Oct 215 min read

How Is Your Financial Advisor Doing?

By Mike Adams

Most investors have little or no idea of how well their accounts are doing when compared to what they might be doing. In other words, they do not know if they are “leaving a lot of money on the table”. Their advisor may be telling them they are meeting their financial goals on their financial plan and that might be so. But has the financial plan been built to withstand Great Recessions like 2008-9 or inflation periods like 2021-2022? Probably not. What if the market hits even worse situations and that is very possible? In fact, are investors doing as well as they could be doing with different investment management?

Let me illustrate with this example. When bands and performers come to Seattle, they send ahead a document that spells out what they want to eat, drink, how the stage should be set up and a whole list of requirements. Sometimes they ask to paint the dressing rooms. One performer asked for a bucket of ice and a fifth of Jack Daniels. Stage managers from one venue will talk to the previous stage manager: “The contract says two cartons of cigarettes. Will they have some left or do we need to buy two cartons?”

Some contracts will be longer and some smaller. Van Halen was a leading band in music in the 1970s and 1980s. They were very flamboyant for their time. In that period of time most bands had a three or four page contract but Van Halen had a 53 page contract they sent ahead. They had a point by point layout of how they wanted the stage arranged and equipped. But they also included food. On even days they wanted roast beef, fried chicken, or lasagna with sides of brussels sprouts, broccoli, and spinach. On odd days they wanted steak or

Chinese with green beans, peas or carrots. Under no circumstance were they to be supplied paper or plastic plates. For munchies they required potato chips, nuts, pretzels, and M&Ms with this warning – ABSOLUTELY NO BROWN M&Ms. So why the hang up on brown M&Ms? Had they had a bad experience? Did they just want to make some poor caterer hand pick the candy?When their contract was leaked to the press reporters and critics assumed it was a classic case of rock star excess. Their demands were laid out in a 53 page contract that was almost like a small telephone book. Sometimes their dressing rooms were trashed when they left. What kind of demand was ABSOLUTELY NO BROWN M&Ms? Just a classic case of rock star excess was the explanation.That explanation was far from the truth. The Van Halen show was an extravaganza. They had a colossal stage set, booming audio, spectacular light effects. All required a great deal of space, structural support and electrical power. Many arenas where they played were outdated. The 53 pages laid out point by point instructions to ensure enough physical space, load bearing capacity and electrical power. Van Halen did not want anyone killed or injured in their performance. (It happens when stages are not set up correctly. Singer Olivia Rodrigo fell through a trap door on stage this last weekend.) When Van Halen arrived in a new city how could they be sure that the instructions were followed in detail to ensure no one was killed or injured? THE BROWN M&Ms! David Lee Roth the lead of Van Halen, as soon as he arrived, the first place he headed was the dressing room to see if there were brown M&Ms. If there were indeed brown M&Ms in the snacks Roth knew the contract had not been read in detail. That meant the band would have to do a serious line check and verify the physical space, the load bearing capacities and electrical power situation themselves. When the concert was done they would trash the dressing room so the next promotors would think they were rock star excessive and not realize the reason for the brown M&Ms. Van Halen did always ask if the stage crew had read the contract. But they did not completely trust the stage manager to be truthful. They wanted to verify that the contract had been read.It's not that complicated for most investors as they look at their accounts and hear from their advisors how well they have done. Most investors are not shown how they might have done considerably better with a different manager or a different lineup of investments.Most investors accept at face value their advisor is doing his best for them. That is probably true. But it does not mean the investor is getting the best advice or the best long-term management. In our opinion investors would do well to have the Van Halen brown M&M test. For investors that means comparing their investment results against the S&P 500 Total Return Index. There are literally over a million indexes. The S&P is in our opinion the most difficult. That truly tells the brown M&M story. It’s not that complicated for individual investors.

How much did you start with?
How much did you add or withdraw
What were the gains
What is the ending balance

Josh Brown who you may have seen on CNBC wrote a book: Backstage Wall Street. This is what he said:Most of the brokers [financial advisors] I know and have met over the years are phenomenal, world-class salespeople…But a great many of these security selling savants don’t attain the knowledge necessary to actually accomplish anything for their clients… Selling one’s expertise is much easier than actually developing an expertise, especially as it pertains to investing.” (pg 65). Van Halen had an extravagant performance and they had a system to ensure that their stage was set up correctly. Do you the investor have your own Brown M&M test? If not how can you be sure you are getting the best advice?

Past performance is no guarantee of future performance.

AFC uses the S&P 500 with dividends reinvested as the comparable index for all accounts.
AFC Managed Accounts returns include all active accounts as well as all closed accounts with the same objective: to beat the S&P 500 over the longer-term (10 years).
Adams Financial Concepts (AFC) Managed Accounts results are net of all fees and expenses. The results are net, net, net.
AFC Managed Accounts do not include the results of the Incentive Profit Sharing Accounts.
The performance presented is that of actual client accounts and includes all equity Growth Accounts with one quarter or more. These are not hypothetical, models or back tested.
Portfolios are concentrated in as few as 8 equities. Since William Sharpe received the Nobel Prize for showing there is no significant difference in volatility risk for portfolios of 8-9 stocks as compared to 300 stocks. In other words, AFC subscribes to the Mark Twain philosophy of putting all our eggs in one basket and watching the basket.
AFC Managed Accounts include capital gains and losses, both realized and unrealized, but do not include the impact of taxes on capital gains.
“I’m always fully invested. It’s a great feeling to be caught with your pants up.” – Peter Lynch AFC accounts are always fully invested.
AFC accepts that there will be times when there will be periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare us out of the market.
Eugene Fama shared the Nobel Prize in 2013 based on showing fewer than seven percent of professional money managers do as well as their index and fewer still beat the index. “Luck versus Skill in the Cross-Section of Mutual fund Returns”, Eugene Fama and Kenneth French, The Journal of Finance, October 2010.