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The (Alternative) Facts of Investing

Past performance is indicative of future results. Period!

Risk and return are NOT related. Period!

There is a direct correlation between how much a fund manager charges and how skilled they are. Period!

Standard deviation is risk. Period!

Nothing bad will happen if you mix your politics and your portfolio. Period!

Price is what you get, value is what you pay. Period!

The United States is the only capital market in the world and any attempts an investing in international stocks and bonds for diversification should be met with ridicule. Period!

Some investments are so great that they should be bought at any price. Period!

Three years is a statistically appropriate timeframe to judge the performance of an investment. Period!

Be greedy when others are greedy and fearful when others are fearful. Period!

Your calls for hyperinflation and currency debasement were not wrong, they were just early. Period!

If you can predict the outcome of an event, surely you can also predict how millions of other people will react to said outcome. Period!

The Dow is an accurate representation of the entire stock market. Period!

Price returns matter more than total returns. Period!

You can remain solvent longer than the market can remain irrational. Period!

The time to buy is when there’s a party in the street. Period!

Timing the market is more important than time in the market. Period!

Hedge Funds are an asset class. Period!

The perfect portfolio exists. Period!

It’s OK to let the tax tail wag the investment dog. Period!

It’s a stock picker’s market. Really, I mean it this time. Period!

Markets are perfectly efficient. Period!

Markets are wildly inefficient. Period!

This time is different. Period!

At the risk of overstating the obvious, everything stated above is done in jest and can appropriately be interpreted as the investing equivalent of FAKE NEWS. In many cases, the opposite is a closer approximation of reality and good behavior.

Investors today face a never ending deluge of:

  • Short-termism in the media
  • Inflated backtests
  • A never ending tug-of-war between fear and greed
  • Salespeople making empty promises of high returns and low risk
  • Cocktail party chatter and golf-course anecdotes

The quest for evidence, truth and prudence in investing is more important than ever in today’s struggle to decipher between fact and fiction. Investors need to protect themselves from falsehoods, charlatans, bad actors and noise that may have a negative impact on their financial outcomes.

Here are a few ways to help prevent “alternative facts” of investing from seeping into your portfolio:

  • Work with financial professionals that act as your fiduciary and put your interests ahead of their own.
  • Implement an investment philosophy that isn’t predicated on forecasting an unknowable future.
  • Have a written investment policy statement that governs how you or your advisor is going to manage your portfolio ahead of time. Refer back to that document when the going gets tough.
  • Remember that the plural of anecdote isn’t data.
  • Develop a network of trusted filters. These sources of thinking and information can help keep you focused on your objectives.
  • Try to avoid getting trapped in your own echo chamber. We are all susceptible to confirmation bias, but actively welcoming opposing viewpoints can keep us from becoming too insulated.

About the author

Phil Huber, CFA, CFP®

Phil is the Head of Portfolio Solutions for Cliffwater, a leading alternative investment adviser and fund manager. Prior to joining Cliffwater in 2024, Phil was the Chief Investment Officer for Savant Wealth Management, a multi-billion dollar wealth management firm. Phil has been involved in the financial services industry since 2007. He earned a bachelor’s degree in finance from the Kelley School of Business at Indiana University. He is a member of the CFA Society of Chicago. More about me here. Twitter: @bpsandpieces

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