This may sound like a bit of a rant. But it isn’t: it’s very good advice.

When I speak to non-professional investors about the issues they usually face I often say that the current state of affairs is in part the result of their own demands. I’m considering amending this part of my standard speech, because in my experience too many investors behave egregiously and light-heartedly with their money.

This is not an issue to take lightly nor to joke about. The reality I face on a daily basis leaves me no choice in reaching this conclusion: in the natural clash between investors’ needs and the demands of a healthy and competitive industry (the advisors’), it is imperative that investors do much more homework, stop asking for the impossible and, basically, grow up. If they don’t do these things, they will pay with the destruction of a sizeable portion of their wealth over time.

In choosing what to do with our money, and with whom, we rely on many rationales. Very few of these are construed properly, leading investors to define their investment programs by employing a mix of sentimental values (memories and stories), misplaced trust (friends and family), and their unrealistic understanding of how markets work (‘I’d like to get 6%’).

It’s not like there is a lack of information or of educational material out there. If you bother to look even briefly at the data the question of ‘active vs passive,’ for example, has stopped being a question about 25 years ago. More recently, the AT1 diatribes after the Credit Suisse debacle all relate to the simple truth that people made bets and lost. What is needed is a serious effort to focus on the realities in play and to pay attention to the risks investors choose to take.

In business I practice what I preach, often in a relatively unbending manner. This poses a problem. If I refuse to ‘bend,’ a euphemism for heeding commercial considerations, I risk losing the client or prospect to more aggressively trained competitors who end up doing more harm than good to the investor (never underestimate the power of large presentation booklets, a swanky approach to product selling and branding). The latter will never even know this is the case, a further indication that a little learning could go a long way to saving your patrimony.

As a final note I should mention that the importance of growing up for investors is relatively uncorrelated to the size of the overall portfolio. Clearly, the larger the total patrimony the easier it is to access resources or to give the investor time and freedom to ascertain all aspects of the task (if he/she bothers to). But size is not a guarantee for success: I’ve worked with ‘tiny’ portfolios or with ‘huge’ ones and I can assure you that, re-adapting prof. Cipolla’s tenet (his was on ‘idiots’), silly decisions are uniformly distributed across wealth brackets.

Please, dear investor, do your homework.

Roberto Plaja

Cover: 'States of Mind III: Those Who Stay,' Umberto Boccioni, boccioni those left behind - Bing images.