Unfortunately, the financial advisors at the major wirehouses are not using technical risk management. The broker is rewarded with trips and bonuses based on how many new assets he brings to the firm, the number of accounts he's opened in a year and whether his yearly commissions increased year over year.
Aren't the clients the foundation of our business??Like many others at the major wirehouses, we all drank the Kool-Aid [believing the wirehouses'] managed programs provided the best institutional managers in the world. Almost all of the managers were buy-and-hold theorists. If a client invested through the wirehouse, they could invest a minimum of $100,000. If they walked into the money manager's office without going through the wirehouse, the minimum investment would be, in most cases, $1 million.
The major wirehouses would state to their sales/financial advisors in the sales meetings, "Do you know how lucky your clients are to have access to these managers? They're the best in the world!" The Kool-Aid was flowing knee-deep in the meetings.?In late 1998, I noticed my discretionary management was outperforming the so-called experts. Hardly any of these managers managed risk, meaning they didn't move to defense and increase cash when the markets began technically giving negative signals. Luckily, the PnF charts, along with the daily reports provided by DWA, gave me a compass to navigate risk management for my clients' assets.
Financial advisors who tried PnF charting or other forms of technical analysis for a month or two weren't giving the process time to work, nor did they commit their time to becoming a craftsman of this art. Many of them were pressured by their employers to increase assets, create more commissions and open accounts instead of properly managing their clients' risk. Most clients will refer new business if you are managing their risk properly.? Many financial advisors have their cookie-cutter diversification theories, but won't adjust with the changing market risk environment that's been partially created by a deluge of so-called expert information accessible through cell phones, computers and other methods. Too many advisors and investors react to the news instead of being proactive with technical analysis.??
Is PnF technical analysis perfect? No! But it has kept many of its craftsman properly navigated through many storms.? If you question Tom Dorsey's comments regarding PnF charting analysis, you may want to consider attending one of the educational training programs and reading his book. Stay with the plan for a minimum of three years, and let us know what you think then.
Name Withheld
Plano, Texas
Response From Mary Rowland
In my last column, I discussed-or at least intended to-the point-and-figure technical analysis work of Dorsey Wright & Associates in Richmond, Va. I thought I produced a balanced article.
However, I received at least three dozen e-mails suggesting otherwise. Many of them demanded that I apologize for the ignorance I displayed in that column. Worst of all, Tom Dorsey, who spent more than an hour with me explaining the DWA system, posted a response on the FA Web site claiming that I misquoted him.
My July column about DWA included both positive comments-(most of them) and negative ones-a few. I will attempt to set the record straight as best I can.
First off, I do owe Tom Dorsey an apology, chiefly because I interpreted his use of "advisor" and "broker" in the way that I myself use them. To me, an advisor is a CFP who acts as a fiduciary and does complete, holistic financial planning for clients. A broker sells products. I see in rereading the column that I made that distinction, which Dorsey did not make. When he said DWA counsels brokers but not advisors, he did not at all mean to make the distinction that I made in the way I wrote it. I also wrote that "he does not have a high opinion of advisors." Again, I made a distinction he did not make. I believe that when he said "advisor," he meant something more akin to "therapist." Of course, I always attempt to be cautious and completely accurate.