If I do my job right, my blog is helping you live within your broke means right now. That's awesome! You're not starving and maybe even living well!
I can't imagine I have convinced you yet. How could this possibly makes sense? Those people on Wall Street are rich. They drive lambos, and I don't. Money talks and bullshit walks as they say.
Well here is a fun little test of this hypothesis. For people picking stocks, the benchmark they must compare how well they are doing to is the famous monkey dart board. That is to say, we can know how well an investor is doing if their stock picks are making them more money than if a monkey simply threw darts at a stock board and invested in those stocks.
How many people have succeeded against this very basic test you may ask? Zero. Yep, that is right.* Forget the Harvard MBA who is impressing you with his Herman Miller office furniture, go to the zoo, buy yourself a monkey and teach him to play darts. It's probably cheaper and will make you a lot more money.
*Update: This is not really exactly what the Post said. It said that no mutual fund was consistently a top performing mutual fund. The honest answer is that no one is 100% sure whether mutual funds can "beat" the market consistently over long periods of time. But there is a lot of evidence to suggest the answer might be no...and honestly, they aren't worth the hassle relative to low cost indexing.
This still doesn't explain why the Harvard MBA was even able to pay for his office furniture in the first place though. Or even why the smartest people in the world can't seem to do better than the monkey at the Bronx Zoo.
Let's start with how the guy got his office. It is simple, people pay this guy to manage their money. It doesn't matter if this guy is losing all of it (or more likely, giving back mediocre returns that should be much better), he gets a big fee which pays for his office and cocaine habit.
This of course generates another side question: why does anyone give this guy money in the first place? Also simple answer: even stock investors get lucky every once in a while. You will frequently hear stock brokers brag about returns from a certain time period being exceedingly large. I met one who bragged to me that the previous month he had made over 6000% of what he had initially invested.
But this is like saying that you are a good gambler because after playing the slots for a year, you made 100,000 dollars yesterday. Never mind you put 200,000 dollars in over the last 12 months, yesterday you did great! Believe it or not, this faulty logic drives stock investing the same way it drives Las Vegas, people are greedy and want to believe they have the power to make immense profits despite all evidence to the contrary.
And the evidence is substantial lest we forget what I said earlier. Not a single person has been able to do better than our monkey which should be all the evidence you need.
The final puzzle here is why no one can seem to figure out which stock is going to make money in the future despite the fact that such a thing should be relatively simple. For instance, we all knew the last Star Wars movie was going to make enough money for the entire Disney corporation to shower with 100 dollar bills. Therefore it would seem to make sense to have bought Disney stock before the movie was released since that is right before they made all the money for their Benjamin Franklin shower.
The issue here is that as I mentioned, everyone knows this. Literally millions of stocks are traded every single day by millions of people. Therefore, it is likely that millions of people will be buying Disney's stock even before the company makes any money. What's more, millions of people also know that millions of other people will be operating on our initial hunch and try to get rid of Disney stock because they think it will become overvalued. And people will also know this and the cycle goes on in an infinite loop.
As far as we know, it is impossible to look at a stock and determine if it is undervalued or not at any given time. It is simply impossible to understand at any given time why millions of people are making a decision that makes a stock worth what it is. And of course, if someone did actually figure it out, everyone else would just start using that strategy until it became completely useless. Also keep in mind, it is illegal for anyone to make a decision about stock investing with information that is not public. This prevents say, George Lucas from buying Disney stock before the Star Wars deal was announced.
If you are anything like me, all this information I have just presented is perhaps the most wonderful validation of American values of all recorded time. The bourgeois is full of shit! All those fancy looking people who got into Ivy League business schools we could never afford think they are really smart but are dumber than us! The common man wins! Let freedom ring!
But the problem is, despite all of this affirming your support for Bernie Sanders and falling asleep in math class, you still haven't learned how to make your funds grow in an easy way so you can play golf and buy some badass dentures when you turn 65. Well, I guarantee you it is very possible, it requires almost no time investment, no math skills, and a financial investment that virtually anyone can afford. I'll tell you all about this voodoo in the second part to this series but in the meantime, buy yourself some apple pie and send that business wiz knowitall from high school a middle finger emoticon on Facebook: you deserve it.
Nonetheless, there is a voice inside your head telling you something. In your 20's, it is a small occasional whisper that chimes in when you have spent the last dollar of your minimum wage paycheck for the week. As you begin to settle down, perhaps watch your first child run around your apartment, the voice grows louder and more persistent.
Ok, actually I am only 22 so I have no idea if that voice gets any louder but it totally makes sense so I am going to roll with it. The voice is of course asking you what you are going to do when you retire and/or stop working. If you are like most Americans, you are going to promptly ignore that irritating voice noise thing and keep right on spending.
I am going to guess this is not because you are lazy but you probably assume you are going to get an anxiety attack if you face this voice. Finances are excessively complicated and there are literally thousands of places where people will promise you a substantial return if you only gave them your hard earned cash. What's worse, most of those places will also tell you that the other places to put your money are scams and provide some fancy financial terminology to prove this point.
I am going to guess this is not because you are lazy but you probably assume you are going to get an anxiety attack if you face this voice. Finances are excessively complicated and there are literally thousands of places where people will promise you a substantial return if you only gave them your hard earned cash. What's worse, most of those places will also tell you that the other places to put your money are scams and provide some fancy financial terminology to prove this point.
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| I had a Neurologist do a brain scan on myself while I tried to add an 18% tip to the bill at my local diner. This was I was given after the image was processed in the lab. I unfortunately can't ethically show you the image that resulted the last time I talked to a stock broker. |
You probably are vaguely aware that the stock market is a way to make a lot of future riches and is essential for retirement savings. You also might or might not know that stuffing your money in a mattress is probably not so smart because things tend to get more expensive over time and therefore, any solution must grow the amount of cash you have. But if you are like pretty much everyone who doesn't work in finance, that is pretty much it. You look on in envy at those suit wearing, graph wielding, lambo driving, financial analysts, wondering why they were blessed with the ability to understand the modern world in ways you never can.
Well, I've got some great news for you. Fortunately for you (but unfortunately for my wallet), I do not work for any financial establishment and I stand to achieve nothing from this post other than the validation that comes from other people viewing my work. This means I can give you the straight dope on making this future you rich and tell you the honest truth about 99% of financial advisors. Are you ready for it?
ITS ALL BULLSHIT!
Playing the stock market to make money for retirement? You can't actually do that in any "skilled" way, no one is capable of doing it. What about financial advisors that are Harvard educated and wear fancy suits? Can't I give them my money and let them handle it better that I ever could? You could give them that money, but you could make way more without really doing anything. Virtually all of those people running around the NY Stock Exchange all day are not actually being useful, they are losing money to look busy.
Well, I've got some great news for you. Fortunately for you (but unfortunately for my wallet), I do not work for any financial establishment and I stand to achieve nothing from this post other than the validation that comes from other people viewing my work. This means I can give you the straight dope on making this future you rich and tell you the honest truth about 99% of financial advisors. Are you ready for it?
ITS ALL BULLSHIT!
Playing the stock market to make money for retirement? You can't actually do that in any "skilled" way, no one is capable of doing it. What about financial advisors that are Harvard educated and wear fancy suits? Can't I give them my money and let them handle it better that I ever could? You could give them that money, but you could make way more without really doing anything. Virtually all of those people running around the NY Stock Exchange all day are not actually being useful, they are losing money to look busy.
I can't imagine I have convinced you yet. How could this possibly makes sense? Those people on Wall Street are rich. They drive lambos, and I don't. Money talks and bullshit walks as they say.
Well here is a fun little test of this hypothesis. For people picking stocks, the benchmark they must compare how well they are doing to is the famous monkey dart board. That is to say, we can know how well an investor is doing if their stock picks are making them more money than if a monkey simply threw darts at a stock board and invested in those stocks.
How many people have succeeded against this very basic test you may ask? Zero. Yep, that is right.* Forget the Harvard MBA who is impressing you with his Herman Miller office furniture, go to the zoo, buy yourself a monkey and teach him to play darts. It's probably cheaper and will make you a lot more money.
*Update: This is not really exactly what the Post said. It said that no mutual fund was consistently a top performing mutual fund. The honest answer is that no one is 100% sure whether mutual funds can "beat" the market consistently over long periods of time. But there is a lot of evidence to suggest the answer might be no...and honestly, they aren't worth the hassle relative to low cost indexing.
 |
| It is important to mention that this scenario only works if the monkey is of sufficient size to throw darts. |
This still doesn't explain why the Harvard MBA was even able to pay for his office furniture in the first place though. Or even why the smartest people in the world can't seem to do better than the monkey at the Bronx Zoo.
Let's start with how the guy got his office. It is simple, people pay this guy to manage their money. It doesn't matter if this guy is losing all of it (or more likely, giving back mediocre returns that should be much better), he gets a big fee which pays for his office and cocaine habit.
This of course generates another side question: why does anyone give this guy money in the first place? Also simple answer: even stock investors get lucky every once in a while. You will frequently hear stock brokers brag about returns from a certain time period being exceedingly large. I met one who bragged to me that the previous month he had made over 6000% of what he had initially invested.
But this is like saying that you are a good gambler because after playing the slots for a year, you made 100,000 dollars yesterday. Never mind you put 200,000 dollars in over the last 12 months, yesterday you did great! Believe it or not, this faulty logic drives stock investing the same way it drives Las Vegas, people are greedy and want to believe they have the power to make immense profits despite all evidence to the contrary.
And the evidence is substantial lest we forget what I said earlier. Not a single person has been able to do better than our monkey which should be all the evidence you need.
The final puzzle here is why no one can seem to figure out which stock is going to make money in the future despite the fact that such a thing should be relatively simple. For instance, we all knew the last Star Wars movie was going to make enough money for the entire Disney corporation to shower with 100 dollar bills. Therefore it would seem to make sense to have bought Disney stock before the movie was released since that is right before they made all the money for their Benjamin Franklin shower.
The issue here is that as I mentioned, everyone knows this. Literally millions of stocks are traded every single day by millions of people. Therefore, it is likely that millions of people will be buying Disney's stock even before the company makes any money. What's more, millions of people also know that millions of other people will be operating on our initial hunch and try to get rid of Disney stock because they think it will become overvalued. And people will also know this and the cycle goes on in an infinite loop.
As far as we know, it is impossible to look at a stock and determine if it is undervalued or not at any given time. It is simply impossible to understand at any given time why millions of people are making a decision that makes a stock worth what it is. And of course, if someone did actually figure it out, everyone else would just start using that strategy until it became completely useless. Also keep in mind, it is illegal for anyone to make a decision about stock investing with information that is not public. This prevents say, George Lucas from buying Disney stock before the Star Wars deal was announced.
If you are anything like me, all this information I have just presented is perhaps the most wonderful validation of American values of all recorded time. The bourgeois is full of shit! All those fancy looking people who got into Ivy League business schools we could never afford think they are really smart but are dumber than us! The common man wins! Let freedom ring!
 |
| Caption not needed |
But the problem is, despite all of this affirming your support for Bernie Sanders and falling asleep in math class, you still haven't learned how to make your funds grow in an easy way so you can play golf and buy some badass dentures when you turn 65. Well, I guarantee you it is very possible, it requires almost no time investment, no math skills, and a financial investment that virtually anyone can afford. I'll tell you all about this voodoo in the second part to this series but in the meantime, buy yourself some apple pie and send that business wiz knowitall from high school a middle finger emoticon on Facebook: you deserve it.
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