The Investment Scientist

Can a major Wall Street firm help you beat the market?

Posted on: September 6, 2012

New York Stock Exchange

When talking to prospective clients, I am upfront about what I can and can not do. I can NOT beat the market.

Recently, that straightforwardness caused me to lose a prospective client to a major Wall Street firm. Apparently, the financial advisor from that firm was able to convince him that with their exclusive location, expensive brochure, and nice Armani suits, they could beat the market.

This led me to do a mental exercise.

I compared the best Wall Street firms’ stock prices to the S&P 500 index over the last 10 years.

Stocks or Index Returns
S&P 500 Index 53.54%
Morgan Stanley -59.10%
Bank of America (Merrill Lynch) -79.96%
Goldman Sachs 36.77%
Citigroup (Smith Barney) -91.26%

During this period, the S&P 500 Index rose a total 53.54%, but Morgan Stanley, Bank of America (who now owns Merrill Lynch), and Citigroup (who used to own Smith Barney) lost a lot of money. Even the best of the bunch, Goldman Sachs, was soundly beaten by the market index. Wouldn’t you think if their financial advisors knew how to beat the market, their firms’ stock prices would be the first to benefit?

Some of my prospective clients ask a very good question: If you can’t beat the market, what value do you add?

There are at three areas I can add substantial value. I am able to:

  1. Prevent conflict of interest. A typical Wall Street financial advisor will charge you 1% for directing your money to investments that will cost you another 1.5% because he works for the firm, not you.
  2. Prevent performance chasing.  The average investor loses 3-4% in returns every year chasing investments that he or she hopes would beat the market in the future.
  3. Watch over your overall financial well-being in the areas of taxes, wealth protection, wealth transfer and gifting, etc., so that you can have the peace of mind that your personal finances are in good order.

So you see, my value is stopping my clients from trying to beat the market, thereby protecting them from being beaten by it.

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

3 Responses to "Can a major Wall Street firm help you beat the market?"

Yes, Goldman Sachs (+36.77%) made a lot of money (billions, so a lot even for them), more than their competitors, but that does not mean their _clients_ were any better off than the poor suckers at Citigroup/Smith Barney (-91.26%). GS made money by misleading clients and betting against their investments. See
In part, the article states “So tell me, how many times does one firm have to show you it’s in this game for itself and for its shareholders–then, maybe, you.”
“…a call for investors, big and small, retail and institutional, to wake up take some responsibility about who to trust with your money.”

Even with the cheating, lying, and stealing, Goldman Sachs’ stock still underperformed the market. All this is not to say that I think the other banks brokers are any good for their clients or honest, just not yet caught. BTW, I suspect the spread would be even worse when you add dividends to the S&P500 stock price increase.

Jerry, I totally agree.

[…] Each account manager, according to Morgan Stanley, tries different tactic to beat the market. This makes me wonder why Morgan Stanley doesn’t use these managers, since its stock price lags the market by a huge margin. […]

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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