Lessons From My Investment Class

What you leave out is more important than what you leave in. This was the key lesson I was able to convey to my students at Stony Brook University.

I was privileged to teach an 11-week course at the Osher Lifelong Learning Institute.  This program is for retirees and is designed to keep their minds sharp by offering courses in the sciences and humanities, among other topics. OLLI serves another vital purpose. It keeps retirees away from partisan political programming, which can be toxic to both their own health and those around them. My course centered on evidence-based investing and how to apply this concept.

Many of the students were retired teachers, professors, lawyers, and medical professionals. These careers tend to attract people who are naturally intellectually curious.

As an added benefit, I was considered to be a youngster among my students; something my 14-year old twin sons and wife would certainly dispute.

I told them up front that I cannot pick stocks, forecast market direction, or diagnose their financial situation in a two-minute conversation. Once that was out of the way we could focus on the heart of the matter. What is the best process to invest your money?

It occurred to me, the best strategy was to explain to people what NOT to do. This eliminates much of the nonsense and leaves a sound process as the only suitable alternative.

Some of the things we discussed were:

  • Always ask your financial advisor how they are compensated. This is the Rosetta Stone of transparency; if you don’t like the answer, find a new advisor.
  • Don’t buy individual stocks. This cannot be done successfully unless you have an edge. Even if you do, this is very difficult because a minuscule percentage of stocks provide most of the market’s gains over long periods of time.
  • Don’t mix insurance with investing. Oil and water is often a better match.
  • Avoid listening to advice from anyone on T.V.; these people know nothing about you and you don’t know their ulterior motives.
  • Understand that financial markets are not people. They don’t care how you feel and they owe you nothing.
  • Don’t confuse blind luck with a sound process. Often an initial investment success is the worst thing that can happen to you.
  • Avoid bonds that act like stocks. This defeats the whole point of diversification.
  • Make sure you have some investments outside of the United States. Ignoring 95% of the world’s population is not a good strategy.
  • Avoid hedge funds. They are often not “hedged” and the only good ones are out of your financial league.

After covering these important points and some others, it was easy to talk about what people should do:

  • Make sure your advisor is a fiduciary and you are clear on how they are compensated.
  • Seek out low-cost investments, which tend to be the better choice for the average investor.
  • Diversify with index funds and take advantage of the only “free lunch” in investing.
  • Understand your time frame and risk tolerance.
  • Invest for the long term and keep enough money available to cover short-term emergencies.

These lessons usually garnered some pretty good questions, like:

  • Does it matter what type of account I put my stocks or bonds in?
  • Should I invest differently now that I am older?
  • What exactly is a hedge fund?
  • How much cash should I put aside for emergencies?
  • Should I sign up with one of the top-rated Advisors from Barron’s regular rankings? (my personal favorite)

I kid you not. I thought that last one was a plant. About 30 minutes later, I think the class understood that this was a less-than-optimal idea.

It was also pretty cool to introduce the class to people like Howard Marks, who I described as the “Warren Buffet of Bonds.” I also spent a great deal of time on behavioral finance and highly recommended that they read Daniel Kahneman and Amos Tversky. It was fun opening their minds to people they never would have connected to investing, had they not taken this class.

Teaching people what to avoid is a far better strategy than telling them what to do in most things. This especially rings true in investing.

I look forward to teaching this class again in the fall session.

OLLI might need to add a few additional dates if I’m asked: Is it a good idea to buy a variable annuity in my 403(b) from the insurance salesman hanging around the teacher’s lounge?

Pity the student who brings this up.




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