‘The important things to consider when choosing an investment adviser or manager are track record, acumen, and honesty. Net worth has little to do with it.’
Warren Buffet is famously known for saying, ‘Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.’ Well the question lies is it good to take advice from less wealthy folk than you? It is common sense that if one knew the secrets to wealth generation they would have used those skills in enriching themselves.
Consider this, professional boxers usually hire trainers who they could easily knock them out on a single blow. Actors are directed by folks who cannot handle themselves when given an opportunity to perform on stage. So does the statement ‘don’t invest on the advice of a poor man’ hold true? Not necessarily. A business student working his way through school may not have enough capital and may be deep in college debt but might have a lot of helpful advice on the financial markets.
You could look at this from a different angle, a very wealthy gentleman may categorize a poor folk as one earning six figures a year. If you look at the Bloomberg Billionaires list or the Forbes world richest list it is quite evident that investment acumen and money don’t go hand in hand. Martha Stewart was in the billionaires list in 2001 but in 2002 dropped off the list after her shares value declined by 60 percent in the company Martha Stewart Living Omnimedia Inc. Clearly wealth is not omniscience.
There are a great number of investors who haven’t made the Forbes billionaires list for example Peter Lynch. He is one of the greatest stock pickers of all time. He was the money manager of Magellan Fund at Fidelity Investments from 1977 to 1990 and achieved an average annualized return of 29.2% beating the S&P 500 index consistently and making the firm one of the best mutual funds in the world. In his time, assets under management grew from a mere $18 million to $14 billion. Peter Lynch is well off ($352 Million net worth) but would you say Bill Gates, worth $84.6 billion, is a better investor than Peter Lynch?
Investment analysts have good knowledge of the financial markets and are often well paid but they do not rise to astronomical standards of wealth. They normally advise executives who are much wealthier in exchange for investment banking business. This would never have happened if the executives had not been willing to take advice from people who had less money than they did. You could also look at big investment banks such as JP Morgan whose private banking business handles clients with over $25 million accounts. The account managers of these clients don’t necessarily have similar amounts but their clients still trust them.
The rich are generally satisfied leaving their investments in the hands of poorer people because they have better things to do than sit around and track the stock markets. We might say that it is partially true that the rich don’t mind taking advice from less wealthy folk. The bottom-line is that when choosing an investment advisor a proven track record is key backed up with investment acumen and we cannot insist more on honesty.
Source: (Buy the Rumor Sell the Fact, Kenyan WallStreet)