I’m not saying investors (except for the bears) ought to have prospered last year, but those who owned collars, or who otherwise hedged their positions did much better. Losing 20% was significantly better than the averages.

Most investors – such as Buffett – are long. People buy things – stocks etc. They are long. Investors ought to know that it’s okay to hedge (reduce the risk of owning) that stuff. We insure our homes and cars, why not our stocks?

That’s the only point I’m trying to make. Not claiming anyone should have been profitable last year. But they should have owned some protection.

I apologize for the ‘context’ error. Yes, you do state that in order to justify the cost, ‘better results’ ought to be anticipated. Thus, as you say, index funds do the job.

Regarding insurance. I’m referring to collars using options. When you own stocks or ETFs (especially those that match the performance of index funds), buy one put and sell one call for each 100 shares owned. Portfolio now insured against a disaster – but at a cost of limiting profits.

To me that’s a winning trade-off. But, for more bullish investors, not so much. That’s why options are not for everyone.

Even people who saw it coming like Peter Schiff seem to have lost money. There was a story in WSJ which spoke about how Schiff’s bets on the dollar decline cost him dearly even though he was right about most other things.

Buffet lost last year and so did the hedge funds, so I guess this is not as simple as being sophisticated enough to buy insurance. I am sure Buffet is sophisticated enough to understand that insurance, or we can get that gecko to give him a few lessons

So, to me it is not just last year, but how has the adviser done in the last five or ten years. and are you happy with him over the long run.

Thanks to your responses Mark. I am not exactly sure how portfolio insurance works, never sold them never bought them never really cared for them. Unless you mean Segregated funds, it would be great if you could shed some light on it.

As for point two, I think I worded it incorrectly I am actually in agreement with you. What I meant was that discretionary portfolio mangers should outperform the Index in order to justify the extra cost and most do not outperform therefore you are better off purchasing index funds.

I have two complains about the replies.

1) “there is no way an adviser could have predicted this mess (well hardly anyone did) so it’s not the adviser’s fault that the markets lost 40% last year, blaming them does not make any sense.”

Tru on the first part. But it is the advisor’s fault that his clients lost 40%. Portfolio insurance is there for the taking. It’s inexpensive and most clients would want it – if they only had an advisor sophisticated enough to offer that insurance.

2) “if you have a decent size portfolio and decide to go with a discretionary portfolio manager you should get a better result, than if you had just purchased some index funds and ETFs to justify the extra cost.”

This is really objectionable to me. First, if the financial advisor were able to outperform the market averages on a consistent basis, he/she would be earning a large salary somewhere else and not be available to be your financial helper.

Next granting discretionary power gains nothing. No investment must be made ‘right now’ and it’s okay to discuss each trade with the advisor. He/she shouldn’t be making that many trades for this to be a nuisance.

Mark