In May of 2007, before the financial crisis began, I wrote a post called Newbies.   I’d like you to read it (or re-read it).

When this market finally takes a turn for the worst, where will your money be? Most likely it will be with a “Newbie.” I know most money managers will tell you that this bull run has a long way to go. But just consider the possibility that they are wrong. The last time we had a bearish direction in equities, there were far fewer hedge funds and they were managing a lot less money. The same can be said for mutual funds, money managers and stock brokers. Just think about the funds that are funneling into emerging market stocks and you have to realize when the last bear market was in play, US investors had very little in foreign markets. I hate to leave out all those ETFs that have come on board in the past few years. How about you gold bugs and commodity players? And as for bond funds, it’s been a beautiful 25-year bullish move. We have had simultaneous bull runs in almost every asset class for years. In this expansion, money is flowing in and performance is key. But what about risk? I think it’s time that you ask the people managing your money what they were doing the last time it was really tough to make money and even tougher to avoid losing it. What experience do they have with adversity? If you get on the train that has gone straight and fast for long periods of time, don’t you think it’s important to ask whether the driver has any experience with curves and hills? For that matter, do they know where the brake is and how to apply it. There are a lot of experienced people managing investments and if you are lucky enough to be with the few whose experience includes getting beaten up before, you will be better off. If you are with the “Newbies”, you may turn out okay and you may not.

Do you think anyone listened to me back then?

It doesn’t really matter.   But what does matter is whether you will listen now.  You have another chance.   Look back on the performance of you or your financial advisor in several time frames.

What did you or your advisor do to earn your returns from March 2003 until July 2007?   Were they lucky or good?   Did you see any signs of risk management during that bullish period?

What did you or your advisor do to avoid losing money from July 2007 to March 2009?  Was there a proactive plan or were there constant reactions to the next bunch of bad news?   How was your portfolio adjusted to manage the risks?

What did you or your advisor do to earn your returns from March 2009 until now?   Have you seen any risk management?

In May 2007 I warned you about the dangers of money managers who had never experienced a big bad bear market.   Now I am warning you about the new Newbies and an even more dangerous bunch….the negligent financial advisors, the people who are proud to tell me that they were long term investors and held on during the 2007-2009 decline and have been proven right as their portfolios have rebounded or recovered all their losses.   They did nothing on the way up (2003-2007), they did nothing on the way down (2007-2009) and they have done nothing on the way up again (March 2009 until now).

Take a hard look at your portfolio and your portfolio manager and yourself.   If you have a portfolio that went up or avoided significant loss that’s great.    However, make sure you can objectively say that there were strategies and actions that achieved those results, not blind luck.   We all have another chance to do better the next time around.