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I am not quite as sanguine about the improving character of the so-called dumb money investors as the article posits.
Yes, there is a swing in the positive learning direction, but it is modest and very unsure of itself. A large part of the learning resistance is due to laziness, and another major part is due to innumeracy. Since I occasionally have lectured on this topic to both senior groups and to high school level students, my evidence is personal anecdotal and mostly from readings.
One piece of evidence offered that “The Dumb Money Is Getting Smarter Every Day” is the customer movement to Index investment products. That’s true, but might simply be a result of exposure, an aggressive selling program rather than a better understanding of the whys for the decision. That just might be blind herd following action.
I’m often amazed by the general population’s reluctance to learn investment fundamentals. Far too often they accept the wisdom(?) offered by folks with private incentives without challenging its credulity; the audiences are not nearly skeptical enough. They seek specific recommendations without demanding any meaningful explanations. That’s a formula for an impending disaster.
If the dumb money is getting smarter, the smart money is getting even smarter and faster. Index investing has become an even higher fractional holding among the professional community than among the amateur population. The recent Calpers decision is a timely illustration of this trend.
It’s remarkable how the entire investment world is morphing towards the simple investment rules that John Bogle has long advocated. I take conformation bias comfort in these rules since I have practiced them for many years. Here is a summary of Bogle’s 10 rules:
1. Remember reversion to the mean. 2. Time is your friend, impulse is your enemy 3. Buy right and hold tight. 4. Have realistic expectations. 5. Forget the needle, buy the haystack. 6. Minimize the "croupier's" take. 7. There's no escaping risk. 8. Beware of fighting the last war. 9. Hedgehog beats the fox. 10. Stay the course.
It’s hard to beat John Bogle for investment advice or for the simplicity by which he summarizes his findings and observations. He is indeed a worldwide treasure. Here is a Link to the article that expands on his golden rules and from which I lifted his insights:
There is a noteworthy equivalence between these investment rules and many military maxims that have survived the acid test of war time. Contingency planning, alternate strategies, flexibility, reserve management, defense in depth, learning from mistakes by after-action reviews, risk recognition, realistic outcome expectations, and a resolve to continue the march are taught at even company-level military seminars.
Investment learning is slow, and at times painful, but it is positive with many pitfalls to avoid.
I firmly believe most investors are not dumb. They are just convinced by Finonsensical Asswisers (Copyright pending) they are, so they can milk them and in some cases swindle them outright.
True Story. The bell rang about an hour back. My better half - bless her soul - opens the door to a stranger who I learnt much later is from Edward Jones. She gives him her name, where she was born, phone number, probably our bank account number, maybe her social security number, and then I heard her say "my husband manages our money". About that time, when I think she's going to tell him everything about me, I go down, tell the guy to take a hike.
My wife is not dumb. She has a PhD. She has convinced herself or let others convince her, investing is not her cup of tea. I was the same way. At least now I know I'm not as dumb so as to pay for OTHER people's mistakes. Smart is about making one's OWN mistakes at which point not only are you not dumb in your eyes, you are not dumb in anyone else's eyes either.
Comments
Thank you for the referenced Bloomberg article.
I am not quite as sanguine about the improving character of the so-called dumb money investors as the article posits.
Yes, there is a swing in the positive learning direction, but it is modest and very unsure of itself. A large part of the learning resistance is due to laziness, and another major part is due to innumeracy. Since I occasionally have lectured on this topic to both senior groups and to high school level students, my evidence is personal anecdotal and mostly from readings.
One piece of evidence offered that “The Dumb Money Is Getting Smarter Every Day” is the customer movement to Index investment products. That’s true, but might simply be a result of exposure, an aggressive selling program rather than a better understanding of the whys for the decision. That just might be blind herd following action.
I’m often amazed by the general population’s reluctance to learn investment fundamentals. Far too often they accept the wisdom(?) offered by folks with private incentives without challenging its credulity; the audiences are not nearly skeptical enough. They seek specific recommendations without demanding any meaningful explanations. That’s a formula for an impending disaster.
If the dumb money is getting smarter, the smart money is getting even smarter and faster. Index investing has become an even higher fractional holding among the professional community than among the amateur population. The recent Calpers decision is a timely illustration of this trend.
It’s remarkable how the entire investment world is morphing towards the simple investment rules that John Bogle has long advocated. I take conformation bias comfort in these rules since I have practiced them for many years. Here is a summary of Bogle’s 10 rules:
1. Remember reversion to the mean.
2. Time is your friend, impulse is your enemy
3. Buy right and hold tight.
4. Have realistic expectations.
5. Forget the needle, buy the haystack.
6. Minimize the "croupier's" take.
7. There's no escaping risk.
8. Beware of fighting the last war.
9. Hedgehog beats the fox.
10. Stay the course.
It’s hard to beat John Bogle for investment advice or for the simplicity by which he summarizes his findings and observations. He is indeed a worldwide treasure. Here is a Link to the article that expands on his golden rules and from which I lifted his insights:
http://www.cbsnews.com/news/john-bogles-10-rules-of-investing/
There is a noteworthy equivalence between these investment rules and many military maxims that have survived the acid test of war time. Contingency planning, alternate strategies, flexibility, reserve management, defense in depth, learning from mistakes by after-action reviews, risk recognition, realistic outcome expectations, and a resolve to continue the march are taught at even company-level military seminars.
Investment learning is slow, and at times painful, but it is positive with many pitfalls to avoid.
Best wishes for your continued success.
True Story. The bell rang about an hour back. My better half - bless her soul - opens the door to a stranger who I learnt much later is from Edward Jones. She gives him her name, where she was born, phone number, probably our bank account number, maybe her social security number, and then I heard her say "my husband manages our money". About that time, when I think she's going to tell him everything about me, I go down, tell the guy to take a hike.
My wife is not dumb. She has a PhD. She has convinced herself or let others convince her, investing is not her cup of tea. I was the same way. At least now I know I'm not as dumb so as to pay for OTHER people's mistakes. Smart is about making one's OWN mistakes at which point not only are you not dumb in your eyes, you are not dumb in anyone else's eyes either.