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Professor Portfolio Grades Himself
Candid Reflections of Past Insights
 By Ernie Ankrim, Chief Investment Strategist
Russell Investment Group
Global Leaders in Multi-Manager Investing
September 2, 2004
This article has been provided by our parent company, and any references to rates or returns are based in $US and specifically relate to US markets.
As all investors know, past performance is no guarantee of future returns. But that doesn't mean we can't learn something from taking a look at what has gone before — even Professor Portfolio. So just shy of publishing my 50th column, I decided to review my own past performance to find out how I've been doing at bringing my readers interesting, useful and unique information.
My criteria were simple and admittedly subjective: How successful was I in encouraging, reassuring and helping readers develop a habit of disciplined investing?
The Good, the Bad and the Ugly of Investment Advice
When I took a look at all of my columns, dating back to November 2000, I found that the articles generally fell into three categories:
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- Educational: These columns simply offered basic information about the benefits of disciplined investing, diversification and asset allocation.
- Direct Suggestions: These columns offered readers direct — if not always well-timed — investment suggestions.
- Obscure Suggestions: These columns typically offered investors not very clear suggestions about what they should do given existing market conditions.
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Re-reading these stories, I discovered that even well-meaning, objective opinions are just that — opinions. In every category, I found both a good column and just as frequently, a truly terrible one. If nothing else, I had already learned one valuable lesson: When it comes to reading the market, even Professor Portfolio has room for improvement.
Educational Columns: The Best and Worst
These columns generally covered topics that would help investors develop and stick to a disciplined investment strategy.
BEST: Succeeding As Investors In Spite Of Ourselves (April 25, 2003)
Unlike laboratory rats, human beings persist in seeing patterns in randomness, particularly when it comes to investing. This was a wonderfully humbling column for me because I am exactly the type of investor I was writing about — one who would underperform a rat. I've tried to keep that thought front and center whenever I try to get aggressive describing the markets or their prospects. Grade: A
WORST: The Bear Essentials (April 20, 2001)
A reasonably good outline of bear markets, this story lacked any actionable direction and in fact, might have encouraged investors to add to their equity portfolios at an inopportune time. Fortunately, the language was so general that I'm hoping this particular interpretation of the column was missed by most readers. Grade: D
Direct Suggestions: The Best
In addition to providing general investment information, I also want to bring to light interesting market observations that I think offer a particular opportunity or caution for investors. So at least one-third of my columns offered direct suggestions. This was one of my best articles in this regard:
BEST: The Worst May Be Over for Stocks (April 25, 2003)
This column described a series of factors I thought might offer an opportunity for substantial improvements in equity returns over the coming months. This turned out to be very timely suggestion. In the three-month period following this column, the Russell 3000® advanced about 12% — a hefty run-up in a relatively short period of time. Grade: A
Obscure Suggestions: The Best and Worst
I think readers can tell how displeased I am with these columns by how I've labeled this category. Reviewing these articles, it's not clear to me that the casual reader could figure out just what I was encouraging investors to do. So I'm rather harsh on myself for not being as direct and straightforward as I should have been. However, there were some good columns even in this batch:
BEST: How Big is This Bear? (August 19, 2002)
This column strongly articulated the notion that threats that appear scary almost never derail the fundamental underpinnings of an economy. This was an important message to relay, particularly at a time when the market was near a historical low. In fact, the market turned around about six weeks after this column appeared, and continued to rise. Grade: A
WORST: Picking the Right Investment (November 7, 2001)
Although a good appeal to discipline, this column encouraged investors to consider rebalancing or even adding to the equity portion of their portfolio. Hopefully, this column was oblique enough that no one actually followed my suggestion In retrospect, it's clear that I underestimated the impact of the September 11th tragedy on the market and its ripple effects through the economy, but even at the time, I should have been more measured in my suggestions. Grade: D
What I've learned
Perhaps the most valuable insight I've gained from writing this particular column is realizing that there is always the possibility of looking really stupid before I look really smart, or looking really stupid after I look really smart. It is almost never the case that any market pundit is lucky enough to have the investment strategy that he or she has described begin to pay off on the day it's published.
That means, to a great extent, that my readers and I are in this together. We both need to take a long-term view of the market because only the market can judge how successful we are. I'll happily take on the risk of looking dumb if it means I can bring investors useful, unique or just plan interesting information to help them develop a disciplined investment process.
Copyright© Frank Russell Company 2004. All rights reserved. See Important Legal Information. First used: 9/2/04.
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