Lose Lose Situation

From time to time, I and the money manager I consult for share a laugh over scenarios we file under Things They Don’t Teach You in the CFA Program.

One I’ve been meaning to share for a while is the lose lose situation of the client tip. It goes like this:

A client whose money you manage phones you up and asks you if you shouldn’t buy some gold for his account. He tells you his brother-in-law bought it last year – made a fortune – and believes it’s going to continue to go up this year.

Before the client even finishes his train of thought, you already know. You’ve lost. Here’s how it can play out, and what a client might conclude.

Gold goes UP Gold goes DOWN
I buy him some gold
“You don’t get any credit for that one, that was my idea. I’m doing your job for you!” “I’m paying you for your expertise and you got this one wrong. You failed.”
I DON’T buy him some gold
“Geez, my brother-in-law is better at this than you, and it’s not even his line of work. How much am I paying you again?!” “Expecting a pat on the back? Not for just doing your job, like you’re supposed to. Why didn’t you buy gold last year?”