IT’S NOT YOU, IT’S THE INDUSTRY: Barry Ritholtz has a nice summary of what’s wrong with the investing industry. We really don’t have anything to add, so without further ado here’s Barry:
• Simplicity does not pay well: Investing should be relatively simple: Buy broad asset classes, hold them over long periods of time, rebalance periodically, get off the tracks when the locomotive is bearing down on you. The problem is its easier in theory than is reality to execute. And, it is difficult to charge excessive fees for these services.
• Confusion is not a bug, its a feature: Thus, the massive choice, the nonstop noise, confusing claims, contradictory experts all work to make this much a more complex exercise than it need be. This is by design.
• Too much money attracts the wrong kinds of people: Let’s face it, the volume of cash that passes through the Financial Services Industry is enormous. Few who enters finance does so for altruistic reasons.
There is a difference between normal greed (human nature) and outright criminality. This is why strong regulators and enforcement cops are required.
• Incentives are misaligned: As I’ve written previously, too many people lack the patience to get rich slowly. Hence, not only do the wrong people work in finance, and some of the right people exercise bad judgment.
• Too many people have a hand in your pocket: The list of people nicking you as an investor is enormous. Insiders (CEO/CFO/Boards of Directors) transfer wealth from shareholders to themselves, with the blessing of corrupted Compensation Consultants. Active mutual funds charge way too much for sub par performance. 401(k)s are disastrous. NYSE and NASDAQ Exchanges have been paid to allow a HFT tax on every other investor. FASB and Accountants have doen an awful job, allowing corporations to mislead investors with junk balance statements. The Media’s job is to sell advertising, not provide you with intelligent advice. The Regulators have been captured.
Guess what the net impact of all this is on your investments?
• The Financialized US Economy: The above list reflects nearly half a century of the financialization of the broader US economy. Instead of serving industry, finance has trumped it. This led in part directly to the financial crisis and economic collapse of 2007-09.
• Human Nature: Then there is your own behavioral issues. On top of everything else, you are governed by a brain that simply wasn’t built for this.
As always, we recommend Barry’s blog for inquiring minds.
TRIPLE YOUR FUN WITH AMEX: Rapid Travel Chai has an interesting post, wherein he reports that when you request a credit line increase from Amex, the maximum they will award you is three times your current credit limit. Asking for more than that does not hurt you, as far as we know, though it won’t help either. And it’s a soft pull, not a hard pull, so no harm to your credit score.
MMMM… FREE DOUGHNUTS: We like free stuff, and we like doughnuts, so we’re especially big fans of free doughnuts. Thankfully, Krispy Kreme is awarding a free dozen doughnuts in exchange for signing up for their newsletter. (H/T: Slickdeals)