Thursday, July 30, 2009

Navigating The Rapids

On our recent vacation in the Carolina mountains, we embarked on a day of whitewater rafting. My raft, filled with my sister's family, was led by our veteran river guide named Pappy. Throughout the trip down the river, Pappy spoke of his 29 years of experience on the river. For most of the trip, we were lulled to sleep by his solid navigation skills that took us through each Class II rapid with relative ease.

As the trip was coming to an end, Pappy prepared us for the finale, the Class III rapid called Nantahalla Falls. Our group consisted of 12 rafts and Pappy chose for us to go last so that we could pick up any "pieces" that might have not successfully navigated this more challenging rapid. Two other rafts with guides went first to set their ropes out into the water for catching those that might take an unplanned swim.
As we approached the rapid, my sister asked Pappy if it would be best for her two young boys to move to the center of the raft. Pappy, with confidence, said "no, they'll be fine". Throughout the day, we had grown confident in Pappy's navigation skills. That proved to be a fatal error.

I'm always amazed at how much confidence people have in their financial advisor. These advisors, in many cases, started their careers in some other discipline, and at some point decided to shift toward the field of financial advisement. They typically work for a large firm and provide a bunch of pretty charts that serve the purpose of convincing you to always be in the stock market. They'll say things like "you can't time the market" and coincidentally they'll propose to you the purchase of mutual funds that their company represents versus those that have better outperformed the market. They typically enter your profile into their "black box" and spit out a nice presentation portraying your customized portfolio.
I often ask these planners questions about market cycles and other non-equity investments, and typically they can't speak very intelligently about them. They only know stocks and only those stocks that some guru in their company has defined as a "buy". My conclusion is that one should be careful how much confidence and responsibility they place in the hands of these planners. As Gerald Celente has said "why are we listening to the people that didn't warn us about the crisis that has occurred?".
These planners remind my of our raft guide Pappy. He lulled us to sleep with his stories and successful ride down the easiest part of the river. When the big rapid came, Pappy proved that he didn't know everything. Don't let your portfolio end up like us in the photos below.

Footnote: Note that Pappy is dry and didn't dive in to save us from the 48 degree water!!

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