I recently had the privilege of discussing investments with a close personal friend who is a Harvard Ph.D. in Finance and a senior professor of Finance at an Ivy League university. He has made a personal fortune day trading (a very dangerous activity for the innocent). I expressed my frustration at seeing my meagre portfolio go nowhere in the last 20 years, largely mismanaged by a slew of professional “advisors”. What he told me was staggering, especially coming from such a distinguished “profound expert”:
1. All brokers are useless because they are perpetually caught in the conflict of promoting stocks from their underwriting divisions (who sponsor the stock), to the people who have hired them to protect and manage their interests. They are routinely told to stick their “dogs” into the portfolios of their “widows and orphans”. And this, on top of the outright crooks like Madoff, Jones, etc.
2. By the time you even catch a remote hint of a good stock or a market trend, it is way too late. The insiders have already scooped up all the profit. Regular people are the fodder or fuel of the system insiders (e.g. the Facebook IPO debacle).
3. Never invest in a business you don’t understand profoundly. He only day trades two industries in which he has worked for years as an advisor on the “inside” of the board of directors.
4. Trading individual stocks is sheer lunacy akin to going to the casino. If you are not a profound expert in investing, only invest in market indexes that bet on long-term trends rather than the short term. Then keep your fingers crossed that when you need the money, the market is trending positively.
5. The belief that corporations are amoral and only concerned about making money for their shareholders is false. Yes, corporations ARE amoral, but for the last 20 years they have been concerned with making money for the elite of executives who run the businesses, rather than the shareholders. In fact, shareholder returns have been rather poor, while executives have made vast fortunes for themselves.
6. You are right to profoundly mistrust everyone and everything in the financial world; it is the most extreme representation of Steve’s Third Axiom (which he LOVED, BTW).
There you have it. From the horse’s mouth. As straight and honest as it gets.