Presentation Slides: What Makes Us Bad Investors

I recently gave a talk at the American Association of Individual Investors, and again at a Motley Fool gathering in Toronto. Below are the slides I used in the talks. (I removed a few that would have been too confusing without context.)

The theme of the talk is simple. Most investors underperfom a basic benchmark like the S&P 500 (SNPINDEX: ^GSPC  ) . To me, that fact has always emphasized two points: That markets and the economy work far differently than we assume, and figuring out what makes people bad investors is a more important topic than what makes a good investor. 

Enjoy! 


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  • Report this Comment On July 17, 2013, at 12:58 AM, sliderw wrote:

    Very good slides!

  • Report this Comment On July 17, 2013, at 1:40 AM, Fuels wrote:

    Can I download? These slides are excellent. :D

  • Report this Comment On July 17, 2013, at 1:43 AM, Fuels wrote:

    Download complete using LinkedIn!

  • Report this Comment On July 17, 2013, at 4:56 AM, KurtEng wrote:

    Thanks for the slides. On slide 4, is P/E TTM or forward looking?

  • Report this Comment On July 17, 2013, at 8:56 AM, CraigWPowell wrote:

    There have been four distinct incredible times to be an investor over the last century: 1933, 1942, 1982, and 2009. During each period, you could have doubled your money over the following three years. And during each period, newspapers around the country preached a constant message: Be fearful. Sadly, most of us listened. We are the "others" Buffett was talking about: iknowfirst/Fiscal-Cliff-or-Not-the-Economy-is-Recovering

    Nice picture of traffic light, but it should be stll GREEN

    Good Morning to all of US!

  • Report this Comment On July 20, 2013, at 12:46 PM, ponysean wrote:

    Slide 13 is the one I have the biggest issue with.

    Look at the graph from 2000-present. More volatility than ever, annualized returns at less than 1% over that period, a far cry from the 10% that this article claims.

    It's great to know that the S&P has gone up over the last 100 years, but unfortunately most of us only invest for 40 or 50 years, so those number would be more statistically beneficial. Also, world events and economics have to be taken into account. The great depression was not a good time for stocks, and the 40 year return was certainly not around 10% during this time if you started investing at the peak.

    As a younger investor, I turned 18 in 2001, if I had put $1000 in an index fund, over the last 13 years my current annualized return would be less than 1%, and stocks are currently overvalued, so there is likely to be another correction rather than another 30% increase in the S&P.

    The big difference now is that the financial industry is bigger, less regulated and more powerful that it has ever been in the last 200 years. They make money off of volatility and high frequency trading, not off of long term buy and hold stocks. They percentage of the pie that goes to the financial industry is increasing every year. Where do you think that money comes from. It comes from the long term buy and hold investors.

    If I had followed the fool's advice I would have made about 1-5% over the last 13 years, instead my strategy of increasing my investments as the markets go down and selling as they go up (buy low sell high). I have made over 200% returns, which is much better than less than 1% annually that the fool recommends. I am almost all cashed out now, so when the market crashes again in the next few years, I will put it all in again and double my money. Simple strategy, make money off of volatility, it's easy, buy and hold is officially dead, the US is a different country than it was in 1950, at what point will the Motley Fool realize this. We are a service industry country, not a manufacturing country anymore.

  • Report this Comment On July 20, 2013, at 12:47 PM, ponysean wrote:

    sorry, i turned 18 in 2000, not 2001.

  • Report this Comment On July 20, 2013, at 1:10 PM, cmalek wrote:

    Great advice except for one, minor detail. What makes Motley Fool pundits any better than Wall Street ones? Many MF articles sound just the same as the garbage we get from Wall Street. Years ago, after MF debuted its own site, the advice and recommendations were based on actual facts. It had credibility. Over the years MF has moved further and further towards the Dark Side to the point where today only two things distinguish it from any Wall Street brokerage house, MF does not sell securities and MF does not make market in securities.

    I am constantly inundated with MF emails hinting at that such and such industry or some stock is going to take off. After wading through a 15 minutes slide presentation, I am informed that I must subscribe to a multi-hundred dollar report by one of your "experts". Exactly the same garbage I get from Wall Street cold callers.

  • Report this Comment On July 20, 2013, at 2:07 PM, Grahdodd wrote:

    Yet another Morgan home run.

    I agree with previous comments, though, in terms of this brilliant analysis conflicting with the essence of the Fool.

    I was reading one of the Fools founders rattling off the hundreds of companies he invests in ...and Im thinking...how "foolish".

    A.) bet his Top 5 ideas are a whole lot better than ideas 150 through 200.

    B.) ill bet an Index fund will beat the portfolio.

    And I'll bet Morgan, Bogle, and Buffett agree with me.

  • Report this Comment On July 20, 2013, at 2:29 PM, Sotograndeman wrote:

    Agree with ponysean and cmalek. The Fool is as guilty as any in misleading investors. TMF had no concept of valuation at the time of the dotcom bubble. One famous Fool was so hot on Nokia he promised it was going to the sky.

    Now, the Fool tries to be all things to all investors. Everything from predicting the next day's stock moves to proposing index funds for the coming half century can be found on its site. Like cmalek, I'm bombarded with Fool-mail tempting me with the promised land.

    Quoting Henry Blodget on one of the slides was the last straw - a buffoon and criminal who was banned by the authorities for premeditated reckless stock pumping in the dotcom era. Great idol, Morgan.

  • Report this Comment On July 21, 2013, at 11:22 AM, TMFHousel wrote:

    <<What makes Motley Fool pundits any better than Wall Street ones?>>

    Accountability, for one. See the performance of all our services on the home page.

  • Report this Comment On July 21, 2013, at 12:43 PM, Ragingmoose wrote:

    Investing in a business (or a stock) is arrogance by essence. I bet against 70 millions inverstors who are wrong. Maybe it's just prospective not forecasting.

    >The more important i take note of your slides is

    MAKE A CHECKLIST !

    Very good.

    Ragingmoose

  • Report this Comment On July 21, 2013, at 12:48 PM, TMFHousel wrote:

    <<And I'll bet Morgan, Bogle, and Buffett agree with me.>>

    The only person I can speak for in that list doesn't agree with you.

    Dave and Tom's results speak for themselves, and nothing in the presentation suggests that no one should be a stock-picker.

    Thanks for the comments, all.

    Morgan

  • Report this Comment On July 22, 2013, at 12:56 PM, tgnytg wrote:

    A very insightful presentation. As entertaining as it is informative. Thanks.

    Regarding the critics who fault the Fool for stock-picking and operating mutual funds: the most valuable resource that anyone can obtain from The Motley Fool is an education.

    I started my investing journey by subscribing to TMF Stock Advisor, then foolishly aping the stock picks that were in the latest issue. My best returns were only had after boiling down everything into the motives and reasoning behind the SA stock picks. In fact, in the last few years I have purchased more than a couple of stocks months BEFORE they became SA picks.

  • Report this Comment On July 26, 2013, at 8:29 AM, TMFDukenewkirk wrote:

    Pony...

    << It's great to know that the S&P has gone up over the last 100 years, but unfortunately most of us only invest for 40 or 50 years, so those number would be more statistically beneficial.>>

    http://stockcharts.com/freecharts/historical/spx1960.html

    Go ahead, use the last 50. How does that change things?

    Also, earnings have grown keeping P/Es in check quite nicely during this last run up. Does stock price rise in a vacuum in your mind? How are you judging overvalued? And how much run up, and how long will you sit on the sidelines waiting for a 20% pullback? My last 8 months are nearly a 40% overall gain, investing in 'only' Premium Fool covered companies. You don't really believe you have the same access to research premium members get on the free side, do you?

    Seriously, a lot of unfounded claims and tabloid opinions. There are many ways to invest, and make money investing, but you aren't doubling your money every five years while sidelined 5 years at a time, I strongly suspect. I started in 2005 with Motley Fool exclusive research guiding my portfolio. I've tripled my money by listening to people with real wisdom to offer during that time. I could make another 20%, 30% before your pullback comes. Thing is, I just don't know, and neither do you.

    Having a membership alone doesn't get it done either, for many, because it's not the payment for the newsletter that simply helps you make wise decisions, it's about taking the good advice you're provided to heart. I have no doubt that 15% annualized is achievable...these days...and I still aim for more. I buy and I hold, any time I see a company I like. There are companies making a lot of money, or on their way to doing so that can be found any day of the year at a price you'll look back fondly on.

    Don't kid yourself that you're doing the best you could simply guessing at what point of the ride on the roller coaster you're on.

  • Report this Comment On October 10, 2013, at 4:16 AM, enginear wrote:

    Good stuff - the problem is most of our issues as investors are emotional. We all like to think we're looking at the facts and making rational decisions, but we panic and get euphoric at the times that end up costing us.

  • Report this Comment On October 13, 2013, at 4:14 PM, mj2boogie wrote:

    Morgan,

    This is great stuff, as usual. Just reading it though it came out in July but, somehow, I think it's just as valid today!! ; )

    Mark

  • Report this Comment On May 06, 2014, at 12:51 PM, dswhipple wrote:

    The quote attributed to Yogi Berra was actually said by Danish physicist Niels Bohr. Yogi didn't say all the things he said.

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