I watch, listen, and read a lot about the markets. Over time, you hear about people who invested in something like a Ponzi scheme, a awful crypto fund, the ARKK ETF, undiversified and poorly managed funds or managers, some high-risk alternative… you name it. It goes on and on until the end of time. It pains me to see people kill money like that. Not only will they kill money, but let’s say the manager performs well. Some will just blow you out of the water and leave you with a large tax bill. Taxes, risk management, and steady returns don’t seem to be top of mind for the investors or the people they are entrusting their money to. I understand why they think like that, though. Steady returns, tax management, and a diversified group of stocks or mutual funds are sometimes not that sexy. I mean, imagine telling someone you are going to invest them in a nice portfolio of 25 stocks, many of which they have probably heard of. Most of these names won’t have the ability to double or make them overnight millionaires. Then tell them you are going to manage taxes by tax-loss harvesting quarterly or semiannually. That isn’t exactly sexy.
One thing I learned from working in this business is that individuals and families really don’t know much about the stock market or the kind of people who may work in it (the bad apples). I think this sentiment can translate to institutional investors as well. Take Bernie Madoff, for example. I remember watching a recent series about him on Netflix, about the evil he committed. Hedge funds and institutions gave this man money over and over again. The silver-tongued salesman, the aura of who he was, the perception of status and importance, the office in the Lipstick Building: this man had everything he needed to gain credibility. We as a species give in too easily and trust people and organizations that aren’t worth our time.
I write this to express my frustration when I see or hear about investors losing money to some fancy, silver-tongued salesman in a suit. I also write this so that people will be aware that sometimes simple is better. Don’t follow the sexy forex fund day trading currencies. Follow or invest in managers who have sound investment principles, like Bill Ackman or Warren Buffett.
Key Points:
Simple is better. Follow sound investment principles.
Be skeptical of anything or anyone that sounds too good to be true, and even when it doesn’t, don’t get caught up in the fancy salesman with all the right words.
Diversify. Maybe you were a hedge fund that got hoodwinked by Madoff. That sucks, but if you were diversified, at least you didn’t lose everything.
Always default to being conservative rather than overly aggressive.
