Not acting like an idiot is a huge component for successful investing. Trying to create the perfect investment strategy or being blessed with an off-the-charts I.Q. are often liabilities for the individual investor. Charlie Munger, Warren Buffet’s chief lieutenant sums this up perfectly: “It’s not brilliance, it’s just avoiding stupidity.” Regarding stupid behavior he remarked, “Just avoid things like racing trains to the crossing or doing cocaine.”
Here are 6 people that will teach you all the wrong lessons regarding investing. Learn from their mistakes, arrogance, and manipulations and the chances you will prosper as an investor will greatly increase.
1. Bernie Madoff – Dishonesty. Nothing else matters if the person giving you investment advice is dishonest. This will negate any other positive qualities they might possess and then some. A surefire way to lose all of your money is to do business with an unethical person. Avoid anyone that produces an uncomfortable feeling in your gut.
Often these individuals arrive as a wolf but are dressed in sheep’s clothing (albeit expensive sheep’s clothing complete with gold cuff links). Madoff had the connections, the appearance, and the client list. When you deal with an unethical person like him it is only a matter of time until you lose much more than you bargained for.
2. Michael Boskin – Mixing investments with Politics. On March 6, 2009 former presidential advisor, Michael Boskin, wrote an infamous editorial entitled “Obama Radicalism is Killing the Dow.” It basically blamed all of the market ugliness on President Obama’s talk of raising taxes and ignored the multitude of other causes of the Great Recession. Boskin’s wing of the Republican Party believes in tax cuts as the default solution for all economic challenges. While Boskin has every right to believe this, he has no right advising investors on their portfolios without fully disclosing his partisan agenda.
If you were one of the unlucky people who followed this misguided advice, you sold at a generational low. You also missed a 170% rally in the Dow over the next few years. Never listen to anyone who is a political partisan masquerading as an unbiased investment advisor. It will be the most expensive vote you ever cast.
3. Charles Prince – Following the Crowd. This Former CEO of the banking giant, Citigroup, uttered these infamous words at the peak of the real estate frenzy, “As long as the music is playing, you have to get up and dance.” Translation: Ignore all common sense and valuation and keep buying because everybody else is.
Prince violated the cardinal rule all mothers tell their children, “Would you jump off a bridge just because your friends were doing it?” Prince was looking to protect short-term earnings and his hefty bonus. He was not giving sound investment advice. Following the crowd blindly will often end badly, whether it is Dutch tulips, internet stocks or condos. Anyone who fuels your greed instead of tempering it should be avoided at all costs.
4. Harry Dent – Extreme Mood Swings. Staying the course and managing your emotions through both thick and thin of the markets is the key to profitable investing. The author, Harry Dent, is the antithesis of this behavior. He went from writing a book called “The Roaring 2,000’s” which predicted a Dow at 40,000 to authoring “the Great Depression Ahead” which called for a Dow at 3,000.
An investor who followed his advice would have been murdered in both a bear and bull market, which is no easy feat! What most don’t realize is people like this are looking for headlines not positive returns for investors. Ignoring attention seekers regarding your investments is usually the best policy.
5. John Meriwether – Leverage and Arrogance. Complex math and arrogance do not lead to successful investment outcomes. Often, those who cling to these two “strategies” refuse to accept the reality that markets are unpredictable. John Meriwether proved this point by losing 4.4 billion dollars in 1998 in his hedge fund and almost bringing the whole financial system down with him!
Borrowing money to invest can magnify returns for the “small” price of possibly losing all of your money if a small market movement goes against you. Investing is not a science with an answer at the end of an equation. Since most market movements are based on unpredictable human emotion, the laws of hard sciences like math and science are often irrelevant to the process. They often breed overconfidence, which is one of the most dangerous traits any investor can possess. Bottom line: Stay away from anyone who speaks about investing with absolute certainty and borrows money to carry out his master plan.
6. Tommy Lee Jones- Celebrity Endorsement. While Tommy Lee Jones is a terrific actor and seems like a nice guy, his knowledge of what is in your best interests regarding investing is very suspect. You may have seen his ads for Ameriprise. The stirring dialogue and vivid imagery can make you very tempted to hand over your life savings to this institution.
What Tommy Lee is not telling you that is that Ameriprise is full of brokers. They are not fiduciaries and often sell products that are very expensive. Legally they do not have to look out for your best interests. This message is nowhere to be found in the bucolic setting and dramatic dialogue of his commercials. Not to pick on Mr. Jones, but he is doing this ad to make money for himself, not you (kind of like the brokers)! It would be a very wise decision to stay far away from any financial firm or product being hawked by a celebrity.
Just avoiding these 6 dangerous investment traits will dramatically increase the odds of success for your investment outcomes. No brilliance is required. Eliminating bad choices will often be enough for you to reach your goals regarding investing and life for that matter.