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Selecting an Investment Advisor

Selecting an investment advisor can be a difficult challenge. There are many firms across the country and around the world offering these services. Each firm has its own unique philosophy and style. It can be hard for an individual to make distinctions among firms and to decide which one is best suited to his or her needs and circumstances. This difficulty was highlighted by Claude Rosenberg, the founder of Rosenberg Capital Management and a highly-regarded "elder statesman" of the investment counseling industry; in his book Investing with the Best:

"Finding the best person or the best organization to invest your money is one of the most important financial decisions you'll ever make. It's also one of the toughest. The right manager for someone else may not be the right manager for you, nor can you reasonably expect to find many objectives, or even reliable, sources to help you narrow your choices. You will be bombarded with figures, charts, and statistics that seek to sell you on each adviser's services... The sad fact is that too often you cannot even believe what has been presented to you."

-Claude N. Rosenberg, Jr.
(Investing with the Best, John Wiley & Sons, Inc., 1986)

Fortunately, one of the best resources available to prospective clients of an investment adviser is Mr. Rosenberg's book. In addition to discussing the selection process, it includes important information on how to have a successful relationship with your investment manager by becoming a good client. It includes a number of guides, questionnaires and templates to assist you in the evaluation, selection and monitoring process.

An article in The Journal of Investing (Vol. 8, No. 1, Spring 1999, pp. 65-74) by Andrew Weiss entitled "Why Institutions Systematically Underperform Broadly Based Marked Indexes" contained a questionnaire that can be used to assist prospective clients in choosing an investment manager.

Perhaps the most critical element in a successful advisor/client relationship, though, is the client him/herself. A book that we urge each of our clients to read is "Winning the Loser's Game, Fifth Edition: Timeless Strategies for Successful Investing" by Charles Ellis (McGraw Hill, 2009). This short, highly readable volume provides very important information on the importance of defining an investment policy and then implementing it consistently. As Mr. Ellis states:

"To fulfill their responsibilities to themselves, clients need three characteristics: (1) a genuine interest in developing an understanding of their own true interests and objectives, (2) an appreciation of the fundamental nature of capital markets and investments, and (3) the discipline to work out the basic policies that will, over time, succeed in achieving their realistic investment objectives."

Another book that we highly recommend to our clients is "Extraordinary Popular Delusions and the Madness of Crowds" by Charles MacKay, LL.D. (First published in 1841). This informative, funny collection of popular delusions, from Alchemy to Tulipomania, has become a classic - a study of mass manias, crowd behavior and human folly. As its author says:

"Every age has its peculiar folly; some scheme, project, or fantasy into which it plunges, spurred by the love of gain, the necessity of excitement, or the mere force of imitation."

Our approach at Cypress Praxis is to work with prospective clients by taking as much time as is necessary for the client to understand our philosophy and approach and for us to understand our client and his/her style, needs and goals. Often this process can take weeks or months. Our objective is to build long, lasting relationships. We are willing to invest as much time and energy and to provide as much information as necessary to establish a solid basis for such a long-term relationship.

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