You oversee capital on behalf of people who are counting on you — retirees, employees, scholarship recipients, family members. You rely on investment advisors and Wall Street research to guide those decisions. This report documents, with evidence, that the research you are receiving does not quantify the risks you are being asked to accept — and that the tools to independently verify those risks exist today.
You are not part of the investment industry. You are its customer. You manage pension assets, endowment funds, foundation capital, family wealth, or retirement plan investments — and you depend on the professionals you hire to give you honest, complete information about the risks those investments carry. This report is about whether the information you are receiving meets that standard.
Public and private pension trustees overseeing the retirement security of employees who have no other safety net. You bear ERISA or state-law fiduciary obligations that require prudent management of the assets entrusted to you.
University endowments, hospital foundations, charitable organizations whose missions depend on the long-term preservation and growth of their capital base. A 40% drawdown does not merely reduce a number — it cancels programs, scholarships, and grants.
Plan sponsors and committee members responsible for selecting and monitoring the investment options available to employees. ERISA imposes a prudent expert standard — not a prudent layperson standard — on every decision you make.
Those charged with preserving and growing multi-generational wealth. The concentration of assets and the absence of regulatory oversight make independent risk verification not a luxury but a necessity.
What these roles share is a common position: you are fiduciaries yourselves, with legal and moral obligations to the people whose capital you manage. And you fulfill those obligations primarily by relying on the advice of investment professionals. The question this report raises is whether the advice you are receiving — the research, the recommendations, the risk assessments — is adequate for you to discharge that duty.
When your investment advisor recommends a security or a portfolio allocation, they are not required to disclose the statistical probability of loss at current valuation levels. They are not required to compare the expected risk-adjusted return of equities to the guaranteed return of Treasury securities. They are not required to show you what specific growth rates, profit margins, and future valuation multiples must all occur for the current price to be justified — or what the loss will be if those conditions are not met.
This is the information gap at the center of this report. It is not that your advisor is dishonest. It is that the system within which they operate does not require the analysis you would need to make a fully informed decision — and the research they rely on is produced by organizations whose economic incentives are not aligned with your interests.
The SEC's own 2022–2023 Staff Bulletins acknowledge this problem. They require advisors to understand potential losses, consider alternatives, and monitor holdings continuously. But the SEC examines only about 15% of the advisory population in any given year. The obligation exists. The enforcement does not.
The investment research that most advisors use to make buy, hold, and sell decisions is produced by brokerage firms whose primary revenue comes from investment banking — for the same companies their analysts cover. A "sell" recommendation jeopardizes a revenue stream worth tens of millions. The result: the warning you need most — the warning to reduce risk — is the one warning the system is designed not to deliver.
The most important finding in this report is one that runs counter to the most deeply held assumption in institutional investing: that owning great companies protects against loss. It does not. The price you pay determines the return you receive — and if the price is too high, the return can be zero or negative for years or decades, regardless of how well the company performs.
| Company | Period | Revenue Growth | Stock Return |
|---|---|---|---|
| IBM | 1967–1993 | +2,800% | Negative real return — 25 years |
| Microsoft | 1999–2016 | +310% | −1% — 17 years |
| Amazon | 1999–2010 | +3,413% | +4% total — 11 years |
| Pfizer | 1999–2011 | +415% | −65% |
| Walmart | 1999–2017 | +214% | −1% — 18 years |
| PayPal | 2021–2026 | +39% | −87% |
These are the stocks that were in virtually every institutional portfolio — through direct holdings, through index funds, through the approved lists that investment committees relied on. The losses they produced were not caused by fraud or business failure. They were caused by a single, measurable condition: the price paid was too high relative to the company's financial reality. That condition was quantifiable before the investment was made. No one was required to quantify it. And no one did.
The report's Microsoft case study applies the same analytical framework at three different price levels — 1999, 2011, and 2025 — and demonstrates that the outcome was predictable each time, using only public data.
Request the ReportIf you managed institutional capital through the 2008 financial crisis, you watched as products marketed as "diversified" and "safe" — collateralized mortgage obligations blessed with AAA ratings — collapsed because the assets inside them were correlated by a single factor: excessive valuation. The "diversification" was an illusion. The rating agencies had not examined the individual loans. The pension funds that held them had relied on the label rather than the analysis.
The structural parallel to today's index funds is direct. An S&P 500 index fund applies no screen for solvency, no test for valuation discipline, no filter for balance sheet health. It holds whatever the index methodology includes, regardless of risk. Index fund holders held Enron until its bankruptcy, Lehman Brothers and Bear Stearns until near the moment of collapse, and Washington Mutual until it was seized by the FDIC — not because anyone had analyzed these companies and found them sound, but because the index methodology required their inclusion.
The report asks the institutional fiduciary a question that has not yet been answered: if bundling individual mortgage loans into a single product and calling it "diversified" did not eliminate the risk inside the bundle, why would bundling individual stocks into an index fund and calling it "diversified" eliminate the risk inside the fund?
The report identifies five questions that any institutional fiduciary should answer — and document — before committing beneficiary capital to an index fund:
1. What is the probability of a 20%, 30%, or 50% decline at
the current aggregate valuation level?
2. What is the expected magnitude of loss if valuations revert
to their historical median?
3. What valuation framework was used to evaluate the index at
the time of purchase?
4. What ongoing monitoring process exists, with predefined
triggers for review?
5. How was downside risk evaluated for this specific pool of
beneficiaries — considering their time horizon, income needs, and ability to
recover from a major drawdown?
If you cannot answer these five questions, the investment was made without the analysis the fiduciary standard requires.
As an institutional fiduciary, you are permitted to delegate investment decisions to advisors and managers. But delegation does not transfer the fiduciary duty — it creates an obligation to select prudently, monitor continuously, and verify that the professionals you hire are fulfilling the standard of care.
Under ERISA's prudent expert standard, a 401(k) plan fiduciary is held not to the standard of a reasonable layperson, but to the standard of someone with professional expertise in investment management. A pension trustee who accepted an advisor's recommendation to maintain full equity exposure at historically extreme valuations — without independently evaluating the probability of loss or considering lower-risk alternatives — may not be able to demonstrate that the delegation was prudently monitored.
This is not an argument against working with investment advisors. It is an argument for equipping yourself with the tools to ask better questions, demand better analysis, and verify independently that the recommendations being made with your beneficiaries' capital are supported by quantitative evidence — not just narrative conviction.
Consider your current process. When your advisor presents a quarterly review, does it include the probability of loss for each major holding at current valuations? Does it compare equity returns to the guaranteed yield of Treasury securities? Does it show what specific growth assumptions are embedded in current prices — and how those assumptions compare to documented historical base rates? If the answer to any of these is no, you are making allocation decisions without the information you would need to independently evaluate whether the advice you are receiving is sound. You are trusting the system. The report documents why the system, as currently structured, does not merit that trust.
For every major equity holding or index allocation, ask your advisor to document the probability and expected magnitude of loss if valuations revert to historical medians. If they cannot produce this analysis, that tells you something important about the basis for their recommendation.
For any allocation where capital preservation matters — which, for pension beneficiaries and endowment spending needs, is most allocations — require a documented comparison between the risk-adjusted expected return of equities and the guaranteed return of Treasury securities at current yields. If your advisor cannot demonstrate why equity risk is justified for your specific pool of beneficiaries, the alternative deserves serious consideration.
For any security or allocation at an elevated valuation, ask your advisor to state the specific revenue growth, margin expansion, and multiple persistence that must all occur for the current price to be justified — and what the loss will be if any of those conditions is not met. This is the "What Must Happen" framework developed in the report, and it converts an untestable narrative into a testable hypothesis.
If your investment committee has no predefined quantitative triggers for reviewing an allocation — no valuation threshold, no balance sheet deterioration criterion, no conditions that would prompt action — then you have no mechanism to fulfill the continuous monitoring duty. The report identifies three minimum monitoring indicators: declining free cash flow, deteriorating balance sheet health, and valuation divergence from fundamentals.
If the only research informing your investment decisions originates from brokerage firms with investment banking relationships, you have a single source of analysis with a documented structural bias. Independent, quantitative risk assessment — produced by an entity with no conflicts of interest — is not a luxury for institutional fiduciaries. It is a prerequisite for informed oversight.
The full report details each of these steps with supporting evidence, SEC citations, and the analytical framework to implement them.
Request the ReportA retired teacher whose pension fund loses 40% of its value in a market correction cannot go back to work. An endowment that suffers a drawdown that forces it to suspend scholarships cannot restore the years those students lost. A 401(k) participant who is five years from retirement and watches their account drop by half does not have time to recover.
These are not market risks that must be accepted as the cost of investing. They are specific, measurable risks that can be identified in advance — just as the probability of structural failure in a building can be calculated before it is built, and just as the probability of adverse drug reactions can be estimated before a medication is prescribed. The science exists. The data is public. The tools are operational.
What is missing is the demand — from the institutional fiduciaries who allocate the capital — that the professionals they hire use these tools. You have the standing to make that demand. Your beneficiaries are counting on you to make it.
The valuation patterns documented in this report have repeated across three decades and eight major companies. They are not anomalies. They are the norm — the predictable consequence of paying an extreme price for an asset, regardless of the asset's quality. The question is whether the institutional fiduciary community will continue to accept the losses that result, or whether it will demand the analysis that could prevent them.
We are available to pension trustees, endowment managers, foundation boards, investment committees, and family office principals to discuss the analytical framework, present the evidence, and explore how independent risk verification can be incorporated into your oversight process.
"When experience is not retained, as among combatants combating and dying who are perpetually replaced by new and inexperienced combatants, infancy is perpetual." — George Santayana
Quantifying the Standard of Care — a 105-page evidentiary document presenting the case for quantitative risk assessment in institutional investment management, with documented case studies, regulatory analysis, and a framework for independent verification.