After spending a week answering questions on the New York Times Bucks blog, and all the side discussions that generated, I am more convinced than ever that all investment mistakes are really investor mistakes.
For the most part [fraud being a notable exception], investments don’t make mistakes, investors do.
This reminds me of the time that I was mowing the lawn as a kid, and I hit a sprinkler head with the mower. I remember running inside to tell my mom that the lawnmower had hit the sprinkler head. She patiently taught me that lawnmowers don’t hit sprinklers, 10-year-old kids do.
So you can scour the planet, read every issue of MONEY Magazine, and watch CNBC non-stop to find the best investment on the planet, but if you make one of the big behavioral mistakes, you would have been better off in a Certificate of Deposit.
[Side Note: The solution to investor mistakes is having a real planner. For a discussion on this issue, feel free to visit my post at Morningstar.]
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I love the sprinkler example. I agree with the general point being made here.
I don't at all agree that the solution is having “a real planner.”
I think that the solution is developing an understanding of the ABCs of stock investing. Once you do that, things start making more and more sense and your confidence in your strategies grows stronger and stronger.
My view is that any investor who believes that Buy-and-Hold Investing can work in the long run is not emotionally prepared to invest in stocks. I know that some are going to view that as an extreme take. Still, that indeed is my sincere belief. When we start thinking that there is a chance that this will be the first time in history when the price we pay to buy stocks will not make a difference, we start walking down a path of rationalization that ultimately leads to no place good.
Blogs like this are beginning to open the eyes of lots of people to the realities. Middle-class workers are now responsible for financing their own retirements. The next step is to begin taking investing more seriously than most of us have been taking it during the Era of Buy-and-Hold. I think we are getting there. Slowly.
Rob
Well, that's it. Really that does answer every single investment question. Find a planner, make a plan and stick to it. I enjoyed the Morningstar link as well.
Why does Rob Bennet have to leave the same comment in every post?
Thanks for the question/observation. I tried unsuccessfully to have this conversation with Rob via email but his email bounces back.
So here is the deal, I expect everyone to act like guests at a dinner party, you can have opinions but it would be considered rude to completely dominate the discussion. If you continue to dominate the discussion over and over, then either you need to be uninvited or everyone else will stop coming.
I respect Rob's passion for his point of view. I respect the amount of research and thought he has put into it, I just don't think the comment section of my blog is the place for it over and over.
If you are interested in talking this over you can email me.
We also require people to enter a working email address in order post comments.
>If you make one of the big behavioral mistakes, you would have been better off in a Certificate of Deposit.
A very good point to remember, you can ruin a great investment with bad decisions. Of course you have to make sure that your planner doesn't make bad decisions either! That makes me wonder- do you have to know enough to advise yourself to know that an advisor's advice is really good?
-Rick Francis
Rick-
This is a sad commentary on the state of the advisory business, but from my perspective I would ask, when you go to see the doctor do you need enough knowledge about medicine to know if you the doctor's advice is really good?
Now I realize that most people experience with the financial services industry has been anything but professional, but that doesn't change the fact that there are REAL financial planner out there that can be trusted. Finding them might be hard, in fact it might be so hard that you have stopped trying, and that is fair enough, but that they are out there.
[more on this in an upcoming post]
Developing an understanding of the ABCs of stock investing is nice, but the reason why finding a real financial planner is so important, I think, is that a good financial planner goes beyond the ABCs of stock investing. Investing is certainly part of financial planning, but investing in a vaccuum, and detached from the greater context of both a financial plan and its implementation, is the sort of behavioural mistake I think that Carl is talking about.
That behavioural mistake, I think, is supposing that subjects can be studied atomically, as separate parts. A good financial planner both understands how their client's investment needs fit into that client's over-all well-being, and cares enough to make that understanding a necessary condition of their relationship with the client.
Studying investing yourself is nice, but all the study in the world won't give you the objectivity of a planner's external viewpoint, the efficient division of labour they provide, or the context that differentiates a good investment from successful investing.
>when you go to see the doctor do you need enough knowledge about medicine to know if you the >doctor's advice is really good?
Point taken- I agree you don't need a medical degree to be a patient but I do think you should educate yourself especially if there are multiple treatment options available. Without basic knowledge, how do you know your doctor isn’t a quack?
I think the level of trust is worse in the financial industry because it is common to find salesmen pushing bad investments, like annuities. I wouldn't be surprised if that is the only type of financial advisor many people have ever encountered. The other complication is that even a trustworthy person can have biases. For example an honest insurance salesman won't try to swindle you on a policy by hiding information like the fees and rates of return… but they may still believe whole life insurance is a wonderful investment for everyone.
-Rick Francis
totally agree!
Given the wide variance in training, experience, and incentives that
financial advisors operation under it is really hard to know who to trust.
This is a huge issue within the industry. How can you distinguish the
conflicted sales people from REAL financial planners.
I wish there was a clean answer, and I think the industry is really focused
on coming up with one, but that process will take a while to work out. In
the mean time ask people you trust for a referral, meet, verify, trust,
verify, and hopefully it will work out.
I will be writing more about the topic of how to find a real planner soon.
In the mean time, what do you think? How do you find a REAL planner?
Developing an understanding of the ABCs of stock investing is nice, but the reason why finding a real financial planner is so important, I think, is that a good financial planner goes beyond the ABCs of stock investing. Investing is certainly part of financial planning, but investing in a vaccuum, and detached from the greater context of both a financial plan and its implementation, is the sort of behavioural mistake I think that Carl is talking about.
That behavioural mistake, I think, is supposing that subjects can be studied atomically, as separate parts. A good financial planner both understands how their client's investment needs fit into that client's over-all well-being, and cares enough to make that understanding a necessary condition of their relationship with the client.
Studying investing yourself is nice, but all the study in the world won't give you the objectivity of a planner's external viewpoint, the efficient division of labour they provide, or the context that differentiates a good investment from successful investing.
>when you go to see the doctor do you need enough knowledge about medicine to know if you the >doctor's advice is really good?
Point taken- I agree you don't need a medical degree to be a patient but I do think you should educate yourself especially if there are multiple treatment options available. Without basic knowledge, how do you know your doctor isn’t a quack?
I think the level of trust is worse in the financial industry because it is common to find salesmen pushing bad investments, like annuities. I wouldn't be surprised if that is the only type of financial advisor many people have ever encountered. The other complication is that even a trustworthy person can have biases. For example an honest insurance salesman won't try to swindle you on a policy by hiding information like the fees and rates of return… but they may still believe whole life insurance is a wonderful investment for everyone.
-Rick Francis
totally agree!
Given the wide variance in training, experience, and incentives that
financial advisors operation under it is really hard to know who to trust.
This is a huge issue within the industry. How can you distinguish the
conflicted sales people from REAL financial planners.
I wish there was a clean answer, and I think the industry is really focused
on coming up with one, but that process will take a while to work out. In
the mean time ask people you trust for a referral, meet, verify, trust,
verify, and hopefully it will work out.
I will be writing more about the topic of how to find a real planner soon.
In the mean time, what do you think? How do you find a REAL planner?
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