“If you were to assume that many experts use their information to your detriment, you’d be right. Experts depend on the fact that you don’t have the information they do. Or that you are so befuddled by the complexity of their operation that you wouldn’t know what to do with the information if you had it. Or that you are so in awe of their expertise that you wouldn’t dare challenge them” p. 70
“An expert doesn’t so much argue the various sides of the issue as plant his flag firmly on one side. That’s because an expert whose argument reeks of restraint or nuance often doesn’t get much attention.” p. 148
-From Freakonomics, by Steven Levitt & Stephen Dubner
The point of this post: financial experts are determined to make sure you know how dumb you are, so you continue to rely on their expertise.
Browsing LinkedIn news today, I came across this article, posted by a smarter-than-thou financial advisor: Investors Buy And Sell Stocks At Exactly The Wrong Times, and it made me angry.
The real title of this chart: Ha ha! Look how stupid investors are!
I’ve seen this article and its various permutations ever since I started reading money news, long before I was a professional myself, so why is it still making me mad?
It makes me mad because the kind of financial expert who trots it out is the kind who benefits when you feel too stupid to bother understanding what your money is doing.
It makes me mad because there is a whole industry devoted to financial news, but – because the long term, sensible way of investing that is appropriate for the vast majority of retail investors is boring – they fill up the 24 hour news cycle with meaningless nonsense like “Bear Party: Stocks In Overdue Sell-Off” (CNNMoney), and “Gold Bull Frank Holmes: ‘The Math Indicates That The Metal Will Not Stay At These Lows'” (Business Insider).
You’re not dumb. You’re being bombarded with stupidity, courtesy of experts who either want you to just rely on them, or news makers who are just making shit up. (Remember the track record of market gurus?)
So how do you make good investing decisions in the face of relentless pressure not to?
(Pay attention. This is important.)
Ignore the news. Find some resources that advocate the boring, common sense kind of investing that works for the long haul (Dan Bortolotti is one, or read The Wealthy Barber Returns for a good common sense approach), and spend some time to make sure you understand.
If you still need advice, find a fee only financial planner who isn’t compensated by hard-selling you into investment products that you don’t understand, and who can explain every piece of advice she gives in plain language.
Quality financial advice might sound complicated when you receive it. You might not be interested enough in money to get really excited by an in-depth discussion of risk vs. return, income forecasts, and budgeting, but you still need to understand it.
Fortunately, I’ve distilled the reams of science and math on this topic down to the only equation you need to know in order to understand your money and make it do what you want it to do (within the realms of realistic possibility):
Quality advice (Q) =
When it comes to money, it’s very easy to say “just tell me what I should do”, and then do it.
And that’s truly dumb.