Thursday, June 16, 2011

Past Performance does not guarantee Future Performance

If you've been reading this blog, you will recall that I've been taking a hard look at my mutual fund portfolio -- wrangling with hard questions and looking at sobering results.

To cover their ass, financial advisors are always quick to say of mutual funds that "past performance does not guarantee future performance".
And indeed, with mutual funds, you can see a good track record in some years, only to dip later on (or vice versa). There can be various reasons for this, such as changing management styles or a change in the fund manager. Good ones are sometimes headhunted, leaving the fund in the care of someone else who may be less skilled.

But "past performance does not guarantee future performance" also applies to a lot of other things. Self-help guru Tony Robbins encourages us to remember that the past does not equal the future. Whether you've failed the last time or for the last ten years -- it doesn't have to continue. And it doesn't mean you will always fail.

This week, I finalized the painful decision to switch to another financial advisor. He'd done quite well for my parents and at ScotiaMcLeod, he can hold more investment products than just mutual funds (not that I absolutely need to hold stocks directly, but I want to keep the option open).

The cost to liquidate my non-RRSP holdings will be over $1800 in early-redemption penalties plus $8000 in capital gains which may translate to over $1000 in taxes. My existing financial advisor is hovering that over my head -- "I'll have to make that up" if I switch.
When I first had to move my portfolio to my current advisor, it had a mix of funds from the previous advisor. I was asked to liquidate those to "cut losses" and go into better funds. Now that I'm liquidating the funds I have to buy better funds, I'm advised to hold on to the underperforming portfolio. Hmm...

In the past, I'd made some less-than-stellar investments under different advice.
  • My previous financial advisor sold me a cranberry farm limited partnership with Opus Cranberries (quite recently liquidated since the land was bought out from under them) which ultimately didn't perform according to projections. Business never goes exactly according to plan, so the real question there was whether I was a suitable investor for the type of investment.
  • I let myself be talked into a recreational property quarter share at Delta Residences as an investment (which you should never do, because the money is really in savings as a recreational property you intend to use). Recreational property doesn't move on the market like regular property, so I'm basically forced to wait for Sun Peaks to develop and the investment to finally see a good return.
  • At the height of the carbon sink craze, I also sank money into a reforestation company, Treebanking LLC. That's basically gone forever. The irony here is that at some point the principals offered my money back when they had to change their business model to adapt to the changing world. I declined based on their confidence and because the business was still doing good for the environment. Now they're in Indonesia with GreenlineCare and I've lost contact with them.

After all that, it's not surprising that my advisor is pointing to my current decision to move as yet another mistake. It would be a more credible threat if my portfolio had given a good return over the ~10 years, but it hasn't.

The second quarter statements are almost here, not being mid-June.
I'll have to keep them very carefully, and monitor my new manager very carefully too.
Right now it feels like going anywhere else can make me better returns. Hopefully I've picked a competent advisor. Not necessarily more competent than my current one, but not restricted in what funds and products he can put me in -- That, I think, was the main problem.

I wish I could have more of a sense of certainty -- of "knowing" -- rather than just "believing".

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