John and Bill

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Mar 3, 2010 3:17 pm

John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm...

Mar 3, 2010 3:18 pm

Depends...did John start with $25.00 or $100,000?  If $25, then I vote for Buy and Hold.

Mar 3, 2010 3:29 pm

How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren't in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn't sell him CAIBX instead. 

Mar 3, 2010 3:36 pm

How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren't in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn't sell him CAIBX instead. 

 
 
Bill and his advisor were in cash getting 2% and that is included in account value. Your other questions completely miss the point.

Mar 3, 2010 3:42 pm

John's advisor collected about 10K in 12-b-1 fee's so he is the smarter broker by far.

Mar 3, 2010 3:48 pm

John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm...

 
 
Where are you getting your numbers from?  Something doesn't look right.

Mar 3, 2010 4:03 pm

John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm...

 
 
Ron...are you writing Series 7 questions in your free time!?!?!?

Mar 3, 2010 4:31 pm

How many phone calls did John make to his broker during that time frame?  Is John now on the list of future GKN candidates?   What did Bill and his advisor do with the money when they weren't in the market?   
My guess would be if you questioned John and Bill, Bill would speak more highly of his advisor and believe he did a better job during the up and down markets of the last decade.  Clients often confuse activity with success.  What he saw was that his advisor correctly identified and kept him safe from the 2000-2002 downturn.  They did it again in 2007.  Bill is probably wondering right how, however, why he missed the big rally last year and wishing his advisor would have seen that coming as well. 
John is wondering why his EDJ FA didn't sell him CAIBX instead. 

   
 
Bill and his advisor were in cash getting 2% and that is included in account value. Your other questions completely miss the point.


I realize that you were wanting to discuss the differences between buy and hold and market timing.  I don't believe it's that simple.  Thus the other questions.
My guess would be that you run that specific scenario on may funds out there today and the numbers would be similar.  Market timing, if done with absolute accuracy, can be a great thing.  It's that absolute accuracy that troubles most of us.  What would the difference have been if Bill's advisor had invested back into the fund in March of 2009? 

Mar 3, 2010 4:38 pm

I'm sure we can find a 10 year time frame when Market Timing wins by a long shot.

Mar 3, 2010 4:47 pm

Are your numbers even right?  Something seems wrong with the timing piece.

Mar 3, 2010 5:05 pm

This biggest problem with the scenario... you guessed it, both advisors used MUTUAL FUNDS!

Mar 3, 2010 5:18 pm

The numbers are right. They look like they should be wrong and that is what caught my eye. It seems like if any 10yr period would point to the benefits of market timing it would be the last 10. The investment used is an average asset allocation fund and if the advisor sold near the top in 2000, bought near the bottom in 2002, sold near the top in 2007, but missed the bottom in 09. He would have timed correctly 3 out of 4 times and still provided little benefit to client.

Mar 3, 2010 5:19 pm

The numbers look to be close to accurate......give or take a few thousand, which could change based on what exact date in February the buys or sells were made.......Plus, the JP Morgan funds website will only go until 1/31/2010......instead of through February.....
The fund in question is a fund of funds........which only lost 20% in 2008, and gained 22% in 2009........which was less volatile than most individual funds......so, the example is definitely skewed to show a good result.......
Using the JP Morgan Equity Index Fund, which tracks the S&P:
Buy 100K on 2/29/00......value on 1/31/10 is $88,500......
Earn 2% for 2 years on 100K.....call it $104K.....Buy $104K on 2/28/02.....grows to $138,302 on 2/28/07......add what you want for 3 years worth of cash (2% total?)......Call it $141,500......
Big Difference........whatever that means......
I think if one feels the market is overvalued, it would affect equity exposure more than fixed income exposure......I think......

Mar 3, 2010 5:49 pm

I actually came across this randomly by talking to a guy who will not move out of cash and was bragging to me about how his other advisor gets him in and out with accuracy. He actually had this exact investment, didn't tell his advisor and was pulling the strings by using our 1-800 number and not the rep of record before me. I couldn't believe the numbers were this close. Without earning 2% on the cash portion the buy and hold guy would actually have $600 more ! 2/28 are the entry and exit dates for each transaction.

Mar 3, 2010 5:58 pm

Why not click that back a couple of months to where the end date is Feb 2009?

Mar 3, 2010 6:04 pm

Ok. Account value in Feb 2009 is 102k.  That is exactly where the advisor earned his value! Coaching him to stay in and not move to a fixed annuity or gov bond fund or cash.

Mar 3, 2010 6:12 pm

"At this time the advisor tells Bill to move to cash because uncertainty is on the horizon."
Yep, even the best quantitative hedge fund managers foresaw that!

Mar 3, 2010 6:36 pm

Actually, it looks like both advisors showed their value from the clients' standpoint. 
From my standpoint, I can't understand an idiot trading in and out with a mutual fund.  Not to mention the fact that he watched the S&P lose half of it's value, and didn't think that it MIGHT be a good entry point?
His other advisor is a clown.

Mar 3, 2010 10:12 pm

John does a 100k rollover with his advisor in February of 2000. Advisor immediately puts him in JPMorgan Investor Balanced fund Class C. Advisor coaches John to stay in during the 2001, 2002 and 2008 decline. His account value is now $135,500.
 
Bill does a 401k rollover with his advisor in February of 2000. Advisor tells Bill the market is overvalued right now and they should sit in cash (2%) until a better entry point. Exactly 2 years later the Advisor tells Bill the worst has passed and we should get in. They purchase 100k of JPMorgan Investor Balanced fund Class C and ride the wave north until Feb of 2007. At this time the advisor tells Bill to move to cash because uncertainty is on the horizon. They do so and they remain in cash today. His account value is $139,598.
 
Buy and Hold vs In and Out ? Hmm...

 
 
First of all How is 2 years later a better entry point, even by meager Technical analysis, it says stay out til april of 2003.. Lets say you paid $10/share(around april 23rd ish..and you sell Dec [email protected] $12.74.. so not including dividends you are uto 127,400..(crappy fund but you picked it)...
Also not sure how buy and hold grew to 135K, when anytime in february you paid higher than $12/share and curren share price is $11.31????

Mar 3, 2010 10:14 pm

This biggest problem with the scenario... you guessed it, both advisors used MUTUAL FUNDS!

 
Another very good point... and a bad one at that..