Oil and Water


Certain words should NEVER be used in the same sentence. Holocaust and joke, child and labor, and drinking and driving are some of the more obvious combinations that come to mind.

On the the lighter side, a N.Y. Knicks’ fan might suggest “Dolan and Oakley” or “Knicks and defense.” You get the point.

Investing has its own perilous pairs. Combining certain words creates a toxic mixture that will blow up your portfolio. The following terms should never be mixed for 99.9% of the investing population:

  1. Average and Return – Stocks rarely approach their average yearly returns of 9-10%. Think of Warren Buffet moving to your neighborhood with his $70 billion net worth. If the 500 members of your community have a net worth of $500,000, the community’s average net worth immediately rockets to $152 million! This is very misleading and the same goes for investors who think they will receive average market returns on a regular basis.
  2. Exciting and Investment – In the words of one of the greatest investors of all time, George Soros, “If investing is entertaining, if you’re having fun, you’re probably not making any money.”
  3. Original and Idea – New products are often a Wall Street marketing scheme rather than an innovation to help investors. In the words of the famed trader, Jesse Livermore, “There is nothing new on Wall Street or stock speculation. What has happened in the past will happen again, and again, and again.”
  4. Day and Trading – Night, morning and afternoon trading all have one thing in common: They are awful ideas. Stay away from the temptation of getting rich quick using short-term speculation.
  5. Robot and Advisor – Robots cannot converse with you in a meaningful manner or display empathy toward your unique personal situation. If you would like to combine robot with asset allocation, be my guest.  But,  complex financial planning issues require a human being.
  6. Load and Fund – What decade are you living in? Buying a mutual fund with a 5% up-front fee has gone the way of the Blackberry and Blockbuster Video.
  7. Stock and Tip – No, your brother-in-law is not a reliable source of financial advice. Evidence and data should replace these two words which have cost investors and ungodly sum of money over the years.
  8. Average and Down – Averaging down and buying more of a losing investment typically has a very bad ending. In the words of the legendary investor, Paul Tudor Jones, “Losers average losers.” Note this strategy is especially bad if combined with above!
  9. Naked and Option – Investing naked is a disturbing image on its own. Combine this with volatile derivatives and there are endless possibilities for you to lose all your cash when your bad bets expire, worthless.
  10. Fee and Based– Either you are an advisor who will look out for your clients’ best interests or you are not. Confusing people with a title that is deceptive and lets advisors sell commissioned products (while claiming they are fiduciaries) are two words that should have been separated at birth.

The best combination of words for investors is diversification, low costs, and a high savings rate. Do this with the advice of a fee-only fiduciary, and you can avoid the disasters that co-mingling the explosive terms above will bring to your portfolio.

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