A few weeks ago a friend of mine sent me a link that he knew would get me all riled up, and he was right (am I so transparent? It seems so). Want to see?
I mean, who wouldn’t love this? 12.5% returns in “safe” municipal bonds and no volatility like the stock market? Every single person in the world wants such a strategy. You’re lying if you don’t. This piece is from James Altucher, who today is essentially a professional troll. Look, the guy is brilliant. He knows how to get people going. He knows what people want to hear. He is a master-class marketer. He has had some brilliant professional success as an investor and author as well.
On his site Altucher has a long history of bashing essentially all investing. He says that all of Wall Street is a scam, that your 401(k) is a scam, etc, etc.
But wait! He’s going to let you in on a little secret. (I wasn’t even going to bother with a link to the piece but you really should read to it to get the full force of his salesmanship, so here you go: 12.5% From Muni Bonds.) That’s right folks, you too can learn how he made 12.5% from “muni bonds.” His pitch is hilarious. Promise, tease, promise, tease, keep reading, promise, tease some more. I kept waiting for Billy Mays to jump into the screen with “But wait, there’s more!”
Maybe if I order in the next 10 minutes I can get 13% returns instead!
Anyhow if you manage to make it all the way through this ludicrous sales pitch, you find out that for the low, low price of just $7 you too can be a market genius.
Obviously, there’s tons of stuff about this that drive me batty. One is that because he is “outside” of the investment world, Altucher can make basically whatever outlandish promises he wants in order to secure your $7. He’s not a broker or investment advisor so he’s free from any reasonable regulation concerning investment performance. Upside without risk, the whole enchilada. But what really kills me is that he knows how to do this so well, and that it is so easy to do. We all want so badly to believe there is a secret out there. Admit it, your heart palpitates some, your palms get a little sweaty with the allure of a better mousetrap. Just some tip or trick we don’t know about that the “real” investors know about. And if we could just find out, BOOM! We’d be set. We’d pay practically anything for access to the secret. I mean, what is $7 if we can increase portfolio returns by 2% a year? It’s nothing. And in fact, a lot of investment advisors (and even some of their clients) use this same line of reasoning to justify their fees. If they can add 3% a year, what’s charging 1.5%?
Unfortunately for those of us in the real world there aren’t any secrets. Are there legendary investors? Yes. We typically find out about them either right before they blow up (and maybe aren’t so legendary afterall) or at the twilight of their careers. We aren’t great at finding them before the performance is recorded. And we aren’t great yet and being able to tell the difference between skill and luck. We’re left with a world where we do have to make reasonable compromises between risk and return, understanding trading liquidity for better returns or stomaching some volatility for better returns.
So we keep reminding ourselves that the most probable path to long term wealth is boring things like spending less than you earn and investing sensibly, keeping an eye on fees and taxes and not letting yourself scratch the itch of jumping from strategy to strategy.
Bason Asset Management 