Our guest this week is Fran Kinniry, principal in Investment Strategy Group, and Global Head of Portfolio Construction at the Vanguard Group, where he is responsible for capital market research, portfolio design, development of customized investment solutions, investment market commentary and research. He is a chartered financial analyst and earned his master’s in business administration from Drexel University.
In 2001, Kinniry helped create the concept of “Investor’s Alpha” — the idea that professional advisors can holistically add from 150-300 basis of performance through the process of financial planning, tax loss harvesting and perhaps most of all, behavioral management. Kinniry notes that many people lack the time, willingness and ability to manage their own portfolios well. He argues that for these clients, the derived benefits from professional financial planning and asset management is greater than the costs.
He notes that investing is emotional, with people finding themselves in the wrong “decision state” — emotional and non-objective. As an example, he notes that in 2007, equities amounted to 68% of the average US household balance sheet; as the Great Financial Crisis hit its crescendo in March 2009, equities were only 36% of households assets. This was due to more than falling prices; during the GFC, investors were making emotional portfolio decisions, dumping stocks into the crash, as evidenced by huge outflows into money market accounts. Kinniry believes behavioral coaching helps to avoid this bad decision-making, keeping investors to their financial plans, ensuring portfolio decisions are well thought out and rational.
His favorite books are here; A transcript of our conversation is available here.
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Next week, we speak with Nobel Laureate Michael Spence about his work on the dynamics of information flows and market structures, and his book, The Next Convergence: The Future of Economic Growth in a Multispeed World.
Fran Kinniry’s favorite books
Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb
Judgment Under Uncertainty: Heuristics and Biases by Daniel Kahneman
Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts by Annie Duke