This is the last essay in this series. In part one of this series, we examined whether investing is a game.  In part two of this series we examined the question of whether investing is a negative-, zero-, or positive-sum game.  In part three we focused on how much of the investing game is luck or skill.  In this segment, we will examine the question of whether it makes sense to have someone more skilled play the game on our behalf.  If you have not read the prior essays, please read them first, in order.

There are numerous ways to have someone else “play the investment game” on our behalf.  We can pay a full-service broker to choose stocks and other securities for us to buy and sell.  We can purchase an actively-managed mutual fund and have a professional money manager choose a group of stocks or bonds for us.  We can pay an investment advisor or portfolio manager to do the choosing.  We can subscribe to a newsletter produced by the guru of the day and buy and sell the stocks he recommends.  In all of these cases, we incur expenses.  From a very broad perspective, these expenses are a zero-sum game.  Whatever we pay, someone else collects.  But for the investor, this is clearly a drag on performance.  The key question is, can the “wisdom” imparted by the finance professional compensate for its cost? Read the rest of this entry »