We are drowning in information, while starving for wisdom - E. O. Wilson
Published by Terry McIntyre on Oct 28, 2015
Once in a while you do see a quote on social media that hits home. Two-time Pulitzer Prize winner E.O. Wilson’s quote “We are drowning in information, while starving for wisdom” came up today and it hit right to the heart of the matter. I looked him up on the internet (ironically) and I found the following quote that also meets values I believe to be true:
“The real problem of humanity is the following: we have paleolithic emotions; medieval institutions; and god-like technology.”
I believe this is where we are at this point in time. More companies are consolidating their market, forcing us into more homogeneous decisions and less independent businesses are left to bring in diversity. Go to any of the big chain stores, as well as the malls, and you will find the same products over and over, no variation and no real differentiated choices.
I find this true for the business I am in. Big institutions have forced out most of the independent companies by either buying them out or forcing more and more rules on to the industry that the small practitioner can not survive the cost of regulations. There is only one large institution that I know of that believes that independent advisors will a fully open architecture is the only way to meet each individual investors needs and treat them as individuals.
These medieval institutions use the information that they download to push their employees to generally offer the same products over and over. They have taken the data in their computers and conveniently coming up with solutions from the data that takes out all wisdom. Not surprising that these are the higher profit margin to their institution. They also use these computer decisions to protect themselves against any lawsuits that may come. The result of this is one size fits all underperformance. I wrote about this in a blog last year asking Does an Investment Firm’s Compliance Office Completely Protect Me?
Many of the advisors are becoming Portfolio Managers who put together a couple of portfolios that they choose themselves (usually within the corporate guidelines). One I spoke to lately has two portfolios, both with the same investments but in different quantities. One is for growth/the other for income. Whether you are 19 or 90 you will get the same investments in whichever of the two portfolios you are put in. This system is great for the advisor, as they have streamlined their business and don’t have to call clients to get permission to trade their account. So many are so proud of their streamlined business model that their client’s individuality is completely ignored. I wrote about this in: Searching for a New Advisor
This advisor makes each and every client believe their portfolio was set up personally for them. I wouldn’t want to be their client. The more of these that I see, the more I have found that they generally look the same. No overlay of wisdom is used. This is a result of having the same information as each other, working for medieval institutions and the ability of these institutions to use the data collected to protect themselves as their first order of business.
When markets get tough, paleolithic emotions takeover. Investors start to make many emotional decisions. One good decision that is often made is to question their investment advisor. The difficult piece of this is that clients don’t compare their portfolio with their advisor’s other clients. They don’t get to see they have exactly the same portfolio, they are not being treated as individuals and don’t have a personal portfolio set up just for them.
We are not just seeing this in portfolio construction; we are seeing it in products and advice.
I am starting to see portfolios just made up of ETFs with fees paid to the advisor, on top of the ETF fee. I do use ETFs and have written about ETFs in the past. With no wisdom overlying the investment decisions, their clients will easily underperform. I wrote about this in a blog titled Be careful where you get your advice in which I point out that an ETF firm states on their own website that a good mutual fund manager will outperform ETFs after fees. In spite of this Millions of dollars pour into their ETF. Again, emotions of paying fees causes investors to earn less and medieval institutions earn more.
As I am writing this piece I see that the peak (June 2008) of the TSX was 15,154 and is currently 13,162. An ETF that follows this index would be down 13% after 7 plus years, plus the ETF fee and their advisor’s fee. Again, this is sold to their clients on the low cost of ETFs, playing on their emotions. Most will quote the TSX from the bottom at March 2009 of 7,479. This is an increase as of today of 75%. These two results look dramatically different and this 75% increase is used to make the sale. Again, carefully positioned information masking the real risk.
We are drowning in information, while starving for wisdom. These data driven, streamlined business models will always look good with the correctly chosen data. It takes wisdom to understand real risk, matching that risk to the investor and executing.
The Rise of the Robo-Advisor – God-Like Technology
We are now seeing the introduction of the so-called robo-advisor. This is simply a company that has streamlined their whole business into computer modelled algorithms gleaned from data. We have seen too much heartache in the investment industry because of non-thinking algorithms. This is another example of too much information, not enough wisdom. Apparently there are advisors in the U.S. who pay for this service and make no decisions for their clients. They are simply salespeople and the client’s individuality is ignored as well as intelligent investment returns.
You Deserve This
I saw this misunderstanding of the industry growing in the large medieval institution I was in and did a lot of work to find a firm that allows wisdom to rule. I moved to what I believe to be the best choice for individualism. Clients are considered to be individuals with different needs, wants and emotions. You deserve this.
We are certainly in the information age, but I fear it has come at the expense of wisdom.
YOUR INDEPENDENCE MATTERS and if you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca