— Frank K. Martin (Link)
Moreover, most investors find it difficult to remain patient and circumspect as the gravy train to apparent riches pulls out from the station. The loneliness of watching the caboose get smaller as it fades into the distance is more than most can handle. Benjamin Graham quantified those who can stand such isolation at 1 out of 100.
The human aversion to pain and desire to join others aboard the train affects clients and investment firms alike. Managers, however, are assumed to be more aware of systemic risks than their clients, or else there would be no reason to employ them. Investment institutions are often risking their own economic survival if they try to optimize their clients’ portfolios for adversity and get off the train before their peers.
The optimal scenario would constitute institutions that are unconditionally client-centric and clients who understand and appreciate that value proposition. In a battle between human nature and nirvana, the state of the world would suggest that the former will invariably dominate. Consequently, many firms fail to properly prepare clients and their portfolios are left to suffer the vicissitudes of the market.”