One of the best parts about the Internet is that now nearly everyone has a platform to share their opinions.
One of the worst parts about the Internet is that now nearly everyone has a platform to share their opinions.
There has never been a better time to be an individual investor and the abundance of free data, analysis and opinions is one of the reasons why. The problem these days is figuring out: (a) what to pay attention to, (b) who to pay attention to and (c) whether or not those opinions and analysis are useful to your unique situation and investment plan.
Sometimes it feels like there’s a running scorecard where investors are more concerned about winning and losing than making money. There’s a huge difference between having opinions and managing money. Lots of people have opinions, predictions and forecasts that may grab your attention but that doesn’t mean you should act on what they say.
It’s easy to have all the opinions in the world when there’s no money at stake. When you’re managing other people’s money (OPM) you can’t worry about being right all the time. It’s very easy to be right and still not make any money in the markets. That’s how you lose sight of your clients’ end goals.
Here are a few other things that you can’t spend your time worrying about when managing OPM:
Impressing others. The really smart people are often the most dangerous in the finance industry because they have a hard time keeping things simple. They become overconfident, over-think things and try to make investing too complex. There are no extra points for degree of difficulty in the markets. No one cares how brilliant-sounding your strategy is if it doesn’t make money over time.
Conspiracy theories. Investors who are constantly talking about market manipulation, Fed conspiracies, faulty inflation statistics and rigged markets are usually looking for attention. They don’t want to help you, they want to scare you. Conspiracies may sell newsletters and get you attention on social media but wearing the tin foil hat is not going to protect your portfolio.
Certainty. The headlines are constantly blaming daily market losses on “increased uncertainty” which is basically impossible considering there has never been a period of certainty in the markets. Everyone is dealing with the same unknowable future. When managing OPM the best you can do is make high probability decisions, plan for a wide range of outcomes, admit you really don’t know exactly what’s going to happen and have a comprehensive plan in place that you’re willing and able to follow. Certainty tends to sell better, but it’s just a false hope. Anyone who promises you certainty in terms of performance or what’s going to happen in the future will likely let you down in the end. Always and never are dangerous words in the markets.
Ideologies. There is no room in the markets for ideologues. Ideological thinking has gotten a lot of investors and economists in trouble over the years because they are so stubborn and set in their ways. They allow their political beliefs to cloud their judgment in the markets. The market doesn’t care about your political beliefs. It doesn’t matter what you think about democrats, republicans or the current president. Maybe it makes you feel better to complain about our politicians or capitalism or the political system, but you should not allow your ideological beliefs to impact your investment decisions. Knowledge and process should always trump politics and ideology in the markets.
Of course there are plenty of people managing OPM who still do these things. It’s not always easy to figure out exactly what to look for when hiring a money manager or financial advisor. Most of the time the best thing to do is look for red flags and utilize negative knowledge to figure out who not to invest with first.
Behavior of the Experts
Now here’s what I’ve been reading this week:
- Two deadly wealth management assumptions (Reformed Broker)
- Check out the first installment of Index Funds: The Movie from Robin Powell (Evidence-Based Investor)
- Life as an NBA draft bust (BR)
- On probability & randomness (Newfound Research)
- “It’s nonsensical to talk about the riskiness of stocks without talking about the investor who’s investing in them.” (Morningstar)
- Simple advice for new grads (Motley Fool)
- Deceptive sales practices in the insurance business (A Teachable Moment)
- A dozen lessons from Elon Musk on business (25iq)
- Suppressing volatility also suppresses returns (Irrelevant Investor)
- 10 questions for your financial advisor (Nocturne Capital)