Investors Being Dealt A Losing Hand,
Everyday
By: Brendan Magee
Everybody knows the odds are in
the casino’s favor not the gamblers. The gaming industry, though, goes to
extraordinary lengths to create the illusion that the gambler has more than a
reasonable chance of winning and winning big. Huge billboard ads display
winners holding up huge checks. Television commercials show winners telling you
how good it felt to win big. However, we know those casinos aren’t losing
money, the gamblers are.
Just like the casino, the
investment industry goes to great lengths and expense to create the illusion
that investors aren’t playing a loser’s game. Every mutual fund company and
every brokerage firm proudly promotes the huge rates of returns that their
investment products generate. All you have to do to get your share is invest in
their services and products.
So, what are the services these
brokerage houses make available to you? One, they identify good
stocks to invest in, they can tell you when’s the right time to be
in or out of the stock market. They can even help you to identify who the most
brilliant fund managers are. Sounds like a great deal, but in actuality it’s a
losing hand and the investment industry already knows it. They just hope you
never find out.
In order for someone to be
successful with stock picking, market timing, and track record investing, they
have to have the ability to consistently, reliably predict the future.
Everything that is knowable and predictable about the market has already been
factored into the market and market prices. Markets change on new and unknowable information
which only takes place in the future. This is the illusion the investment
industry goes to great lengths to hide. That somehow, some way they have the
ability to see into the future and know how things will go. You and I both know that no one can reliably
and predictably predict the future. If they can, they aren’t going to do it
for.
This is no secret. It's actually knowledge that has been around for a while. The 1990 Prudent Investor Law states, "Forecasting and analysis in an attempt to separate the winners from the losers is deemed wasteful."
So, when investors make investment decisions based on an analysis, a track record, or any type of recommendation they are not investing, rather they are gambling and speculating with their money. This blind spot is one of the reasons investors have historically underperformed. *Since 1991, the average stock mutual fund investor's annualized return has been 6.24% as compared to the S&P 500 which did an annualized 10.70%. In other words, investors have needlessly forfeited forty percent of the returns that have been available to them. Every day, investors and their families live with the consequences of playing a losing hand. The investment industry hopes you never find out the game they have you playing.
Now
the only way to start playing a better hand is to start asking a completely different set of questions, the two most important being:
1.What is your true purpose for money?
2. How do markets actually work?
Answer those two questions and you will be playing a completely different hand!
*2021 Quantitative Analysis of
Investor Behavior
Brendan Magee is the founder and
president of Inevitable Wealth Coaching. With questions or comments, email
brendan@coachgee.com