Groundhog Wealth Management

By: Matt Garrott

Would you let a groundhog invest on your behalf?  That sounds silly, but at least Punxsutawney Phil has a track record.  When he saw his shadow, stocks rose 72% of the time.  Phil didn’t see his shadow this year.  Does that mean sell?  No.  Stocks rise 73% of the time whether the groundhog sees his shadow or not.

Punxsutawney Phil is very clear about his strategy, just buy stocks.  He doesn’t use language like “cautiously optimistic” to hedge his bets.  The varmint is all in.  Turning the investment desk over to a rodent doesn’t pass the smell test (in more than one way), however.

Most importantly, Phil isn’t a fiduciary.  There is no analysis of clients’ current situation nor any discussion of financial goals.  Secondly, Phil’s incentives are not aligned with his clients.  He gets vegetables just for climbing out of his den, with no regard for his results.  Despite this, Phil has failed upwards into fame and is celebrated across the country.  His annual guidance makes national headlines.

If this reminds you of guest commentators on financial entertainment television, you’re not wrong.  Once upon a time they may have earned their status with actionable insight.  Today, they are more often famous for being famous.  Others go the groundhog route and are on TV for the sheer novelty of their act.  Like the groundhog, if their message is consistent, they’ll eventually be right regardless of whether their process is robust or if they’re jumping at shadows.

You wouldn’t take financial advice from a groundhog.  Talking heads on television can be treated with similar regard.

Fairway Scorecard 1-31-2020