Personal Statement On Finance Of Portfolio Management

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When I ask this question, most don’t have anything to say except, “my advisor handles that.” Of course my next question is, “so, what is your advisor’s sell discipline?” Once I explain the importance of having not only a buy discipline but also a sell discipline, they become intrigued. I will attempt to explain that for you here. Most financial advisers are not portfolio managers. They will tell you this on the front end. They often describe their role as a “portfolio manager of portfolio managers.” They “hire” portfolio managers on your behalf by purchasing mutual funds. They explain with eloquence Modern Portfolio Theory (MPT), and the benefit of diversification and rebalancing. THIS IS NOT ACTIVE MANAGEMENT. Most followers of MPT tell you that rebalancing is the appropriate sell discipline. This really means, winning stocks are sold to buy losing stocks. Most often it is explained that a sell discipline is a horrible strategy and buying and holding is superior. They may give you what I call Falsified Facts, such as “if you miss the 10 best days of the stock market over 30 years you would actually have negative returns.” This is true, however, it is a one sided argument, and your next question should be, “what if I miss the 10 worst days?” One study shows missing the 10 worst days more than triples a buy and hold strategy, however both arguments are flawed and misleading. When you are young with many years of expected work ahead of you, buying a portfolio
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