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