We were watching Doctor Strange again, my missus and I, we were watching the second time as we heard it was different in 3D and it definitely is. (Go watch it!)
The best part about watching a visually spectacular film like Doctor Strange a 2nd time is that we can pay attention to the dialogue better.
There’s a part of the film where Doctor Strange asked the Ancient one how can he do the things that she do.
She did not reply, instead she taichi the question back and ask how HE became a doctor. To which the answer came naturally:
Dr Stephen Strange:” Study and Practice. Years of it.”
This got me to thinking. There are many many MANY many investment experts outside who claim that they can teach what they can do in a very short period of time. There are many people who believe they can understand what is being taught in a short period of time.
There are also a lot of investment experts who claim they found the secret of investing. If you pay them a small sum, they will teach you the method and you will make lots of money very quickly by following the method/system/procedure/step-by-step. If you screw up, sorry, you didn’t follow all the steps correctly.
The truth of the matter is, they are both right and wrong. The investment experts can teach the method in a short period of time condensed from their years of trial and error. They can have the the correct trading techniques for the short period of time which it was applicable. But the only constant in life is change. Pretty soon, the secret does not work anymore, the strategy kaput, the system broke down.
Just take these two words of wisdom from one of the richest man in the world: Warren Buffet.
“Be greedy when others are fearful, and be fearful when others are greedy”
“Always invest with a margin of safety”
If let’s say an investment ‘expert’ condense Warren Buffet’s years of experience into these two rules, you will find yourself in trouble immediately. How can you invest with a margin of safety when the whole world is fearful? To be frank, even Warren Buffet did many mistakes and changes his investments ideas from time to time (e.g. from not owning technology stocks to owning Microsoft.
And now, an article saying passive investing can and do underperform active investing: http://www.barrons.com/articles/active-stockpickers-are-outpacing-passive-funds-1478318812
There are many people attracted to the idea of a simple solution for a complex problem. They want to learn once the magic bullet, solve the problem and then move on. For awhile, passive investing is the magic bullet. But as years go by, there are new problems that need to be dealt with.
Have you ever question how a passive investment fund, with its holdings and strategy so transparent to all the market, avoid being taken advantage by active fund managers? If you knew what a fund is going to do, won’t you ‘front-run’ them? http://www.etftrends.com/2015/07/front-running-sp-500-etf-rebalances-could-be-adding-to-tracking-errors/ What other potential problems that might occur when passive investment funds grow larger in size?
At the end of the day, beware of people promising fast results with little to no time investment. It maybe a short term solution, but it will be a long term problem. As Doctor Strange prescribed: you need study and practice, years of it. If you do not have an interest in investing, do yourself a favor, stop doing it and get help from an advisor. It’s not like you like studying medicine to cure yourself. Just. Pay. the. Fees.
Ok, in the style of Marvel’s end credit scenes, I also have some bonus reading material for people who are interested:
There is new theory out there which says that market is inherently chaotic: http://www.economicissues.org.uk/Files/1997/197aNew%20Methods%20and%20Understanding%20in%20Economic%20Dynamics%20-%20An%20Introductory%20Guide%20to%20Choas%20and%20Economics.pdf
And this theory of Reflexivity by George Soros which imply that markets are not just determined by fundamentals but also market participants: http://macro-ops.com/understanding-george-soross-theory-of-reflexivity-in-markets/
Which means to say, for every solution someone claims to find, the market WILL react to the solution AND create new problems. When too many people do the same exact thing, something else will arise to take advantage of that thing.
Personally at this point I believe an evolving portfolio cannot have only either active or passive funds. I believe the answer is to be found with a diversified mix of the two. I believe the market will move to punish excessive allocation to either. So read through the articles and understand for yourself what it means to have a market that is 2nd degree chaos.