Nod Politely and Ignore Them

I was watching the first season of The Sopranos last night. There was a particular scene that jumped out at me. It was where Carmela Soprano was with a group of neighborhood wives that were bragging about their stock market performance. I was reminded of the investment environment in the late 90’s and how different it was from today.

I wasn’t in the industry in the 90’s, but I was there for the real estate boom of the 2000’s. I was there to hear stories from all the condo flippers and other such characters. I specifically remember a guy at a cocktail party who, after hearing I was in the investment industry, tried to challenge me on investing.

Him: “What are you investing in?”

Me: “Well I…”

Him: “Oh…Don’t tell me you are using mutual funds.”

Me: “Yeah, I use them all the time.”

He then went on to explain to me how much more money you can make in real estate because of the leveraging aspect and because of tax benefits. This particular guy was quite fixated on the 1031 exchange tax deferral.

Cocktail party investment conversations are truly some of the worst conversations I have ever heard. Just read about the stock my grandfather bought based on a tip from a guy at a cocktail party.

My advice to everyone out there – never follow any investment advice from a cocktail party, no matter how suave the person delivering the advice may seem.

This aspect of investing baffles me. Everything I have experienced suggests that investment markets are highly unpredictable. The only exception to this unpredictability is the Cocktail Party Effect. If investments are so unpredictable, then how can the investment ideas that come from cocktail party bragging be so consistently disastrous. Could you make an investment fund where your strategy is to go short every idea that you hear bragged about at a cocktail party? I still haven’t figured this one out yet.

Photo by Simon Pearce

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