I've seen the enemy, and it's... Well, it's you.
We lost a client this week. It's for the best, I suppose. They just don't "get it". I thought they did... Five years ago. Don't get me wrong, they are great folks, but we just couldn't connect I guess. It's a hard thing when despite my best efforts sometimes I just can't help people. I feel like I failed them somehow. With some folks I simply lack the words, the graphs and charts, the metaphors -- the angle -- to lift them up and over the ridge of information to the peak of insight. Information is so accessible, so immediate -- so compelling. It can entangle you to the point of paralysis and/or hopelessness.

In our box of 'Snapshots' (No. 11), we declare "Information is easy to get. Insight is not." And information without insight inevitably leads to what Carl Richards, a kindred spirit of mine at Prasada Capital Management, calls "The Behavior Gap". That 'gap' is the difference between what the average mutual fund earns and what the average investor earns. In Carl's example, he explains that if you'd invested $10,000 in 1984 in an average fund, and did nothing -- neither adding money nor taking it out -- your account would have been worth $76,375 in 2004. That's an average annual return of 10.7%. However, the average investor actually experienced a real life return of only 3.7% during the same 20 year period with only $20,681 to show for it. That's over $55,000 left on the table!

Why? Investor behavior. Turns out investors are their own worst enemies. They tend to make decisions to move in and out of markets based on emotional reactions to current events rather than their long-term goals. They either try to outsmart the markets and wind up outsmarting themselves or get too greedy or fearful at the wrong time -- which is pretty much anytime -- rather than just evolving with their plan. Perhaps there was no 'plan'.

So, we lost a client this week. After five years of service somehow I failed to get them to see that while the world is certainly a different place in 2010 than it was just a few years ago, there is a 'prudent' approach to evolving ones' plan and portfolio without simply abandoning ship. You've made it through the storm. You battened down the hatches, ridden it out and are now assessing the damage and working out the details to continue on to your final destination.  If the post-storm waves are still tossing the ship off course, then do the hard work to make course adjustments and sail on with courage. At least you still have a ship -- a plan. If you simply bail out and float in open waters awaiting a 'better' ship, I submit you have increased, not decreased your risk.