low quality, poorly managed companies that are heavily indebted and generate no cash? And if they offer no dividend then that makes them an extra good find? Really?!
He should have just saved us all some time and said: “Invest in things that go up.”
But as lame as his advice was (and by the way, he also droned on about what his company’s predictions for various asset class benchmarks would be at the end of 2012 – and this kind of advice is particularly ridiculous and never reliable), the worst part of the whole thing was the lack of pushback from those in the room. I didn’t criticize in the meeting because I wanted to play nice since I used to work with the guy, but there were half a dozen other people in the room who certainly could have pointed out the silliness of it all. And yet, no one did.
I guess this speaks to why the vast majority of investors seriously underperform the broad market: they listen to lousy advice and don’t think enough about it to recognize just how lousy it is. Until investors start thinking, and forcing those they hire to manage their money to start thinking, they shouldn’t expect anything different.