Run fast, run far!
June 2, 2008
Certainly, that’s what we all want our investments to do… but that’s not what this piece is about.
I love the story of presidential candidate Adlai Stevenson (running against Dwight Eisenhower) being approached by a supporter who said that Stevenson was “sure to get the vote of every thinking man.” His answer? “Thank you, but I need a majority to win.”
Albert Einstein quipped, “Two things are infinite, the universe and human stupidity; and I'm not sure about the universe.”
“Ignorance is an evil weed, which dictators may cultivate among their dupes, but which no democracy can afford among its citizens.” William Beveridge
Or, if you prefer, Jimmy Buffett, “Is it ignorance or apathy? Hey, I don't know and I don't care.”
Of course, one must turn always to Winston Churchill for his insight into the human condition. “Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing had happened.”
Years ago, I read somewhere that there’s an $8 billion business geared to convince women that they’re ugly. I’m sure the hair care, weight loss, and beauty product business is much larger than that now, but you get the idea.
I imagine that the business of investment advice is far greater in size than that of the beauty industry. Like the beauty industry, however, its very existence hinges on creating the perception of a need where (in my view) none exists. Just as all women are beautiful in their own way, every investor who can read, count, and think is capable of playing an active role in the management of his or her own investments. Success in the world of investment advice is inextricably tied to convincing the marketplace that it is too stupid, or too ignorant, to think for itself.
Let’s back up a few steps and examine the relational aspect of professions that end up costing us a lot of money. Doctors, lawyers, politicians, accountants, and of course, auto mechanics. What do these specialists have in common? For the most part, it’s the creation of highly specialized language designed ostensibly so that the ‘specialists’ can converse with one another. To the extent that little effort is made to translate these exclusionary languages into plain English (or plain whatever), an artificial wall or barricade is created. As a result, what resides on the other side of the wall assumes an aura of mystery, of expertise, of being inaccessible by way of complexity to the laity. By creating such a barricade, the constant message being sent is, “we know, you don’t know, you’re not capable of knowing, better to leave it with us… oh, and since we know and you don’t, it’s going to cost an arm and a leg for you to leave it with us.”
Effectively, the laws of supply and demand are skewed by limited access to operating in these fields. The supply of doctors in Ontario, where I live, for example, is controlled entirely by the College of Physicians and Surgeons of Ontario. Hmmm… this is a self-sustaining monopoly, operating under the guise of protecting the population from quackery, which it does not. To my way of thinking, the CPSO acts merely as a licensure union for the profession, squeezing supply, and in so doing, driving up prices for the service. This is a dubious structural obstacle, one that, like the teachers union, diminishes the value of what’s being delivered. The creation of complex vocabularies is another false front, packaged and delivered in regular ‘stay away’ messages to the marketplace.
I don’t want to start sounding like Mel Gibson in “Conspiracy Theory” but I wonder why governments don’t mandate formal instruction to our children on how to manage their money. These lessons are left to ill-informed parents, and to the vagaries of life experience. Notwithstanding William Beveridge’s thoughts on democracy, I am convinced that the mission of modern politicians is to maintain power, and that they believe this power is best maintained by the ignorance of the unempowered. Same story applies to anyone in a position of influence not founded on solid ground.
Enter the financial advisor. Don’t get me wrong. I’m sure there are people in the business whose skill and experience should be valued and sought after. I expect these are few and far between. Rather, those willing to share their high-level skills and experience are a rarity. I invoke the adage, “Those who know don’t say, those who say don’t know.”
I fully recognize that there are many among us who would rather not do the work for ourselves. In truth, there are so many facets to life that we cannot become experts in everything that touches us in this world. So… we prioritize. Some are experts in baseball cards, some garden, some prefer to spend their time on Paris and Britney and Jessica. We make our own choices, and are left with no choice but to live with the consequences. In choosing not to conduct our own due diligence in investing, we invite others to tell us what to do. By my observation, too many implore others to tell them what to do. I guess that’s just life. Few lead. Most follow.
In such a willing marketplace, it’s just too easy for so-called experts to proclaim themselves as experts. Someone in this business once told me, “In this business, all you have to do to become an expert, is to declare yourself an expert.” My immediate response is to ask, “what qualifies this person to tell me how I should invest my money?” Are his/her credentials so much greater than my own? Am I so inept? If there is a meaningful gap in our relative skills, what’s the price of narrowing, or even eliminating, that gap? How steep is the learning curve? Is this gap real or perceived? If perceived, are we merely our own victims, or are others feeding our sense of incompetence, or some combination of the two?
These are key questions that occupy me at present. What do people see in their sources of investment advice which they do not see in themselves? In my view, there can be only a small number of gap-producers, very easily, and very narrowly defined. Specifically, we may be deficient: in skills related to investing; in technical understanding of the businesses in which we invest; or in factual knowledge of the market or specific companies under consideration.
We live in a time of luxury. In truth, many of us have the luxury of too much time, and not enough productive things with which to fill that time. As Oliver Wendell Holmes said, “Give us the luxuries of life and we’ll dispense with the necessaries.” To be more blunt, with so much luxury, we’ve neglected the necessaries… in this case, responsibility for managing our own financial affairs. Turn off the television, I say. “Think, think, think!” as Winnie the Pooh would say. It’s not rocket science. Anyone who tells you it is, is either lying to you, or doesn’t know any better. Is there a lot to learn? You bet there is. Is it worth the trouble? I say yes. In the end, you’ll need to judge for yourself.
When I hear or read someone suggesting that they know better than I how I should manage my money, I run. I run as fast and as far away as I can from such people. They have nothing to offer me. If they are not able to add to my understanding of investments, nor of the technical or factual nature of businesses I’m looking at, they have nothing to offer to me. If they do not actively encourage me to learn and grow, they do not serve my interests, but rather only their own. Run fast, run far!
Best,
Kevin