We live in an amazing period. Imagine that 60 years ago you were a stock investor. Maybe you would grab the morning paper and see yesterday’s closing prices for the biggest 100 stocks on the NYSE. You’d circle a few (hey, GM is down 5/8!) and take the paper with you to call your broker at the office. You’d call and he would ask about your kids and then tell you that of course you should take 400 shares of GM, and here’s our latest research report telling you just that! So you pay your 5% commission while you are oblivious to the fact that your broker’s firm has a huge block of GM that they are trying to blow out or that the rosy research report is the result of the firm bidding on GM’s new bond issue. The next week GM goes up and you just knew it and you were right all along so you grab the paper and highlight a few new tickers.
Today this scenario is hilariously quaint and you and I have more information available on the phones in our pockets than the broker would have dreamed of 60 years ago. But that is just scraping the surface. Research is the easy part. You can pick your favorite financial website and run screens and review charts and check message boards and enter $9 limit orders to your heart’s content.
The real reason we are the luckiest investors in history only begins with access to information. Execution is amazing and nearly free. In addition to our $9 stock trades we can buy the entire US stock market in an ETF for 0.05% or buy an all-in-one target date retirement fund for 0.16%. We’ve learned that costs are the single largest factor to determine the future performance of an investment.
We are the most well informed investors in history. We know about the small cap premium and the value premium and that low correlated assets can improve our risk/return profile. We know about CAPE ratios and momentum effects and profitability factors. We’re beneficiaries of limitless research on rebalancing policy, tax loss harvesting strategies, the drivers of long-term equity market returns and countless other topics.
We’ve also learned that we are our own greatest enemies. Thanks to brilliant and still emerging research in the field of behavioral finance we now have documented evidence of our worst fallacies: confirmation bias, self-selection bias, overconfidence, herding, etc. We have been handed the world’s most crystal-clear mirror and been shown just how flawed our decisions can be. Thanks to the empirical evidence available from Morningstar, DALBAR and others we are able to put a price tag on these flaws and it is steep.
But the greatest advantage, the reason I truly feel that we are the luckiest investors in history is that the internet and social media have provided an outlet for our best and brightest thinkers to share ideas and engage in intelligent public discourse. Instead of the loudest bloviator getting airtime on CNBC, we can shut out the obnoxious, overconfident soothsayer and engage with and learn from rational, intelligent and thoughtful investment professionals, academics and amateurs alike. We can respectfully disagree and challenge ideas in real time across thousands of miles.
When I get to meet these people who I greatly admire or chat with them via Twitter or email or simply watch as a bystander as thoughtful people engage in thoughtful discussion I can only conclude that we are the luckiest investors in history, not for what the market has done or will do, but for all opportunities and information we have been given and the people with whom we have the chance to share these ideas.
So kudos, investment bloggers and finance Twitter. Thanks for making this such a great time.
Bason Asset Management 