Thursday, November 19, 2015

Why this isn't investment advice (and a site update)

As this site will become a subscription site in the near future (more details below), I was in the process of developing a standard legal disclaimer of why the content is not investment advice. Instead of just hiding behind standard legalese, I thought that I would write about the real issues that go beyond the regular regulatory framework.

Ben Carlson had a terrific post about the experience that David Rosenberg had when he transitioned from the Chief US Economist at Merrill Lynch to being a strategist at Gluskin Sheff:
When you’re the Chief Economist at Merrill Lynch you think you’re the starting pitcher for the New York Yankees. You have it all figured out. I realized when I got to Gluskin Sheff how much I didn’t know.
Then came the shock:
The whole life of a portfolio manager, their brain, is one giant distribution curve of outcomes. I’ve learned more in the past six years at Gluskin Sheff on the buy side, as a strategist and economist, than the previous twenty-two combined [in various sell side roles]. Because I figured out how to produce a forecast that’s meaningful for somebody who manages money for a living.

Different kinds of advice
What a seasoned professional like David Rosenberg didn't realize was that the process of managing a portfolio involves several levels of decisions:
  1. What do you buy and sell?
  2. How much do you buy and sell?
  3. Timing the trade
The vast majority of the discussion on the internet and in investment research revolves around (1) of whether something represents a good investment or trading opportunity. That was the universe where Rosenberg spent most of his life before Gluskin Sheff.

Less discussed are the questions of investment suitability and portfolio risk. In general, most investors encounter three kinds of advice, depending on how much the advisor knows about the client:
  • Unlicensed, but sometimes well-informed, advice: An example might be an wine expert stating, "XYZ Pinot Grigio has a nice fruity taste" without knowing whether you like wines, like fruity wines, much like whether a talking head on TV giving an opinion knows anything about an investment is suitable for you, because he knows nothing about you.
  • Suitable advice: Stock brokers are held to a suitability standard, which means that he knows enough about you to say that an investment is deemed to "suitable" for you. Under the suitability standard, the client has final say on how much to buy and sell. It also means that, in theory, that if a $1 lottery ticket is suitable for a millionaire, then the broker is free to try to sell the millionaire a million $1 lottery tickets under this standard. 
  • Fiduciary advice: A fiduciary is in a position of "trust", which is a term that has legal implications. In general, you give a fiduciary, or portfolio manager, discretion on all three of the aforementioned steps. A portfolio manager therefore has to know a lot more about you in order to decide on how much to buy and sell and to build a portfolio with the appropriate expected risk and return characteristics.
In my case, I know nothing about my readers and I am not licensed in any jurisdiction. Hence the disclaimer "this is not investment advice" is appropriate.

A website update
I wrote before that I am in the process of turning Humble Student of the Markets into a subscription based website (see Humble Student lives!). I can now update my readers on the development progress of the new site. We are in the process of putting the final touches on the new website. While all the operational details will be accurate, I apologize in advance if there is any slippage in dates mentioned.

The new site will be located at We are scheduled to go live in about a week and the readers will be able to subscribe on December 1st. All of the posts on the current (old) site will remain as an archive. There will also be a transition period of several months where the old site will summarize and link to fresh content on the new site.

I have tried to keep the pricing on the low end of the range for similar sites, where prices start at about USD 200 per year and go up from there. Subscription rates will be:
  • Free: For any content older than two weeks. If you are not ready to subscribe, you can still sign up for email notifications of free posts as they become available.
  • Annual:  USD 199.99 per year. Anyone interested can still email me at cam at humblestudentofthemarkets dot com for a discounted early bird offer (If you have already responded before, there is no need to do so again).
  • Monthly: USD 19.99 per month, for anyone who is unsure about committing to an annual subscription.
  • Day pass for 24 hour access: USD 4.99 for anyone read the summary and wants to see more.
Media, press professionals and blog aggregators with email domains confirming their affiliations are invited to apply for free subscription access (cam at humblestudentofthemarkets dot com).

Building a community
When I first began writing Humble Student of the Markets, it was just an avenue for me to get my thoughts out. However, with the previous discussion about the appropriateness of investment opinion and advice above, I have concluded that the greatest value that I can offer isn't just me talking out loud to my readers, but to engage them in a conversation and to build a community.

I hope that the new Humble Student of the Markets moves beyond a simple subscription site to a moderated community of investors sharing ideas. I have therefore decided to open the site to subscribers as of December 1, 2015 and stop accepting new members on January 15, 2016 to better control the growth of this community (day passes will still be available). I will take a couple of months to assess how the new members are interacting before opening up the site to new members again.

Here is a sample of the front page of the new website:

I hope that you can join us.

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