Updated: Jan 8, 2021
"Which stock should I buy now?"
This is the most common question I had to answer to customers during my 15 years of experience as wealth manager. And to be honest, it's impossible for serious professional people to provide a direct answer to that request and for different reasons:
1. We don't have the crystal ball:
Investing is not betting, nor playing. If you chose one stock, the most important risk is to lose everything... Seriously are you ready for that? Never forget, portfolio investment it's all about strategy and diversification.
2. The holistic point of view:
As professional wealth manager our job is to have a clear view on the global situation of the investor.
I remember that one day a customer came in for an annual review of his portfolio. The time for him to compare the performance of his portfolio with his other wealth managers. That person asked a lot of questions about his portfolio and spent 10 minutes about a particular stock. The reason why I asked him the following questions:
"Dear Sir, isn’t it not to tactless to ask you how much you have invested in total considering you’re assets invested with your other financial institutions? And secondly, do you know how is your portfolio diversified in stocks, bonds, Europe, USA, Japan?"
We were talking about 700 K EUR in total and that client was talking since 10 minutes about a stock that represents ...0,3% of his entire portfolio! Trust me or not, that person was not able to tell me how his portfolio was diversified in total. How could he compare our performance with his other partners? And it is very clear that this person should reorganize his investment strategy, define the right asset allocation and if he wants to compare the performances maybe he should have the same asset allocation in his different banks.
Our job is to ask the best questions in order to know the general context, and then try to find the right solution with the customer.
3. The best advice comes from..the right question:
Do you remember the other tips of investment and among them different questions to ask?
What's your time horizon?
Which strategy do you want to implement ? (Asset Allocation)
What are your short term needs? (solution : cash or long term investment?)
What's the maxiumum lost you are ready to support?
Never forget to answer to that questions before you put your signature on an investsment subscription sheet. The most common reason why people are very angry about their financial institution is due to a fundamental error linked to their short term financial needs. Don’t invest on a long term investment if you have a short term need ! “La patience est mère de vertu et la prévoyance est mère de sureté" as we say it in French”. (don't forget to anticipate your needs and be patient when you invest for a long term)
4...but you can also make a bet:
This is a little bit provocative after the last recommendations I gave. But if your porfolio is well-diversified, that you have enough cash for your urgent needs..you can always invest a very tiny part in a stock you trust our following your convictions or the advices of a good friend or ....the shoeshine boy (investment tip 1). But never forget that on that particular investment you will maybe have a good return or you’ll lose everything.....
Thanks for your time.
Sébastien Van Passel
Twitter : @sebvanpassel