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why I hate investing

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February 26, 2013 – Comments (6)

no, no, I like making money with my investments, but dealing with the flotsam and jetsam that usually passes for sage advice and wisdom really annoys me, because they are usually wrong.

 

The GDP...isn't

The economy of a developed nation like ours has an awful lot of moving parts. How on earth could one summary number really tell you very much? GDP would be like taking the temp of the blood in the carotid artery (Google it, folks) as a proxy for the health of the human body. True, it is a concrete number that can be recorded over time and many fancy statistical, Excel, and Access calculations be done on them. But, really, how useful is it?

 

Credit Ratings (S&P, Moody's, Fitch) aren't

I ran across this interesting tidbit:

“The ratings are based on the risk of default, not the market risks associated with illiquidity,” said Dudley, who became president of the New York Fed in January 2009. The flawed ratings may veil “significant market risk” posed by “highly leveraged portfolios of highly rated but illiquid assets.”

OK, so these ratings are useful only if you hold debt securities to maturity, nothing about their interim behavior if you trade them, or hold them as part of an ETF or mutual fund?

 

Predicting is hard, especially about the future

In many amusing articles, TMF has demonstrated that so-called gurus predicting what will happen to this, that, and the other, are usually wrong, and no more accurate than the proverbial dart-throwing-monkey-at-the-stock-pages.

 

Berkowitz, Bogle, Buffett are sorta wrong

I realize that these are the watchwords of the above, not to mention TMF and Graham: buy quality, buy it on sale, be patient and be a long term investor. Problem: this assumes short-term market insanity, but a long term return to logic and reason. Wrong. IMHO, these people are successful not because of their bumper-sticker-philosophy, but because they are more adept than most at second-guessing the lemmings on a long-term basis.

 

the housing market...is not important

Thanks to TMF, I have seen the Case-Schiller graphs about homes and the housing industry. True, they are a source of jobs. But I have seen no correlation between housing prices or sales or constructing and stuff like economy, stock market, bonds, wealth, or whatever. In fact, it was dodgy derivatives based on the home mortgages that caused the banking failure.

 

currency wars: the race to the bottom

The central banks of Japan, US, and the EU are all running the printing presses overtime, flooding financial markets with the respective paper currency. Each has a stated justification for doing so, and most emphatically deny that they are trying to debase their currency to improve import/export numbers. Color me skeptical. Each $ or € or ¥ in increased exports, according to GAAP, adds directly to the GDP, hiding weaknesses and faults in the domestic economy.

 

too-big-to-fail-banks...are not a problem

When I ran for public office, I signed the SAFE Banking Act petition. Had I won (...OK...you can stop laughing now), I surely would have voted for it. In retrospect, however, I realize that this would come under the Buddhist rubric: do not engage in useless activity. The real problems come from powerful financial employees who are greedy (London Whale), dishonest (Madoff, Corzine), stupid (LTCM, geeks who did not know what they did not know), too big for their britches (MBS failure that led to the Great Banking Meltdown of 2009), or behave like spoiled children (S&L crisis). None of these has to do with the size of the financial institution in question.

 

the PRECIOUS...oh, give it are a rest already

I have done some shake-n-bake and slice-n-dice regarding the price of gold in relation with GDP, inflation, etc. I have found zero correlation, and of little economic or investment significance. However, I do find it to be an accurate emotional thermometer among a certain class of investors.

 

IN CONCLUSION

by now, I know that you are all waiting for some pearl of wisdom about investing to take you through the ages. OK, so here it is: the best dollar I ever spent was for a Hot Fudge Sundae at McDonalds.

 

SECOND CONCLUSION

OK, how 'bout Orman's concept of 'chicken money'. You put your money into a CD at your local FDIC-insured bank for year/decades. Yeah, you will get clobbered by inflation, not to mention stupidly low interest rates, but it is totally safe and 100% sure thing that you will get back every penny. This is the hard-earned fruits of your labor, and you do not wish to risk a nickel of it.

 

CONCLUDING CONCLUSION

ummm...hmmm...give me a minute...

6 Comments – Post Your Own

#1) On February 26, 2013 at 9:59 PM, HarryCarysGhost (99.76) wrote:

Dude, pretty sure you just lost a nickel in that minute. (yes, inflation)

If averaged out pretty sure I gained a nickel based on a KO DRIP.

Cheers.

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#2) On February 27, 2013 at 12:04 AM, awallejr (82.72) wrote:

Predicting is hard, especially about the future

Well life would be boring if it wasn't.  And I do love Ebay and buying silver dollars.  It is addicting.  I learned to "snipe" and develop some "anti-snipe" moves.

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#3) On February 27, 2013 at 11:30 AM, Schmacko (79.83) wrote:

"You put your money into a CD at your local FDIC-insured bank for year/decades. Yeah, you will get clobbered by inflation, not to mention stupidly low interest rates, but it is totally safe and 100% sure thing that you will get back every penny. This is the hard-earned fruits of your labor, and you do not wish to risk a nickel of it."

You will never accumulate a meaningful amount of money either.  2year CD rates are less than 1%.  They aren't going back up while Bernake is in charge of the FED.  Unless you are rich, retired or damn close to retirement, all money in excess of emergency cash, stashed away in CDs or savings accounts is pretty much wasted.  You're actively losing purchasing power.  IMO you're still better off finding blue chip companies, utilities, telecoms that yield 3-5% and have a chance at capital appreciation.

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#4) On February 27, 2013 at 7:35 PM, NewAlchemist (50.12) wrote:

Jerryguru,

 Yet you are still here.  The sad thing is you are forced to play the game.  The Federal Reserve targets 2% inflation every year.  This doesn't sound too bad to Joe Public yet in roughly 35 years your savings will have lost half their value.  Where did it go?

 Let's say you just want to save your money.  Forget investing to become a millionaire, you just want to save your earnings.  Too bad.  The inflation fairy will eat away at it.  You are forced to take risk. 

The fact that the general public is completely ignorant about money and economics makes them ripe to be fleeced.  Maybe high schools should teach students at least one finance/economics instead of making them take a 10th humanities class.

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#5) On February 27, 2013 at 7:42 PM, JohnCLeven (82.24) wrote:

As a McDonald's shareholder, I find your 1st conclusion compelling.

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#6) On February 27, 2013 at 10:42 PM, awallejr (82.72) wrote:

Meh Wendy's is better.  Baked potatoe with cream cheese and chives much better than french fries.

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