50 Unfortunate Truths About Investing

Sorry, but ... 

1. Saying "I'll be greedy when others are fearful" is much easier than actually doing it.

2. The gulf between a great company and a great investment can be extraordinary.

3. Markets go through at least one big pullback every year, and one massive one every decade. Get used to it. It's just what they do.

4. There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds.

5. As Erik Falkenstein says: "In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves."

6. There are tens of thousands of professional money managers. Statistically, a handful of them have been successful by pure chance. Which ones? I don't know, but I bet a few are famous.

7. On that note, some investors who we call "legendary" have barely, if at all, beaten an index fund over their careers. On Wall Street, big wealth isn't indicative of big returns. 

8. During recessions, elections, and Federal Reserve policy meetings, people become unshakably certain about things they know nothing about.

9. The more comfortable an investment feels, the more likely you are to be slaughtered.

10. Time-saving tip: Instead of trading penny stocks, just light your money on fire. Same for leveraged ETFs.

11. Not a single person in the world knows what the market will do in the short run. End of story.

12. The analyst who talks about his mistakes is the guy you want to listen to. Avoid the guy who doesn't -- his are much bigger.

13. You don't understand a big bank's balance sheet. The people running the place and their accountants don't, either.

14. There will be seven to 10 recessions over the next 50 years. Don't act surprised when they come.

15. Thirty years ago, there was one hour of market TV per day. Today there's upwards of 18 hours. What changed isn't the volume of news, but the volume of drivel. 

16. Warren Buffett's best returns were achieved when markets were much less competitive. It's doubtful anyone will ever match his 50-year record.

17. Most of what is taught about investing in school is theoretical nonsense. There are very few rich professors.

18. The more someone is on TV, the less likely his or her predictions are to come true. (U.C. Berkeley psychologist Phil Tetlock has data on this).

19. Related: Trust no one who is on CNBC more than twice a week.

20. The market doesn't care how much you paid for a stock. Or your house. Or what you think is a "fair" price.

21. The majority of market news is not only useless, but also harmful to your financial health.

22. Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don't even try. 

23. How much experience a money manager has doesn't tell you much. You can underperform the market for an entire career. And many have.

24. The decline of trading costs is one of the worst things to happen to investors, as it made frequent trading possible. High transaction costs used to cause people to think hard before they acted.

25. Professional investing is one of the hardest careers to succeed at, but it has low barriers to entry and requires no credentials. That creates legions of "experts" who have no idea what they are doing. People forget this because it doesn't apply to many other fields.

26. Most IPOs will burn you. People with more information than you have want to sell. Think about that.

27. When someone mentions charts, moving averages, head-and-shoulders patterns, or resistance levels, walk away.

28. The phrase "double-dip recession" was mentioned 10.8 million times in 2010 and 2011, according to Google. It never came. There were virtually no mentions of "financial collapse" in 2006 and 2007. It did come.

29. The real interest rate on 20-year Treasuries is negative, and investors are plowing money into them. Fear can be a much stronger force than arithmetic.

30. The book Where Are the Customers' Yachts? was written in 1940, and most still haven't figured out that financial advisors don't have their best interest at heart.

31. The low-cost index fund is one of the most useful financial inventions in history. Boring but beautiful. 

32. The best investors in the world have more of an edge in psychology than in finance.

33. What markets do day to day is overwhelmingly driven by random chance. Ascribing explanations to short-term moves is like trying to explain lottery numbers.

34. For most, finding ways to save more money is more important than finding great investments.

35. If you have credit card debt and are thinking about investing in anything, stop. You will never beat 30% annual interest. 

36. A large portion of share buybacks are just offsetting shares issued to management as compensation. Managers still tout the buybacks as "returning money to shareholders."

37. The odds that at least one well-known company is insolvent and hiding behind fraudulent accounting are high.

38. Twenty years from now the S&P 500 (INDEX: ^GSPC  ) will look nothing like it does today. Companies die and new ones emerge.

39. Twelve years ago General Motors (NYSE: GM  ) was on top of the world and Apple (Nasdaq: AAPL  ) was laughed at. A similar shift will occur over the next decade, but no one knows to what companies.

40. Most would be better off if they stopped obsessing about Congress, the Federal Reserve, and the president and focused on their own financial mismanagement. 

41. For many, a house is a large liability masquerading as a safe asset.

42. The president has much less influence over the economy than people think.

43. However much money you think you'll need for retirement, double it. Now you're closer to reality.

44. The next recession is never like the last one. 

45. Remember what Buffett says about progress: "First come the innovators, then come the imitators, then come the idiots."

46. And what Mark Twain says about truth: "A lie can travel halfway around the world while truth is putting on its shoes."

47. And what Marty Whitman says about information: "Rarely do more than three or four variables really count. Everything else is noise."

48. The bigger a merger is, the higher the odds it will be a flop. CEOs love empire-building by overpaying for companies.

49. Investments that offer little upside and big downside outnumber those with the opposite characteristics at least 10-to-1.

50. The most boring companies -- toothpaste, food, bolts -- can make some of the best long-term investments. The most innovative, some of the worst.

Check back every Tuesday and Friday for Morgan Housel's columns on finance an economics. 


Read/Post Comments (70) | Recommend This Article (379)

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  • Report this Comment On November 15, 2012, at 1:32 AM, SuntanIronMan wrote:

    Could you elaborate on this one a bit more?

    9. The more comfortable an investment feels, the more likely you are to be slaughtered.

    That's a nice sentence, but I'm not exactly sure what it means.

    Does that mean that if an investor is completely comfortable with an investment, he/she will stop doing their homework and won't realize it when bad things are happening? That's what I tried to extrapolate out of that sentence, but I'm not sure if that is what you were getting at.

  • Report this Comment On November 15, 2012, at 5:10 AM, TMFMorgan wrote:

    Sure. Stocks in 1999, real estate in 2006, and bonds/gold today are comfortable investments for investors to make because past returns were/are excellent -- people think they're getting into a safe investment based on everyone's exuberant sentiment. In contrast, it took a lot of guts to buy stocks in 2009 or bonds in 1982. They felt like very risky. In both cases, future returns are usually the opposite of people's emotions.

  • Report this Comment On November 15, 2012, at 6:29 AM, SuntanIronMan wrote:

    Ah, the 'past performance is not necessarily indicative of future results' disclaimer. Thanks for clarifying, Mr. Housel.

  • Report this Comment On November 15, 2012, at 12:59 PM, ejazz2095 wrote:

    This is a great article. #10 & #45 made me laugh since they are so true.

  • Report this Comment On November 15, 2012, at 2:15 PM, Mathman6577 wrote:

    Apple may be an example of a great company where the gulf to a great investment is becoming wider and wider.

  • Report this Comment On November 15, 2012, at 6:20 PM, omahasandman wrote:

    Excellent article/list...article should be titled "Investing 101"

  • Report this Comment On November 15, 2012, at 6:45 PM, stockdissector wrote:

    I agree on #40. If people focused more on their well being instead of waiting for the government to step in to help them they would be a great deal better off.

  • Report this Comment On November 15, 2012, at 11:10 PM, SuntanIronMan wrote:

    For number #40, I think most people do do that (based on the voter turnout, which was lower than 2008). And not all of the mid-50% of those that actually vote care too much about who are what they are voting for.

  • Report this Comment On November 16, 2012, at 12:47 PM, cavrad wrote:

    Great article as always, Morgan!

  • Report this Comment On November 16, 2012, at 1:54 PM, djongdddd wrote:

    omahasandma hit the nail on the head -- this should be titled "Investing 101". Great list.

  • Report this Comment On November 16, 2012, at 4:55 PM, applecord wrote:

    Morgan, great stuff.

    40-42 in particular. Keep it up!

  • Report this Comment On November 16, 2012, at 5:48 PM, asdfk123 wrote:

    Number 27 made me laugh. Great article, thanks Morgan.

  • Report this Comment On November 16, 2012, at 6:15 PM, DavesHere wrote:

    #51. Talent and education are not everything. It takes a management team of EXTRAORDINARY integrity to remain disciplined when it reaches the collective realization that it is playing, risk-free, with other people's money.

  • Report this Comment On November 16, 2012, at 6:46 PM, akaluna wrote:

    Excellent thoughts. Well done.

    I am trying to figure out a way to have them all pop up in front of me before I buy or sell!

  • Report this Comment On November 16, 2012, at 7:03 PM, lwbaum wrote:

    "it took a lot of guts to buy stocks in 2009 or bonds in 1982. They felt like very risky. In both cases, future returns are usually the opposite of people's emotions."

    That makes me feel good about my guts since my very first investment in stocks or bonds was to buy a bond in 1980, and I bought many stocks on Halloween 2008: both a tad early but almost opposite the crowd.

    You might add another point: the worst investing mistakes are often NOT owning a stock. My biggest blunders were selling Amgen after it doubled in 1991 and missing it rising 10x over the next 10 years, and not buying Qualcomm in the mid-1990s after spending a whole afternoon poring over its annual reports and not quite being convinced, and missing a 30x rise over the next few years.

  • Report this Comment On November 16, 2012, at 8:45 PM, stillwater9999 wrote:

    Great article- too bad some of the stock pickers (e.g. one at Hidden Gems) do not subscribe to these ideas.

  • Report this Comment On November 16, 2012, at 9:12 PM, NickD wrote:

    Number 9. is odd

    Number 50. is good

  • Report this Comment On November 16, 2012, at 10:14 PM, JF125780 wrote:

    This article is great, I'm going to put it with my favorites. Very few articles make my favorites.

    Danny Kowkabany

  • Report this Comment On November 16, 2012, at 11:34 PM, LANaturist wrote:

    @Kahuna: How much did your portfolios lose in 2008-2009?

  • Report this Comment On November 16, 2012, at 11:41 PM, whereaminow wrote:

    ----->

    4. There is virtually no accountability in the financial pundit arena. People who have been wrong about everything for years still draw crowds.

    <------

    As a corollary to this, those who have been spot on correct about just about every single aspect of the financial, economic, and political world for decades (and beyond) continue to be ignored by the mainstream (and by Motley Fool writers).

    David in Liberty

  • Report this Comment On November 17, 2012, at 12:17 AM, NOTvuffett wrote:

    lol, david, you didn't build that, your kensian overlords bilt that. or however you spell that, lol

  • Report this Comment On November 17, 2012, at 1:27 AM, TerryHogan wrote:

    I like it as usual.

    @TMFMorgan - Question about #36 - while anecdotally I would agree with you, especially if you go by the number of companies that initiate buybacks, do you have any stats on this? I would think that if you went by actual dollars spent, there would be a larger portion that aren't just offsetting share awards. (*I almost said dollar value, but I know how good companies are about getting value for their buybacks)

    I might change that one to something like "Most companies are no better than the average investor at spotting an undervaluation in their share price. Buybacks are not necessarily a buy signal, or a good use of company funds."

  • Report this Comment On November 17, 2012, at 1:58 AM, kyleleeh wrote:

    <<The last portfolio I managed professionally returned an annualized compound rate of return <audited> of of 58.4% from 1992-1995.>>

    I'm not impressed. We we're coming out of a recession from 92-95 anyone would have done good if they started out at a bottom. Based on my returns from June 2009-2012 I look like Buffet

  • Report this Comment On November 17, 2012, at 6:47 AM, mobilemaker wrote:

    @Kahuna - Maybe Morgan is mostly wrong... can you share your alternative 50 Truths then?

    I am very keen to insights from the wisdom that generated the incredible 58.4% return.

    1992-1995 of course.

  • Report this Comment On November 17, 2012, at 8:15 AM, 4melody wrote:

    Thanks Morgan for your 50 insights on investing. Definitely an article to ponder!! ~ mkp

  • Report this Comment On November 17, 2012, at 2:38 PM, MasterOTUniverse wrote:

    If these 50 'truths' are all true why does the stock market still exist? Surely everyone would realise they can't make money and that would be the end of it? I made money on buying some shares a few years ago and as was more than I made in salary decided to look further into it, I've since mainly traded penny stocks and invested in big stocks and have made decent returns, way above a savings account, and I go by charts (not technical indicators) - I think they display crowd psychology and crowds usually over-react - I do believe most of the above truths are correct as in ignore the noise and just do your own thing but I've found that managing money/risk is the main thing, knowing where to put stops, discipline to sell at small losses and to let winners ride..

  • Report this Comment On November 17, 2012, at 2:47 PM, boolanger wrote:

    I would include the term "financial journalist" to item 4 and 8 of the 50 items listed above where Mr Morgan Housel clearly should be included. Of course it is easy to be critical of financial advisors as it is an inexact science yet doesn't it seem rather odd that most of the brightest business leaders curiously employ a financial advisor?!

  • Report this Comment On November 17, 2012, at 7:00 PM, TomBooker wrote:

    Just plain great stuff Mr Housel. There are some memes in there but I can't think up 50 veritaes about anything, with the exception of golf.

    I learned a great deal of what I needed to know about the financial world and self-investing, between the ages of 14 and 17 as a caddy at private clubs.

    I never understood why Investment Managers spent so much time schmoozing for AUM on the golf course. It's one of few places on Earth, where everything is counted, and you get penalized if you can't/won't do basic arithmetic.

    Most wagers are "won", before the first ball is teed up. So are most derivatives and IPOs from the Big Houses.

    If the majority of your shots in a competitive round don't turn out in the manner you envisioned, you'll get the Booby Prize for the event. Under the similar circumstances, a Financial guy gets awarded a Hedge Fund to run.

    Clubs came up with the idea to replace caddies with motorized golf-carts. It was supposed to "speed-up the rounds." Every piece of research in recent history has either found they have no such effect or make the rounds worse.

    We caddies know why they are still around. They help make money for the Private Equity groups which own the daily-fee courses.

    For the Players, they carry the bag, have no eyes, can't count, and have no memory.

    It's a little-known fact,.but.. motorized golf-carts were the model for the Neo-SEC.

  • Report this Comment On November 17, 2012, at 7:08 PM, tyfoidhana wrote:

    The best investments are what every body wants before everybody realizes they want it.

  • Report this Comment On November 17, 2012, at 7:19 PM, alvin wrote:

    great list.

  • Report this Comment On November 17, 2012, at 9:59 PM, RussellB6 wrote:

    "most still haven't figured out that financial advisors don't have their best interest at heart." I wonder, Mr Housel, what data you have used to arrive at this conclusion. Maybe you have spent more time in the presence of financial advisors than I have. The financial advisors I know work very hard for their clients. Every one of them has multiple clients who have become friends. They counsel time-starved clients on an array of issues which baffle, intimidate, and torment them. They have assembled an army of experts with whom they can consult in order to offer their clients direction in much more than stock or fund selection - issues such as liability management, retirement planning, providing for the education of their children, life and medical insurance, charitable giving, and myriad other products and services which enhance and enrich their clients lives. Perhaps you could heed the Fool's Rules and be more respectful with your comments.

  • Report this Comment On November 17, 2012, at 10:12 PM, saximan1 wrote:

    Now, if we follow #27, we won't be able to read many articles on TMF.

  • Report this Comment On November 18, 2012, at 2:11 PM, SaraW946 wrote:

    I actually liked this article very much and find that the principles it spells out hold true, especially when it comes to amateur investors, especially those who hope to beat the market. There are exceptions that confirm the rule, of course, in what the article argues. I don't pretend that I'm an expert in investing, nor have I made a fortune, and I'm not better than the rest of you. To the person who commented that if the 50 truths were true, there would be no stock market, I only have to say this: as we all know, money doesn't grow on trees. There is a limited supply of it, and in order for some to gain, some have to lose, and these 50 truths reflect this fact.

  • Report this Comment On November 18, 2012, at 3:21 PM, mikecart1 wrote:

    Excellent article. I like these types. Straight to the point with no filler. Reminds me of chicken breast in the supermarket vs. 'chicken' sandwich at your local fast food dump.

    :D

  • Report this Comment On November 18, 2012, at 8:57 PM, canadacomments wrote:

    @RussellB6

    Unfortunately I agree much more with Morgan than you. I used to think the way you do, but my experience, and those of many people I know, is that they wake up one morning and find that they have been churned for years by their "friends" the financial advisors with their hordes of analyst backups. I'm trying to overcome my years of neglect of my portfolio by doing my own research the Foolish way, and although I'm not setting the world on fire, I'm doing better than my ex-friends, the financial advisors.

  • Report this Comment On November 19, 2012, at 9:53 AM, Truth2Power wrote:

    I about snorted coffee out my nose after reading #9. Points to ponder:

    #5: Aha, but how do you know whether you're an "amateur" or "expert" when it comes to investing?

    #26: I still wonder if you could make money by shorting every IPO when it peaks in the afternoon of its first trading day.

    #27: In my early days as an investor, I was lured by Mr. O'Neil into looking for "high, tight flags" and "teacups with handles." Fortunately (for me), that phase only lasted a couple of months before I realized it was all BS.

  • Report this Comment On November 19, 2012, at 10:22 AM, TMFMorgan wrote:

    <<Several investors have done far, far better than the market for decades. Warren E. Buffett, and Mr. Bill Miller are just several who are well know that come to mind.>>

    This is *exactly* the point I wished to make. Bill Miller's career track record beat the S&P 500 by a razor-thin margin. From the Wall Street Journal:

    "Over the full stretch since Mr. Miller became lead manager of the fund in 1990, he has gained an average of 9.39% annually, versus 9.14% for the S&P 500."

    In short: He slaughtered the market for about a decade -- that's where his legendary status comes from. Then he dramatically underperformed it for several years, bringing his cumulative track record down close to an index fund. Too many people focus on the first part and ignore the second.

  • Report this Comment On November 19, 2012, at 11:55 AM, miteycasey wrote:

    Love #41.

    Wish I had known that before I bought my house.

    Not saying I wouldn't have bought a house, but I wouldn't have bought the one I did(too big, too much taxes, too much maintenance).

  • Report this Comment On November 19, 2012, at 11:57 AM, FriedBrain wrote:

    @Truth2Power:

    <<#5: Aha, but how do you know whether you're an "amateur" or "expert" when it comes to investing?>>

    If you have to ask, assume you're the amateur.

    <<#26: I still wonder if you could make money by shorting every IPO when it peaks in the afternoon of its first trading day.>>

    Could you? Sure. And you could also wind up bathing in red ink. Shorting is a tough game to play, especially on an IPO. Unless you're an expert (see above), or are willing to watch that short like a hawk, let it pass.

  • Report this Comment On November 19, 2012, at 12:06 PM, topbeancounter wrote:

    The author must have been watching my posts for years. I love that they are now in order. I plan on suggesting several of these to my clients that think making 300 trades per year and losing their backside is going to work out in the end, ignoring the hundreds of thousands of dollars already lost.

    When referring to Warren Buffet, remember one very important difference; when he invests say $5 billion, his deal is not what we can get when we buy our shares in the same company. Check out the investments made in GE and B of A. Not only does he receive a very high preferred dividend (say 10%), but also the rights to buy a gazillion shares at the current market price, which seems to rise after his purchase. The man is really good, but also a real businessman. Don't forget it if you think you will do as he does and come out as well....won't happen!

  • Report this Comment On November 19, 2012, at 7:52 PM, Chippy55 wrote:

    #35 Should be written in stone and placed on the front door of every home in America. Last I heard was the average person has $13,000 in credit card debt. #1 is difficult for most people to accept, they can't imagine that a stock is in a cycle and will go back up.

  • Report this Comment On November 20, 2012, at 9:16 AM, tooTall83 wrote:

    Great article -

    i have to ask what you mean by item 41. I bought a house with a value of roughly 1.75x my annual salary with 20% down @3%. I rent out two of the rooms.

    Are you refering to all home purchases ? Can you be more specific.

    thanks

  • Report this Comment On November 20, 2012, at 6:40 PM, bzhayes wrote:

    tooTall:

    Morgan was pretty straight forward, "For many...."

    He didn't say everyone has a house that is a liability masquerading as a safe asset, just that many people do. Many people bought houses that they could not afford on the assumption that its value would continue to appreciate forever and allow them to retire rich.

  • Report this Comment On November 21, 2012, at 1:45 AM, jsaintlaurent wrote:

    Good Article Morgan. It really shed light on the whole topic to bring in the truths history has taught us.

  • Report this Comment On November 22, 2012, at 11:44 AM, WishToRetire2 wrote:

    Is 27 saying don't use technical analysis yourself?

    Or is it just saying don't listen to pundits or money managers talking in the media?

  • Report this Comment On November 23, 2012, at 10:40 AM, yieldcurve wrote:

    Well done.

  • Report this Comment On November 23, 2012, at 11:04 AM, endofthetunnel wrote:

    Most IPOs go up on the first day of trading vs the issue price. The reason you lose money on them is that when they go up you don't get full share allocation but when they go down you get all the shares you applied for. In short you win small but lose big.

  • Report this Comment On November 23, 2012, at 11:45 AM, somecommonsense wrote:

    Thanks , Morgan. Some very good "Dutch Uncle" advice for all of us!! Hope you will continue to share more of your wise advice.

  • Report this Comment On November 23, 2012, at 12:13 PM, PoorerThanU wrote:

    "#22. Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don't even try."

    If by short term trading, you mean seconds. Then yes, I wholeheartedly agree. But, short term (hours/days) trading is the same as long term investing but different time frames.Sectors, even the whole market, can be unloved for a decade.

    The most interesting part of #22 is how you say "professional investors" at the start then talk about "short-term trading"...what am I to make of that? Are you intentionally trying to confuse the 2? As you know, they are completely different animals.

  • Report this Comment On November 23, 2012, at 12:48 PM, aleax wrote:

    @topbeancounter, the occasional advantageous deals Buffett can get thanks to moving around large sums of money are more than compensated by all the deals that wouldn't be material to BRK (just too small) and the fact that very large trades move the market against him (even the best trader can't plough billions into one stock without substantially raising the price of his purchases against himself). That's why WB was getting enormously better returns back when his partnership was small and unknown, and he's recently stated he could get them today, were he managing just a few tens of millions, rather than of billions.

    #16 is just very wrong: Wall St was just as fiercely competitive throughout its centuries-long life, and making and holding on to money there, never easy. Of course very few money managers have or will have 50-years-long track records, so the prediction about those is not particularly meaningful;-).

  • Report this Comment On November 23, 2012, at 12:54 PM, TMFMorgan wrote:

    aleax,

    "Wall St was just as fiercely competitive throughout its centuries-long life."

    You show me how'd you quantify that, and I'll show you how I'll do it.

  • Report this Comment On November 23, 2012, at 1:37 PM, AllyTheCat wrote:

    #27 - Very nice to know that amateurs are still being told to ignore technical analysis. makes it much easier to take advantage of that knowledge gap. Cheers.

  • Report this Comment On November 23, 2012, at 1:59 PM, whyaduck1128 wrote:

    "13. You don't understand a big bank's balance sheet. The people running the place and their accountants don't, either."

    Actually, as an accountant, I think that some of the accountants at the banks do understand the balance sheet. the problem is that they understand the bank's real internal balance sheet, not the tax balance sheet, or the public one, or the one the top brass use to play their games against each other.

    As for the full list, well done as usual, Morgan. Lots of good stuff there, even if I don't agree 100% with all of them. #2 in particular seems to run against the Fool's stated mission.

  • Report this Comment On November 23, 2012, at 2:04 PM, TMFMorgan wrote:

    << #2 in particular seems to run against the Fool's stated mission.>>

    TMF's stated mission is to help the world invest, better. I don't think anything here goes against that :)

    For an example of the difference between a great company and a great investment, I'd point out Microsoft in 2000, Wal-Mart in 2000, and Google in 2007.

    More here:

    http://www.fool.com/investing/general/2010/09/17/5-companies...

  • Report this Comment On November 23, 2012, at 2:48 PM, WineHouse wrote:

    "On November 17, 2012, at 1:58 AM, kyleleeh wrote (re Kahuna's post):

    <<The last portfolio I managed professionally returned an annualized compound rate of return <audited> of of 58.4% from 1992-1995.>>

    I'm not impressed. We we're coming out of a recession from 92-95 anyone would have done good if they started out at a bottom. Based on my returns from June 2009-2012 I look like Buffet."

    I agree with kyleleeh. And my experience has been much the same as his, exc. I would start a bit earlier, say April of 2009. And that includes making some really dumb mistakes! (like holding on to Eastman Kodak alllll the wayyyyyy downnnnnnnn).

  • Report this Comment On November 23, 2012, at 3:04 PM, WineHouse wrote:

    "On November 18, 2012, at 8:57 PM, canadacomments wrote: / @RussellB6 /

    Unfortunately I agree much more with Morgan than you. I used to think the way you do, but my experience, and those of many people I know, is that they wake up one morning and find that they have been churned for years by their "friends" the financial advisors with their hordes of analyst backups. I'm trying to overcome my years of neglect of my portfolio by doing my own research the Foolish way, and although I'm not setting the world on fire, I'm doing better than my ex-friends, the financial advisors."

    Yep. It took me years -- a decade! -- to finally convince my husband that his "good buddy" and "bridge-playing friend" was churning the daylights out of him. BPF had my husband in and out of the same investment multiple times a year over a several year period. Then he got him into a "managed investment program" (at an annual fee of 1.5% of account balance) which churned him, not with individual stocks, but with MUTUAL FUNDS! Every year, as soon as any one fund balance approached the level where the brokers' annual fee was decreased, they would SELL half of it and buy a new fund. When my husband realized that his "fund of funds" investment program had his money divvied up among 15 -- fifteen -- different mutual funds with overlapping goals that were being traded every year in early December, he finally had to admit that maybe I was right. Also especially since his account was throwing off capital losses every year during that entire 10 year period.

  • Report this Comment On November 23, 2012, at 3:10 PM, WineHouse wrote:

    Oh yes, one more thing that "good buddy bridge playing friend" was doing. Hubby had 2 accounts, one sans fees and the other with that 1.5% annualized fee. The annual fee was calculated and collected quarterly. I noticed that GBBPF was transiently moving assets from the no-fee account into the fee-based account for just a few days every quarter, then moving them back where they belonged. That way, the quarterly fee was based on a larger account balance than it should have been. I guess they never thought I'd notice. Hubby certainly never did. But it became obvious when the 1099's arrived: the same investment was throwing dividend income off into each account albeit in different months. At that point, hubby moved the remaining assets to a different broker.

    Funny, the BPF was also named Russell. Must be a ton of Russells in the business.

  • Report this Comment On November 23, 2012, at 5:50 PM, Stockling wrote:

    I'm in hysterics. The smartest list of investing wisdom I've read.

  • Report this Comment On November 23, 2012, at 8:40 PM, ALLWIN wrote:

    One of two responses are most likely on reading this article:- 'Great article" or "Ouch, ouch, ouch".

    In this case, my response was the former 'Great article". Like many of your previous articles is was indeed a joy to read an hopefully would go a long way to reduce the experiences of that 'ouch, ouch ouch' feeling re investments in the stock market.

    GREAT STUFF!! Thanks a million and one.

    Do keep up your excellent articles re investing.

  • Report this Comment On November 23, 2012, at 8:45 PM, RussellB6 wrote:

    Anecdotal evidence regarding individual miscreants is hardly proof of anything. An unscientific poll of my friends and acquaintences found nobody who was unhappy with his advisor. On the contrary. Several had high praise for their advisors. Most people need more help with their investing than this crowd, but even among this group there are not many who could develop a balanced suite of the kinds of products familiar to any decent analyst. Does any body believe there are fewer bad apples in other industries? How about car salesman? Realtors? Doctors, lawyers, congressmen, school teachers? How about a blogger for The Motley Fool bad-mouthing financial analysts? Can you say conflict of interest?

  • Report this Comment On November 23, 2012, at 9:21 PM, NickD wrote:

    Only 20 but if I get 140k saved by 30 earning 7% a year my stocks will invest more than I can afford. Can it really be so simple?

  • Report this Comment On November 24, 2012, at 1:04 PM, crca99 wrote:

    Nominated for the Ben Franklin award..

  • Report this Comment On November 24, 2012, at 2:14 PM, Peak2Trough wrote:

    51. Stated returns are meaningless without also stating the risk taken to achieve them.

    Question: Why doesn't the Motley Fool publish the standard deviation of all its portfolios alongside the returns?

  • Report this Comment On November 24, 2012, at 7:26 PM, decebalvs wrote:

    "11. Not a single person in the world knows what the market will do in the short run. End of story."

    "22. Professional investors have better information and faster computers than you do. You will never beat them short-term trading. Don't even try. "

    There is a bit of contradiction here

    Nice article otherwise.

  • Report this Comment On November 24, 2012, at 7:43 PM, TMFMorgan wrote:

    ^ it's mostly about professional investors exploiting price inefficiencies.

  • Report this Comment On November 24, 2012, at 7:46 PM, NickD wrote:

    I don't think Professional investors are real since most so called professionals fail.

  • Report this Comment On November 26, 2012, at 9:25 AM, whyaduck1128 wrote:

    decebalvs,

    I don't see a contradiction between #s 11 and 22. The "professionals" have better information and faster computers. That STILL doesn't mean they KNOW what will happen in the short run (or the long run, for that matter). For all their information and speed, they are still guessing and perhaps guessing incorrectly.

  • Report this Comment On November 27, 2012, at 5:40 AM, strelna wrote:

    Well, this is a magnificent list and I demur over oly three.

    9. Too simple a statement. You have a right to be comfortable, even on a high-risk investment, if you have done your full process. There is no stipulated need for the thought to make you feel sick, although in some cases the level of risk (based on unknowns) which you have accepted might justifiably do so.

    24. To remove an impediment to compounding is good. Whether it is also good for poor investors is another question, but a subsidiary one.

    47. I agree about the noise but not about the number of important variables.

    Well done Mr. Housel.

  • Report this Comment On November 28, 2012, at 3:43 PM, kspes wrote:

    I can't remember who said this.

    Financial Advisors don't know what you think they know.

    It stuck in my mind.

  • Report this Comment On October 20, 2014, at 6:28 AM, darqu wrote:

    Great article! Lots of truths.

    1. Saying "I'll be greedy when others are fearful" is much easier than actually doing it.

    True, but doing it really is one of the very best ways to profit. No one who started buying in mid-March 2009 needed to be an expert. Throwing darts at the wall worked well enough.

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