The good client

The concluding remarks of a very pleasant exchange I recently had with a client, over tea at a nice private club:

Client: “Do you know Ray Dalio?”

Me: “I know who he is, but I’ve never met him.”

“Smart guy, really.”

“Yes very; almost more of a philosopher of how to invest and how to manage investment organizations.”

“You envy him?”

“I don’t think so; I’m happy where I am, and besides I’m better looking.”

“You are perfect!”

“Far from it, I’m afraid.”

“What are your defects? What have you done wrong in your life?”

“Do you have three hours?”

(He didn’t, so we’ll resume that topic at the next opportunity.)

The conversation came after a far-ranging discussion of the portfolio, the overall investment strategy and objectives, possible adjustments to the banking arrangements currently in place and other matters. This was our first formal review after working together for almost eight months; with performance in line with the benchmark, we agreed to move forward in the most logical of manners: no change.

“It would have been nice if you had doubled the money by now.”

“Wouldn’t it though?”

“You disagree?”

“Of course not.”

“I didn’t think so.”

Details aside, it’s rare to find a non-professional investor with whom you can exchange rational and informed thoughts – unencumbered by the weight of emotions – about the markets while at the same time posing tough questions and keeping a sense of humor. The most recent market moves gave us a chance to explore how to behave during such situations and what to consider relevant as opposed to plain noise. Inevitably I drifted towards emphasizing the value of a strategy with a very long-term horizon, but pressure came back on “how much patience is enough patience?”

“What is volatility and why do we need to worry about it?”

I jot down the basic formula on a small napkin, intending to verbalize its meaning.

“No, no, not that volatility; just, you know, what really is volatility?”

“It depends, and you don’t need to worry about it if you never touch the money.”

When this sinks in, faces usually change expression: you don’t need to worry about it if you never touch the money. Vague recollections of reading something about successful investment models pop up from the back of the brain (“Yale does a good job”; Ray Dalio came after), and in the newly discovered no-need-for-the-money world they all begin to make sense.

“So, what do you actually do all day long?”

“Again, it depends, but usually not much besides thinking, reading and talking to clients.”

“Remind me what do I pay you for? And all that cash…”

“You pay me so that you don’t do silly things at the wrong times, and the cash is there because I want it there; consider it an insurance policy on the long-term value of your money.”

My green tea was getting cold and in the end I never touched it. When conversations are lively, I tend to forget about the refreshments.