A Guide To Track Records


When observing any of Wall Street’s sales campaigns, whether it is on television, radio, newspaper or magazine you will notice some extraordinary similarities between their various sales pitches.

First, is the extraordinary effort and expense that the big firms put forth to win your business.

Second, is the tremendous focus that the various advertisements place on track records. Wall Street has become a sales machine that can sell the sizzle, not the steak, better than anyone. Wall Street brokerage firms know that if they flash that impressive twelve month performance on the screen with the right soundtrack it will impulse many people to buy, and it does. Unfortunately, most of these impulse buyers learn the hard way that a twelve month track record makes for a great sales pitch, but not a very intelligent means of judging performance over time.

A third trick is when advisors or fund companies highlight one or two of their top performing funds while ignoring the many others that have tanked. Think of it as if baseball players could take their 10-15 worst games of the year out of their batting average. Before long everyone would be batting .400 and Ted Williams’ feats would soon become obsolete.

A fourth ploy used by firms is the traditional emotion play. The tear jerking campaigns that are used by the big firms make me nauseous, but I know better. Many investors fall prey to the “we are looking out for you”, “see how we earn it”, “thank you Paine Webber”, and the rest of the phony nonsense out there. If you honestly think that your financial advisor is going to be in the delivery room with you when your son or daughter is born, you have a rude awakening.

The bottom line is that all of these outfits would love for you to hire them on the basis of the sheer cleverness of their Madison Avenue sales presentation or their track records. Despite all the news to contradict the claims of these firms in their advertising campaigns, investors continue to send them their hard earned dollars. Investors must be coherent of the fact that these big firms are publicly traded entities; their number one concern is profits, not the well-being of their clients. Churn them and burn them is the quote that comes to mind. Instead of spending money on properly training and teaching advisors which would be less profitable and more professional, they spend it on past and present cast members of Law and Order to pitch you an idea.

How to determine a true success record?

When an advisor of any real merit is asked what his or her track record is, he or she might give you a puzzled look. The reason, is because there is no possible way a true professional advisor could have any sort of benchmark track record. How can you quantify performance when every one of his or her portfolios is unique?

For Example

A client in his early 30’s might have a return of 12-15% due to a greater weight in equities in his or her portfolio, whereas a client in his late 70’s who is living off the income in his or her bond portfolio may have seen only 5-7%.

Which portfolio performed better?

Answer: Both. The investors both met the goals of their portfolios thus they were equally successful.

To quantify what an advisors track record is ask him to put together an asset allocation model that fits you. Then have him show you the various managers that he or she would employ to work your portfolio and what their track record is. Have the advisor show you proof that he or she has actually used the managers that he or she says they would use with you. Managers can control information after the fact and can use hindsight to pick managers. An advisor who has been using a manager for a period of time will more than likely have an excellent one on one relationship with the manager or firm. Many so-called advisors provide money manager track records and pass them off as their own. In essence they are stating that they are quality advisors because they recommend quality managers; that premise is absolutely ridiculous. The track records of managers included in their marketing piece have little to do with the competence of the advisor. It doesn’t take a brain surgeon to stick a brochure of a high performing manager in an envelope after the performance has already occurred.

Last but not least is future performance. Any advisor who guarantees future performance is not only lying, but breaking about a dozen securities laws. There are no guarantees when you invest in the securities market, because no one can accurately predict future returns. Never trust your hard earned money with some stock jockey that states that he or she can predict or guarantee future returns.