Happy being part of the crowd!

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Are you an A or a B (when it comes to investment)

Robin Powell – the evidence based investor – has produced a very simple explanation of why the valuations of stocks are 90% right. You can read it here. It’s based on the ask the audience responses to who want to be a millionaire where – following the wisdom of the crowd gives you a 90% chance of being right. I dare say there are better ways of arguing for investing in passive funds but there are few that are as easily understandable.

I also came accross an advert for some thought leadership from Schroders this morning which looked like this

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Not being a UK investment Professional, I pressed the link to the article with a degree of trepidation.

What the article told me, and told me very well- is that valuations of stocks can be wrong and that Schroders currently think that growth stocks are over-valued and value stocks are under-valued.

So if you think that you can control how your money is managed – you should be investing in the author’s fund – Kevin Murphys Schroder Equity Value Fund.

I work directly opposite Schroder and may have watch Kevin work out in its fine qym or pig-out in its fine staff restaurant. He is paid a lot of money because when 90% of people believe something that is wrong, he is able to put his hand up and say – “no it’s not like that at all – you should be investing in my value fund”.

But of course he can only say this to UK investment professionals because if he said that to the likes of you and me we might end up taking his advice and getting him and Schroders into a great deal of trouble.


I hope that in lifting the lid on Kevin’s article I have not started a landslide of money into value stocks and out of growth stocks. I take comfort that this is extremely unlikely.

That’s because 90% of people not only go with the flow and invest in defaults – but in doing so invest accross the market in both value and growth stocks – and a lot else besides. They trust the market valuations as 90% right and aren’t prepared to entrust their money to individual strategies like Kevin’s.

Here is another statistic.

agewage advice

The statistic is from the FCA – actually it should be 94% of people aren’t paying for advice as a lot of people take advice but don’t pay for it (but we used the FCA’s words).

Now I’m prepared to accept that the 6% of people who pay for advice , get value for their money and end up listening to UK investment professional persuaded by arguments from Kevin Murphy and end up investing in funds that beat the market.

That seems the deal we sign up to with wealth management and I’ve no problem with people paying wealth managers to find funds that fall into the category of the 10% of ideas that are right when everyone is looking the other way.


Well done the wealthy but…

What I find hard is convincing myself that everyone should be taking advice – or at least guidance that points them to advice.

Part of the reason for this is that most financial advisers tell me they can only manage around 100 clients at any one time, that means that with a working population of 40m – we’d need around 400,000 advisers – which about 380,000 more than we have today.

A second reason is that if you took that many people out of the working population, Britain’s GDP would reduce making the investments we make less valuable

And a third reason is that if everyone went chasing after the 10% opportunity, that 10% opportunity would soon be exhausted and we’d spoil things for the wealthy who are currently enjoying the exclusivity of being contrarian – paying for advice and going into funds that do the opposite of what everyone else is thinking.

But the best reason is that I really am quite happy having my money managed in my L&G workplace pension according to what they see as best for people like me!

I hate to say it but for 90 – 94% o us

We’re happy just the way we are!

The really good news for rich people is that poor people are showing absolutely no inclination to become contrarian investors and buy into funds like Mr Murphy.

They are quite happy not to read his article because they are not UK Investment Professionals. They are quite happy having their money invested in default funds by people who they hope know a little more about money than they do.

I know – I’m one of them. I’m one of the B’s.

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And I don’t feel bad about it at all.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, pensions and tagged , , , , . Bookmark the permalink.

2 Responses to Happy being part of the crowd!

  1. John S Mather says:

    “94% don’t pay for advice”. If only the pundits tried to help the 94% instead the number of column inches devoted to criticising the IFA community. The volume of negative articles are out of all proportion to the market they claim to serve.

    What is the motivation? Well some journalist have vested interest as they have radio shows and a career made from the winging Pom mentality.

    Those that do have advice have the backing of the FCA and FOS to right any wrong.

    Who compensated the DB member in a failed scheme, of which there are many?

  2. Robert Davies says:

    Surely 100% of securities are correctly valued?

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