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Investment Gurus Don't Even Follow Their Own Advice

from the what-chance-do-you-have? dept

Mon, Jan 5th 2009 9:10am — Mike Masnick

There are all sorts of well known investment strategies out there, but it's often difficult to find anyone who sticks to them -- even those who are famous for pitching those investment strategies, apparently. The Wall Street Journal surveyed a number of people famous for their investment strategies and found plenty willing to (somewhat sheepishly) admit they don't follow the strategies themselves, often proving that emotion overcomes rational thinking when it comes to investments:

Harry Markowitz, winner of a Nobel Prize in economics, in part for his work on the relationship between risk and return admits that, rather than pay attention to any of that in his personal investing: "I visualized my grief if the stock market went way up and I wasn't in it -- or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities."
John C. Bogle, founder of the Vanguard funds, and the high priest of constantly "rebalancing" your portfolio, to sell what's gone up and buy more of what's gone down, doesn't actually do that himself: "I think rebalancing makes a substantial amount of sense. I don't rebalance... I leave it alone. I have not touched my asset allocation since March of 2000."
Don Phillips, managing director at research firm Morningstar Inc., who pushes people to put certain non-equity investments, like treasuries and REITs, into tax-deferred retirement accounts, hasn't actually done so himself. "I still think of my retirement assets as meeting long-term goals and have trouble putting anything but equities in them, even though I know that I should think of my portfolio as a whole, not as pools of money tied to independent goals."
And then there's Burton Malkiel, the Princeton economist who wrote A Random Walk Down Wall Street, which has convinced many, many people to put all of their money in index funds, doesn't do that himself: "Actually, I have a quarter to a third of my money in individual stocks and actively managed funds.... It's not necessarily because I think I'll be any better off than with indexing, but I still want to buy a few individual stocks because it's fun."

That's not to say that any of the investment strategies proposed by these guys is necessarily bad. It just shows how incredibly difficult it is to be disciplined enough to actually follow them.

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Filed Under: investment advice, investment gurus

9 Comments

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David T, 5 Jan 2009 @ 9:23am

Life is a game
My sense is that “professional” investment strategists are more or less entertainers. They market to an up-scale crowd who have wealth and make up fun stories that make people feel happy and secure. The strategies are sound, more or less, but in the end it doesn’t matter. No one knows what the market is going to do. Not even super-computer algorithms taking into account every scrap of data available since the markets first opened.

Trust dictates where you put your money, from treasuries to individual stocks to index funds. Everything else is just an upper class merry-go-round.
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Petréa Mitchell, 5 Jan 2009 @ 9:36am

Also good
Saturday, the WSJ ran this article on how a gullibility expert wound up losing money to Bernie Madoff. (Short version: He invested the money with a fund run by a large, respectable financial-services firm on the advice of a senior investment advisor, not knowing the fund was handing everything over to Madoff. Also he did at least remember to diversify.)
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Skeptical Cynic (profile), 5 Jan 2009 @ 9:41am

After years of studying markets...
I have found that the best anyone can do is understand that greed and fear rule the market. Also I am up 14% over the last 12 months. Once you understand that the crowds will always be either greedy or fearful and take that in to consideration you will understand that no one strategy will always work because the crowd does not follow an economic model (at least in the 1-5 year range). And these guys understand that because they understand the markets. A market guru is only one for the brief period when their idea is right. Don't be lazy do your own research as it is your money.

I mean would you go to Starbucks and say give me whatever you think is best? Sure maybe once and awhile but most of the time you figure out what is best for you and order that.
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Shamalma, 5 Jan 2009 @ 1:12pm

Re: After years of studying markets...
Skeptical, will you manage my portfolio and convince my friend it's a great time to buy a new car? Seriously.

Thanks!
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Skeptical Cynic (profile), 5 Jan 2009 @ 2:38pm

Re: Re: After years of studying markets...
No because the SEC will just crack down on me and make me go through a million hoops before I can. And pay them a bunch of money for nothing. I have had more than 120 people ask me to manage their money and I will not because no matter how honest I am I can not go through the hoops because the SEC only looks after those that have the power.
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Skeptical Cynic (profile), 5 Jan 2009 @ 2:41pm

Re: Re: After years of studying markets...
Remember that the SEC is only there to get those that go badly wrong.
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Anonymous Coward, 5 Jan 2009 @ 8:17pm

I'm not sure it's always a case of discipline. I read Burton Malkiel's response as more or less "sure I could maximize my profits with my technique, but I make enough money that I can afford the joy of playing around with my stocks a bit." Most people realize there is more to life than squeezing every last penny from a rock regardless of who they screw or hurt along the ways. Unfortunately it's the unrelenting greed of people/groups like Arthur Anderson, the RIAA or, Madoff that always make them "headline" news.
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David Richards, 6 Jan 2009 @ 6:18am

The shoemaker's children never have any shoes
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air conditioning, 10 Jan 2010 @ 12:52pm

I was just talking to a friend of mine today about investments whilst carrying out an air conditioning maintenance and wanted to find out more about it, thank you for the information.
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