“The investing industry is ridden with bullshit. The most common and insidious form is over-optimism: offers of tantalizing risk/reward that defy any notion of reality, often based on misinformation or deception. Less common but even more dangerous are outright frauds.
The problem is inherent to the product. Most consumer goods – apples, hotel rooms, laptop computers – are tangible objects or services that you can see, taste, feel, or experience, so you can judge how much they are worth to you. Investments represent claims about some future probability distribution of monetary outcomes which are not literally verifiable. The best an investor can do is form a reasonable judgment about the uncertainty around those claims, based on historical evidence and details about the mechanics of how those claimed outcomes are generated.”
These words are from Benn Eifert. He’s the managing partner at QVR Advisors, a San Francisco-based hedge fund. Tweeting from his account at @bennpeifert, Benn has also recently become a star of financial Twitter (or “fintwit”, as it’s known), dispensing a mix of humour, technical knowledge, and criticism of popular investing hype.
His post about Bullshit in investing is a must-read. Why? You need to understand what is BS and what is useful. Sadly, investors struggle to know the difference. It means you have no choice but to invest your time into learning more and helping to identify BS. In not doing so, you increase the risk of making big mistakes.
I’ll finish with some more of Benns words…
Bullshit in investing, be it wild over-optimism, deception or fraud, is as old as time, precisely because it is hard to resist the promise of easy returns and to tell the difference between innovation and make-believe.
The first step in avoiding being taken for a ride is to recognize that you are a mark for people trying to get rich off your money.
Burn the principle into your brain that financial markets are large and competitive and have a lot of smart people in them.
Easy money-making opportunities are almost never real; professional mercenaries would have found and exploited them first.
High returns with low risk explained away by complicated and nontransparent strategies deserve great scrutiny.
On the institutional side, keep in mind that the world is a relatively small place and tremendous value can be gleaned by asking the views of people close to a particular market or strategy.
Ask questions; be sceptical; do not assume that just because brand-name firms or authority figures are involved that all is well.”
I can think of countless companies that make investors the ‘mark’…to persuade them to hand over their money with wonderful stories. I cannot make people open their eyes, only you can do that.
As for the article, take a look here