Joyce-

We have great respect for advisors who have the very valuable and difficult job of dealing with client emotions. The truly active funds that are capable of generating superior returns stir up strong emotions. So the choice becomes being emotionally comfortable in the short-run versus generating long horizon wealth. This is a tough choice for most and in the vast majority of cases the decision is more comfort and less wealth. Obviously each investor is free to make the decision that is right for them.

But the low emotion solution should not be imposed on active equity managers. This is what the industry does by imposing emotion reducing constraints which result in poor performance. Then they claim that funds have no stock picking skill. Better to let funds be truly active, thus providing superior returns, while managing emotions at the overall client portfolio level.

This means not focusing on short-term individual fund and stock performance. This is the challenge advisors face with their clients. They naturally gravitate to the lowest level and cannot imagine how their portfolio can do well holding a stock that has dropped by more than 50%. But indeed this is the nature of high performing portfolios.

So active management is alive and well save for the emotional demands of the industry and investors.

Thanks for your thoughtful comments and I hope you can convince your clients to get past their emotions and build long-term wealth. As you know, this can mean 100s of thousands if not millions of dollars of additional wealth.

Be wealthy and do good!

Tom