When I was in high school and trying to make sense of investing, something always perplexed me. My teenage thought process went something like this:
“I know there are a lot of stockbrokers and investment guys out there at all sorts of investment firms. Are they all really rich? It seems like they should be rich if they know how to pick stocks. Do their clients get the same investments that the brokers get for themselves? That would make sense, but then all the clients would be super rich as well. Do the brokers make fantastic returns on their own money? Wait a minute! If they did, then why are they still working?”
The myth of the stock picker
My questions were finally answered in 2004. After working in the industry for a couple of years, I finally understood that none of these people know how to pick stocks, and if anyone did, they certainly wouldn’t tell anyone else how or work for anyone else. This was the same conclusion I came to as a teenager, but obviously, the financial industry expends a lot of effort to cloud this issue. It took until nearly a decade of study and work experience to find the body of knowledge that basically said, “Yes, all that stuff you suspected…. It’s true. And here are 80 years of studies proving it.”
Moves like Buffett
Have you ever noticed that Warren Buffett doesn’t broadcast his investment purchases prior to making them? He just quietly does it, and you hear about it several days or weeks later. If there was someone out there capable of consistently picking stocks (which Buffet has done), this is exactly how you would expect them to behave. You’d also expect that person to be one of the richest people in the world, which he is.
Now, contrast this with the thousands of analysts, brokers and commentators, many of whom are barely making ends meet with their pay. They seem to think it is better to tell the world what stocks to buy rather than just buying the stocks secretly with their own money.
The guy with the map
Imagine you are approached in the 1600’s by a scraggly sailor who presents you with a treasure map. “I’ll sell you this map for 100 gold coins, but believe me, there are 10,000 gold coins at the treasure site.” Do you take the bait?
You never even notice the guy with the real treasure map. He keeps it hidden in his pocket, afraid anyone else might find it, and slips off as inconspicuously as possible in search of the buried gold.
Photo by Tulane Public Relations and thetaxhaven