On becoming a successful investor

Striking a balance between logic and experience

April 21, 2017

At Cooper Schneider Financial we adhere to an intelligent, rules-based methodology, aiming to protect the wealth of our clients during adverse economic conditions while trying to consistently outperform the market. We regard emotion as an enemy of success.

We also believe that while logic in investing is valuable, it has to be leavened by a healthy dose of experience. Logic is about building ironclad arguments, the necessary conditions that make a thesis not only persuasive but also objectively true. Here’s an investing-related example of a fallacy called Affirming the Consequent:

  1. Facebook is a social media stock and a great investment.
  2. Twitter is a social media stock, so
  3. Twitter is a great investment.

Now Twitter might be a great investment, but investing in Twitter stock based on the above logical fallacy would be a mistake.

Mathematical logic and algorithms

Right now, and increasingly, the investment world is being invaded by so-called Robo Advisors. These are automated online tools that can make investment suggestions, manage money, routinely rebalance portfolios and make savvy trades. We’re not opposed to the power of mathematical logic and, we agree, that algorithms are capable of quite a lot.

Match Group algorithms help people date. Tesla Motors algorithms help people drive. Spotify algorithms help people discover new music. Now Robos can help people make stock picks and diversify their portfolios, and all for fees that are considerably lower than those typically charged by traditional advisors. What is our response?

The inescapable role of experience

We continue to believe that, almost always, experience trumps mathematical logic tied to the probability calculus (algorithm-driven Robo investing) almost every time. Why? Simple. While vitally important, portfolio performance is only part of the wealth-building equation.

After all, it’s not about how much money you make, but how much money you keep. And how you deploy that money to cover, often complex, medium to long-term financial contingencies.

Custom designed financial plans, incorporating the hopes and dreams of a husband, wife and three growing children? A sophisticated tax minimization strategy, involving several significant – and tax-saving – insurance nuances? Refinancing a mortgage? Structuring a small business? A long-range estate plan with an intergenerational wealth transfer underpinning?

All of the above and more require and presuppose an intimate and informed working relationship between advisor and advised. And what about that all important steadying hand when the markets collapse? Will you be able to get out fast enough?

We’re not knocking progress. But logic has its limits. In the hard-knocks, bruising, high stakes, quick-on-the-draw world of total wealth management, it’s reassuring to know there’s a couple of trained sheriffs and a few deputies around to help shield you from the heat. We hope you agree.

Daryl Cooper, Portfolio Manager, Scotia Wealth Management, 306-343-3255.
Colleen Schneider, Wealth Advisor, Scotia Wealth Management, 306-664-1860.