10 Crazy Things People in Finance Believe

Finance can be a very backwards industry. I understand why so many people outside the world of finance don’t understand what it is that goes on in our industry because many of the things that people believe or do just don’t make any sense. Here are ten of them:

1. People in finance believe that when the stock market trades fewer shares (lower volume) it’s a bad thing. They actually want people to overtrade long-term assets in the short-term.

2. People in finance run backtests on investment strategies that go back multiple decades into the past and then obsess over monthly performance numbers.

3. People in finance consider it bad news when the savings rate rises and more people actually start planning for the future.

4. People in finance spend their time trying to figure out why the market was up or down on a daily basis even though we still have no idea what the main culprit was for the Crash of 1929 or the Black Monday crash in 1987.

5. People in finance who are wrong nine times out of ten are still referred to as ‘gurus’ or experts’ and heralded as prescient soothsayers for being right once in a row.

6. People in finance refer to those with more money to invest as ‘accredited’, ‘sophisticated’ or the ‘smart money’ even though these larger pools of capital make the same basic mistakes as every other mom and pop investor out there.

7. People in finance believe that Black Swans — events that are completely unpredictable — can be forecasted on an annual basis. And if they aren’t predicted ahead of time then finance people will surely convince themselves that they “almost” or “kind of” predicted the unpredictable.

8. People in finance assume that you get what you pay for — that paying a higher fee will result in better after-tax, after-cost performance.

9. People in finance typically feel terrible about their performance when the market is rising but they’re trailing their peers or their benchmark. And they feel great about their performance when markets are falling but they’re beating their peers or their benchmark.

10. People in finance believe that advice has to be complicated to be effective.

Further Reading:
Unfortunate Realities of the Investment Business

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Roadmap2Retire commented on Apr 07

    Well said, Ben. Agreed with the points mentioned above.
    Its insane that people try to figure out why a market/stock is up or down for a single day or a single week. Stop focusing on the short term people!

    Thanks for sharing this nugget


  2. Samantha Peterson commented on Apr 08

    #10! Oh my goodness, yes. I have so many friends come to me with questions about this or that area of their finances when they can’t answer simple questions like, “What is your net worth?” Or “How much debt do you carry?” People seem to forget that taking care of the simple stuff is half the battle.

  3. Mark Massey commented on Apr 08

    Most humans, finance folks especially, do not and cannot keep things in context. They sweat one day’s events and emphasize that to their clients then the next week are all about the big picture. No context and no consistency which equals little to no discipline.