Why does the team at Standpoint believe advisors and investors want another investment product in an industry that already has over 8,000 mutual funds?
Blending multiple assets into a single strategy allows investors to experience the benefits of diversification without the psychological trauma of managing all the assets separately.
The experiment Eric is referring to is the blind taste test.
Eric Crittenden: Adopting an all-weather philosophy for a firm was a little bit of a humbling experience. It's how I personally like to invest and has been for a really long time. It's a little embarrassing to admit that I wasn't convinced, it never really occurred to me that maybe financial advisors and individual investors would like to invest this way. For some reason, in our industry, we always make the assumption that what they want from us is to specialize in one thing and deliver one ingredient and that they'll mix the portfolio up together how they see fit.
That works with stocks and bonds because stocks and bonds are expected. They get a free pass in the sense that if stocks do poorly, people still understand why they're in the portfolio. Likewise, if bonds do poorly, they understand why those are in the portfolio and they're willing to stick with it. However, when you deviate from stocks and bonds and you go into some other asset classes, something changes. Something changes in the psychology of investors and they feel like I would have been so much better off if I hadn't gone into these other asset classes, whether those are commodities or currencies or what have you.
Something else happens though, if you take the initiative and you blend the alternatives in with stocks and potentially bonds yourself and you deliver the actual diversification benefit. Not the opportunity for diversification benefit, not the individual ingredient, you do it yourself. You offer that. All of a sudden, the cyclicality comes out of it. It becomes much less volatile, and it doesn't stomp on people's emotions so much.
I did this experiment. I've been doing it for years now where I show people alternatives on a standalone basis, stocks on a standalone basis and then mixed together, but I don't tell them what I'm showing them. I call it the blind taste test. Almost 100% of the time, people gravitate towards the blended products where you're mixing alternatives with stocks and they say, "That's what I want. If you had that, I would be very happy."
They don't want the alternatives on a standalone basis because they look and feel so different from just stocks or just bonds. It occurred to me, this is how I invest, I think it's a very durable portfolio, and I love this all-weather approach. I'm preparing as best I can. I think that's the way to win the marathon in the long-term, and clients like it, so why would they offer that product? So, standpoint was born.
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