Won’t Get Fooled Again

June 18, 2020 12:24:41 PM

We have all heard the saying: “Fool me once, shame on you…fool me twice, shame on me,” as one should learn from one's mistakes and avoid being tricked in the same way again.

Reference the lyrics from the great song from The Who…

“We'll be fighting in the streets With our children at our feet And the morals That they worship will be gone

Yeah, I'll tip my hat To the new constitution Take a bow for the new revolution Smile and grin and change all around

I pick up my guitar and play Just like yesterday Then I'll get on my knees and pray We don't get fooled again, oh no”

  • How does this relate to investing…we have been told ever since the writing of the Book “The Random Walk Down Wall Street” in 1973 that active management provides no value
  • It then moved to the creation of Vanguard and John Bogle and the advent of Index-based Mutual Funds in 1976
  • Then the awarding of the Nobel Prize in Economics to Harry Markowitz, William Sharpe and Merton Miller in 1990
  • Then the invention of ticker SPY by State Street in 1993, the first ETF based on the S&P 500
  • The Financial Press has jumped on the bandwagon, and the Trifecta of Institutions (Academia/Fund Companies/Financial Press) has slowly beaten the drum of disdain against active fund managers for nearly the past 50 years

Our belief at Nepsis is that Fund/ETF investing can be fine for those just starting out, but for investors in the peak of their working careers, those nearing retirement or those in retirement, this is not the most optimal way to invest. Here are the reasons why:

  • With Mutual Funds, you don’t know the underlying holdings until after each quarter end…No transparency
  • With ETFs, you know the holdings, but you don’t know how that Index is constructed…No transparency
  • You have no Flexibility with either as you cannot direct the Fund company to own certain companies
  • With Separately Managed Accounts, you have both, and it is undeniable as to the advantages of SMAs vs. Funds/ETFs

If there is one thing the COVID-19 Crisis has shown us, it is that clear, rational thought and a sound investment philosophy and strategy are Paramount and the only things that can get you through this tragic event without having to rely on emotional decision-making…People see their investments in the midst of a storm because they have very little idea as to what companies they own. This lack of understanding leads to unfettered ambiguity and ultimately, fear.

We have seen the $380 Billion of Assets leaving ETFs/Funds and going to Cash over the last 13 weeks, and this simply proves our thesis, as we have grown our book over the last three months, because we were able to make rational, logical changes in the midst of the worst of the Crisis and do it with sound decision-making.

In closing…There is a line in the Song that is very catchy, but if we could, we would change the lyrics to be in-line with our thought process…It is

“Meet the New Boss, same as the Old Boss”…we would change it to “Meet the New Boss, not the Same as the Old Boss.”

The Old Boss of opaque and rigid ETFs and Index Funds are giving way to the new Boss in the Transparent and Flexible world of actively managed Separate Accounts.

The world is a-changing, and it took a crisis for investors to wake up and take a look at the new sheriff in town, who is here to stay for quite a while!!!

Chuck Etzweiler

Chuck Etzweiler

MBA, CIMA®, CFP®, CMT, Chief Research Officer & Senior Vice President

With more than three decades of investment industry experience, Chuck directs the on-going research efforts of the firm, much of which help both advisors and clients understand the philosophy and strategy of Nepsis, Inc. in a deeper manner. A high percentage of the focus of the research is centered around money manager pitfalls, investor short-comings and repetitive behavioral biases that detract clients from earning optimal returns.

Prior to joining Nepsis, Chuck worked as Chief Market Strategist for True North Global Research and as an Investment Analyst with both Wells Fargo and the Bank of Hawaii. Additionally, Chuck has earned the CIMA® designation and is a Chartered Market Technician. Chuck is a graduate of Syracuse University and also has earned his MBA in Finance from the Crummer School of Management in Winter Park, FL.

Chuck is an active member of the Market Technician’s Association and the Investments & Wealth Institute.

Chuck was raised in Allentown, PA and now lives in San Diego, California with his wife and two adult sons.



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