Have you ever been frustrated by the seemingly endless supply of cookie cutter financial consultants that work for the biggest investment firms on Wall Street? Ever wonder how to really know if Jane, who was assigned to be your new financial consultant, is any better than Peter, your ex-financial consultant that just left your firm? I’ll give you three easy tips to find out how.
Ask your financial consultant what are his or her: (1) Favorite global markets;(2) Favorite market sectors; and (3) Favorite stocks.
Global Markets
Let me tell you why it is imperative that your financial consultant can answer the above three questions . Global markets vary quite considerably. One year when the American S&P 500 is down 20%, the Japanese Nikkei 225 index may be up 40% and the Australian ASX 200 may be up 15%. So while the majority of clients at a firm may have lost money in their stock portfolio because their financial consultants all had them invested primarily in the U.S., a financial consultant with a global perspective can actually earn you positive returns.
Specific Market Sectors
Specific sectors exist at different points in the economic cycle that are poised for huge upswings. Over the past couple of years it was oil (almost any oil company in any country, but specifically Russian oil companies) and metals, specifically gold and silver. What is looming on the horizon as the next huge thing that is bound to make many smart investors millionaires over the next five to ten years is nanotechnology and renewable clean energy. Diversification has always been the lazy financial consultant’s method of investing your money. Let’s put some of your money in pharmaceuticals, transportation, utilities, oil, biotechs, manufacturing, telecommunications, and agriculture because at least some of those industries are bound to do well, right? Wrong. Ever wonder why you never earn more than 6%-15% returns a year. Dumb diversification is your answer. There is a smart way to diversify and a dumb way to diversify. Most financial consultants employed by huge investment firms overwhelmingly use the dumb method of diversification. I call it not only dumb, but also lazy. The smart financial consultant will buy you the best stocks within the top growth sectors, not buy you many different stocks across eight different sectors. The financial consultant that employs the dumb diversification strategy only does so because he or she is too lazy to research and discover what will be the top performing industries.
Specific Stocks
When you ask your financial consultants what specific stocks he or she likes, this is the last part of the drilling down procedure. If he or she can identify the largest growth industries within the largest growth regions of the world, but buys you the five worst stocks in each of those industries, then it makes everything irrelevant. The best financial consultants in the world understand how politics, corporate management, industry growth cycles, elasticity of demand, and product potential all factor into identifying the best potential stock prospects for you. And they’ll be able to explain with clarity the best stock opportunities in the world. This is why every financial consultant should be able to explain his or her favorite stock picks to you.
In summary, every good financial consultant should be able to answer the above three questions without hesitation, even if they employ outside money managers to invest your money. Why? Because even if your financial consultant is hiring someone else to manage your money, the best money managers can only be identified by asking the same above questions, not just by looking at numbers, statistics, standard deviations, and performance. This means that in order for your financial consultant to identify the best money managers, he or she must necessarily discuss the above three questions with them. If he or she did, then he or she will also be able to answer the above questions for you. The only way your financial consultant will not be able to answer the above questions is if her or she is selecting money managers strictly based on statistics only. And as you now know, statistics is not going to maximize the returns of your stock portfolio. But knowledge will.
© 2006 Global Market Opportunities
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