The Cure for Money Madness by Spencer Sherman

Author:Spencer Sherman [Sherman, Spencer]
Language: eng
Format: epub
ISBN: 978-0-7679-3148-9
Publisher: Crown Publishing Group
Published: 2009-06-11T16:00:00+00:00

Expert Help Is No Help at All

The reports look serious. The data sound rational, precise, scientific. But in fact, it's all geared to the emotions. It's aimed at persuading you that the market is dangerous, tricky, sneaky, wild, and unpredictable, and that you're going to need expert help if you're to make money in the market at all.

But, of course, as we've seen—as the facts make abundantly clear—the market is anything but dangerous, tricky, sneaky, wild, and unpredictable. Over the long term, it is, instead, as predictable as a sunrise, as straightforward as a Swiss train timetable. And as we will also see, it simply isn't true that you need expert help to make money in the market.

That, in fact, is the other dirty little secret of investing. Pundits like the Jim Cramers of this world, investment advisors like me, brokers, and others involved in the financial markets would like the public to believe that making money in the market takes a lot of hard work, and that we alone—thanks to our education, training, native intelligence, and intuition—have a patent on what it takes. But it just isn't so.

It has been shown conclusively1 that, as far as the last 50 years of stock market investing is concerned, someone with two hours of training who invested in the S&P 500 index—and took no further action on the portfolio—would have performed better than the average professional investor with a Ph.D. in economics or an MBA in finance. You would not want someone with two hours of medical training to perform open-heart surgery on you, but you would honestly do as well as a professional in the stock market, if not better, if you eschewed the so-called hard work of investment management.

But the noise keeps insisting that the market is scary and slippery, and that it takes trained experts to succeed in it, and it does so by the simple expedient of targeting your emotions, activating your money madness, and stirring your money monster to action. “Quick!” the noise is telling you: “React!”—to the merger or the election results or the subprime credit crisis or whatever bit of news is streaming into your iPhone now “Call your broker!” says your money monster. “Check in with your investment advisor!”—who just happens to have an exclusive stratagem for sneaking you past the crowds of losers to the front of the line.

The money monster delights in watching our high-priced investment advisors shift money from one asset class to another in response to a war being declared somewhere or when corporation A merges with corporation B or in the face of a catastrophic event like 9/11 or Hurricane Katrina. He thrives on our gullibility when the advisor promises that if the market is about to go down, she'll protect us by getting out in time. But all these instant responses tend to erode your investments rather than protect them. Most often, you sell to protect yourself, then re-enter the market later at a higher level—but having missed out on the gains that followed the loss you saved yourself from.

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