I know, I know...It may be trite but I thought it would be a fun post to write.
Sh*t investors say
- "I want to turn $100k into $5 million": Possible? Yes. Likely? No. It's a real discussion going on on Quora now. The best way to grow a portfolio is by continuing to add to it (even better if your employer can match -- that's free money). To get 75% compounded returns, I personally like the answer to buy a $7 million life insurance policy and have an "accident".
- "But Suze Orman says to...": I hear this one a lot. It's best not to have gurus. Not Suze. Not Dave. Not me. These guys are great to learn from. Go ahead and glean. The good ones are great teachers and offer great learning opportunities. But they're out to build their own businesses. And as we're learning in SuzeOrmanGate (my term), they're liable to sell you stuff that's just not good for you. I'm not picking on Orman -- she's done great things for people. But gurus are human and stumble sometimes.
- "This investing stuff is easy": No, it's not. Sure, clicking buy or sell on your online trading account is pretty simple but the act of investing -- planning, risk management, asset allocation -- is hard. At least just for the fact that much of the process requires us to fight against our natural, human inclinations.
- "This strategy is a printing press -- it always works": Strategies work until they don't. Many strategies, like my hedge fund piggybacking strategy, was developed by backtesting results. I don't expect it to EVER work as well as the results because I designed it to maximum those results.
- "Well, Buffett owns it": Hey, I'm a big fan of following the smart money. Heck, hedge fund replication strategies are built upon the idea that they know more than we do. But don't ever confuse a single stock pick for an investment strategy. When Buffett buys something, it's a piece of a larger pie, an additional piece in an investing puzzle known only to him. Beware of cherrypicking guru stock picks.
- "You should check out this hot little small cap I just bought. I'm up 100% already": OK, tough guy. I'd like to see your cost basis on this one. Not that I accuse you of lying but people stretch the truth when talking about their winning ideas. They also don't happen to mention the ones that they got wrong. Unless they're audited results like Chris Camillo posted (he turned $20k into $2M -- I guess they could be forged), take these claims with a very large bucket of salt.
- "You should really subscribe to this penny stock newsletter I get. Great info": Investors -- many smart, educated people -- turn their brains off when they subscribe to free or premium newsletters. Many blindly swing at every pitch. The penny stock newsletters are published by stock manipulators. They get paid by large investors to prop up prices, so they can exit their positions. Many are compensated in stock, which incentivizes them to pump 'em up.
- "I'm out! This market is rigged.": Well, it might be but it still plays by some rules. Insiders have always profited -- leveling the playing field with REG FD (requiring public disclosures of important information) didn't change that. But use the tilt in the field to your advantage. Mimic the insiders and create strategies that follow their trading. I just wrote a free ebook: The Harvard Guide to Insider Trading that describes this technique.
- "I don't know what to do -- my broker sucks a$$": He might. Many do, but there are plenty of trustworthy good financial professionals (yes, even brokers) out there. They put their clients first not matter whether they have taken the fiduciary duty or not. But if you've had bad luck, keep looking. Try an online advisor like Covestor (I do freelancing work ) or Personal Capital. or Wealthfront (I'm a freelance writer). Use Wikinvest portfolio tools (I'm an editorial contributor) or portfolio optimizer, Jemstep. I especially like what Hedgeable is doing. Don't be complacent - there are new solutions out there that may just work better than the old ones.
- "My friends and I are getting into a small real estate deal. We'll let you in if you behave.": Sounds like an investment cult to me. If they're really your friends, I'm not sure you'd have to beg to get into a small deal they're putting together. Friends get burnt all the time by getting sucked into sucker deals. That doesn't mean to take a pass on everything that comes your way but it does mean to be very, very, very, very, very picky about who and what you invest in.