The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Adding Value through Opportunistic Investments

However bad the markets are, there are always pockets of opportunity somewhere. And even during bull markets, when sensible investors won't buy expensive stocks, there is likely to be something cheap if you look hard enough.

In 1999, when tech and growth companies were selling at outrageous multiples, value stocks were going begging,³ as were nontech small-caps and real estate investment trusts. In 2007–2008, when the credit crisis was in full bloom and markets were on the verge of their worst collapse in a generation, they were practically giving away closed-end bond funds.

Unfortunately, though, too many advisory firms seem brain-dead when it comes to finding nuggets of gold in a mountain of dross. Once, when I was serving on the investment committee for a well-known university, a committee member asked the university's advisor if he had any interesting investment ideas. “Well,” said the advisor, “I saw in the Wall Street Journal that the smart money is buying blue chips.”

The reason so many advisors wouldn't know an opportunistic investment if they tripped over it is simple—most advisors aren't investors. They are consultants, brokers, client service professionals, and so on. There may be a small army of analysts somewhere in a back room, but those people are (a) too young to understand investment value, and (b) focused on manager diligence, a very different thing.

For institutional investors, this may not be a big issue. Many institutions ...