I got into the investment business to learn for myself how to be smart with money. Looking back, my grandparents had done very well in the stock market, but my parents struggled as investors. What went wrong? What went right?
After a number of years of teaching and research in the history of political thought, I took the plunge into the world of professional investing, out of curiosity and self-interest. I joined a major Wall Street firm. It was the middle of the late 1990s tech boom. I had some success myself catching the wave, but there was no way I could kid myself into thinking that my success was anything but good luck. And what an eye opener it was to see how the investment business worked at a big Wall Street firm. I was amazed at the recklessness of investment professionals with other people's money, at their willingness to drive people into investments having given shockingly little thought to what good investing might be. It wasn't even a question. It didn't matter what you recommended just so long as you brought in clients and directed at least some of their money to the investment products that were at that moment the firm's priorities.
I arranged a pretty quick departure. My next stop was a small, independent, very successful estate planning firm in Naples, Florida, which specialized in advanced wealth transfer strategies utilizing life insurance. The partners hired me to build the investment side of their business. They had taken a couple of runs at this, but without great success. When I arrived, they had a relationship in place with a company whose expertise was finding the best money managers for various asset classes and constructing broadly diversified, multi-manager portfolios. This company continually monitored these managers, and hired and fired them as its opinions about them changed. This was a real step-up in seriousness from the world of my Wall Street firm. And one important element of good investing was part of these managed portfolios: genuinely broad diversification.
The company was scrupulous in showing how its portfolios performed versus the relevant benchmark indexes. But here was one big problem: its portfolios consistently had worse performance than their benchmark indexes. This meant I could construct comparable and better performing portfolios using low-cost Vanguard index funds. There really seemed to be no need to seek out money managers to pick stocks and time the market, the hallmarks of active management. Whatever skill these managers might have had was outweighed by the costs of what they did.
So now I had in front of me the whole story, really, the two important elements of good investing: genuinely broad diversification and passive management.
In the back of my mind was an article I had read a year or two earlier in the University of Chicago Graduate School of Business magazine about an investment company, Dimensional Fund Advisors, started in the early 1980s by two graduates of the business school. It was a unique company, taking as its first principle that markets work, setting prices fairly for all practical purposes. The company's roots, I learned from the article, were in lessons learned about market efficiency in finance courses taught by Chicago's Gene Fama, one of the pathbreaking financial economists of our time.
It was chance that I had come across the article. My father was an early 1950s graduate of the business school and had recently passed away, and I was receiving his copies of the magazine. With my interest in passive investing piqued, I contacted Dimensional – today as then low-key and under-the-radar – and started a several month process of establishing a relationship with them. And, beginning in late 2001, I took the investment side of my estate planning firm in a new direction, recommending broadly diversified asset class portfolios built with Dimensional funds.
In 2003, I set out on my own here in Hanover. On the personal side, my wife and I had come to realize that our ideal place for raising a family was much closer to Hanover than to Naples. And on the business side, there were some inherent conflicts of interest at my estate planning firm because it was a hybrid, with commissioned sales of life insurance on one side of the business and fee-only investment advice on my side of it. The short of it: I wanted to be working unambiguously in the best interests of my clients as a fiduciary, the legal standard for fee-only registered investment advisors. And so I set out on my own in 2003, and have continued ever since to recommend broadly diversified asset class portfolios built with Dimensional funds. With great resources behind me, I am able to provide from my spot here in Hanover global investment solutions that I think are simply without rival.