There Is a Better Way to Invest
The following is adapted from The Seven Keys to Investing Success by P.J. DiNuzzo.
I have always had an interest in numbers. As a kid, I’d memorize hundreds
and hundreds of major league baseball player statistics in my extensive
baseball card collection. Later, I discovered investing, stocks, bonds, and
mutual funds, so even early on, I had an inkling that I might end up in
the field of investment management.
My interest was heightened, I believe, as I was growing up, by the many telephone conversations about numbers, specifically as they related to money, that I overheard between my father and the stockbrokers he had hired. My father was a stereotypical Italian man and a fireball at five feet, nine inches
tall, with olive skin, jet-black hair — and the ill-famed, Italian temper to boot.
His parents, my paternal grandparents, had come to the United States from
Naples, Italy as teenagers, met here and had thirteen children. They never
really learned to speak English. My grandfather worked at a steel mill on the
outskirts of Pittsburgh in Midland, Pennsylvania, for forty years, and my
father followed suit, graduating from Midland high school and going to work
in that same mill. He never went to college. In the middle of his life, after
twenty-five years in the steel mill, my father bought a small restaurant and
began to save some money.
Money Management
Money management — and investing, in particular — were new and foreign
concepts to my father, so when he started to save some money he hired a
stockbroker to make all his investment decisions. It did not go well, and so
he’d fire one and then hire another, but the result was always the same. This
was the 1970s, and his very loud phone conversations with the stockbrokers
sounded like a broken record: “You call me, saying ‘Hey Ned (my father’s name was Natale, but he went by “Ned”), you have to sell now to take your
gains or sell right now and cut your losses,’ but all I know is I do not have any more money today than I gave you three years ago.” My father, trusting his
hard-earned cash to half a dozen brokerage firms over the years, never made
a dime off of their “advice.”
The sad part of it was that he knew they weren’t investing his money properly, yet he didn’t know what else to do. My father may not have had a college degree, but he did have a PhD in common sense and was nobody’s fool. He
knew he was being taken for a ride — that what these brokers were doing was what he called “highway robbery” back then. He also suspected their investment “guidance” would have a serious and detrimental effect on his retirement plans.
He had left the steel mill with no pension, so any money he was able to put
away by running that restaurant was all he had for retirement. That nest egg— wrongly invested — never had the opportunity to grow.
“World-Class Institutional Portfolio Management”
As a teen, I could not help but wonder how his portfolio was being managed. I had no idea what “world-class institutional portfolio management” was, but I did know one thing: it was not what these brokers were doing with my father’s money. There was no way that institutions, foundations, endowments, and family dynasties managed their money like this. I began to research investments on my own, and that led me to my current career as a Wealth Manager, and my lifelong journey to research the best strategies for portfolio management. I was not drawn to the retail investment world, but rather to the academic community. Retail brokers and advisors had consistently provided poor advice to not only my father but also to every family member and friend I had known.
Their recommendations, I discovered, were precisely the opposite of many successful strategies of institutional investment managers who manage the largest portfolios on earth. The successful world of investing includes no front-end loads, no back-end loads, no 12b-1 fees, no exorbitant expense ratios, no surrender charges, no redemption fees, and no excessive portfolio turnover. It was literally a completely different world than the brokers and advisors of the retail investment world that my father had entrusted his hard-
earned money to.
To Become the Man I Am Today
Growing up and throughout my life, I have always been driven to and enjoyed helping others. When you enjoy doing something, you consistently see opportunities to take advantage of your interests, and my interest and aptitude for numbers, statistics, probabilities, and my innate desire to help other people drew me to my profession and to become the man I am today. Being a “giver” rather than a “taker” has always felt more natural and comfortable for me as my natural place in the universe. I believe this part of my personality and who I am, my inner compass, was the impetus that inspired me to start my Wealth Management practice in 1989. I began with zero dollars under management, yet I had a burning desire to help others, so they would not experience the same horrendous experience with their life savings as my father, who is now deceased.
On my journey, I soon discovered that there were two common denominators to these large portfolios directed by the top institutional asset managers:
(1) they held, on average, an approximately 65% stock exposure; and (2) of
that stock exposure, they held approximately two-thirds in domestic stocks
and one-third in international markets. As you will learn in my book, the two
initial most important challenges you must get right in long-term portfolio
management are the Asset Allocation “Risk Allocation” (stocks vs. bonds),
and full and proper diversification utilizing the desired Asset Classes and
market Premiums, which I will identify. After obsessive personal research, my most exciting discovery at that time, during the late 1980s, was Efficient Market Theory (emt) and the power of indexing, especially over long periods of time. This was probably most articulately described to me in a one-on-one conversation decades ago with Rex
Sinquefield, co-founder of Dimensional Fund Advisors (dfa), as an “epiphany.” Efficient Market Theory, strongly supported by over ten decades of academic research and financial data, simply states that all available information regarding the market value of a company (e.g., “Price Discovery”) is efficiently reflected in its market price, and that index funds are the best way to take advantage of available stock Premiums (i.e., potential extra return via Equity, Value, Small, and Direct/Expected Profitability Premiums). By and large, the media and popular investment gurus encourage the opposite approach by promoting active investing — attempting to “outpick” and/or “outsmart” the entire market and, in effect, try to predict the future by investing in select or single companies (e.g., market timing) or active mutual funds. As you’ll discover in my book, the last ten decades of data prove that attempting to predict the future is a loser’s game.
Dimensional Fund Advisors
Once I became sold on Efficient Market Theory and the superiority of
index investing, my journey through the academic world led me straight to
Dimensional Fund Advisors (dfa) and the University of Chicago’s Booth
Graduate School of Business, and I became one of the first 100 advisors in
the United States approved with them in the early 1990s (thank you, Dan
Wheeler!) to access and utilize their institutional funds for my clients, as only
less than one-half of one percent of advisors nationally were approved to
work with dfa. When I started my practice in 1989, I was also one of the first
few hundred firms in the United States founded as a fee-only Fiduciary-based
practice. To me, this approach was not only ethical, but a matter of common sense, as the largest, best, and brightest institutions, foundations, and endowments operate this way. I wanted to build a practice for my “family of clients” that contained no inherent conflicts of interest.
DiNuzzo Private Wealth, Inc. (dpw)/DiNuzzo Wealth Management (dwm)
is a Wealth Management firm licensed by the Securities and Exchange
Commission (sec) in Washington D.C. according to and operating under
a Fiduciary Standard. A Fiduciary Standard requires the advisor to analyze,
make recommendations, and provide advice as if the situation, challenges,
and investments were his or her own. In other words, we are ethically, legally,
and morally bound to advise you what we would do if we were in your shoes.
We embrace our Fiduciary Standard and are dead serious about it, to the point that we view it as our “sacred responsibility” to our clients.
Therefore every penny I and my family have invested is invested in exactly the same investment funds and vehicles as what I recommend to my clients.
In contrast, the vast majority of individuals are receiving conflicting advice
from brokers and advisors who are bound by what can be interpreted as suitability standard rather than a Fiduciary Standard. This means an investment just has to be “suitable” for you. Typically the average stockbroker or advisor providing you with this type of advice does not own anything that they are recommending to you in their own portfolio. Which advisor would you rather work with?
When prospective clients come into one of our offices and I explain the Seven Keys that lead to long-term success, they are often befuddled since it is typically different from what they have been exposed to. They wonder why they haven’t heard these principles before. The primary reason is that the financial media and investment “gurus” make their money from encouraging an active investing approach and attempting to ignite your emotions accordingly, with no basis in the data or even common sense, creating needless stress in your investing and personal finance decisions.
To learn more about financial wellness and life planning you can find The Seven Keys to Investing Success on Amazon.
P.J. DINUZZO is the president and chief investment officer of DiNuzzo Private Wealth, Inc — Family Office and DiNuzzo Wealth Management, which has over 2,500 accounts and $760M (AUM, as of 11/29/2019). P.J. was one of the first three hundred fiduciary standard advisors in the country and one of the first one hundred advisors to be approved by Dimensional Fund Advisors (DFA). P.J. is a much sought-after speaker who has appeared on Oprah & Friends on XM Radio, and on CNBC-TV’s Power Lunch. With this book, P.J. desires to share his passion with the reader, and the time-honored strategies he has utilized while collaborating with and guiding his “family of clients” over the past four decades.
