I was on CNBC’s The Kudlow Report the other day with a renowned investment guru I will call I.M. Smartandrich. I.M. was giving himself a big pat on the back, which is most uncharacteristic of this particular pundit. In any case, I.M. was saying that he was long Yen, short the dollar and long oil. He said that he had been very right and was making a lot of money on his positions. He challenged David Kotok, and to a lesser extent me, that you had to do something and doing nothing could be a very expensive decision too.
I thought, ‘Gee I.M., tell us when you put those trades on. When did you predict the chaos in the Middle East, the 9.0 earthquake, the series of tsunamis, and…oh yeah…the nuclear reactor meltdown?’
Statements and pundits like this do damage. Not only do they need us to know how brilliant they are, but they make the most vulnerable, least sophisticated investors feel stupid and that they should be doing a bunch of stuff they don’t understand.
Does I.M. really expect the average 50- or 60-year old investor to start playing currencies in her 401k plan? It used to be impossible, but now we have an ETF for nearly every variety of investing – both long and short and even double or triple long or short.
I’m sure I’ll sound old fashioned, but I think most of this esoteric stuff is best left to the pros and ignored by most regular folks. For most investors, investing is not a clever game; it is a treacherous necessity in preparing for retirement. Most folks don’t need to feel brilliant, and though they don’t like feeling stupid, they really don’t like losing their assets trying to invest in something they don’t understand.
The bible of the investment business is Benjamin Graham’s “The Intelligent Investor.” It’s not called “The Clever Investor.”
All of the richest investors I’ve ever met are like Warren Buffet; they buy good companies like Coca Cola and they never sell them. They don’t hang on the next breathless utterance of the Fed or of I.M. Smartandrich. They don’t panic when Coke misses 2Q earnings estimates by two pennies. Warren Buffet said “There seems to be some perverse human characteristic that likes to make easy things difficult…The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”
Money is hard enough to make, but it is harder to save and still harder to invest successfully over time. All investors need a few clear rules for investing that should begin with something like “Don’t lose the money.” If your simple goal is to protect and grow your savings at the maximum rate possible without risking your ass then ignore I.M. Smartandrich and the rest of his noisy brethren and play it down the middle. In investing you are your own and only competition. Win or lose, you are the only one who counts. Take a deep breath and hang in there. So far, the many predictions for the end of the world have fallen a bit short, and most rich people have taken a long time to become that way.