Cause your crystal ball ain’t so crystal clear

The sheer amount of information around investing is terrifying when you first look into it.  At first glance it seems like every single person has a crystal ball that is firing on all cylinders.

Brokers have such compellingly strong views on stocks, BUY & SELL they scream.

Log into a forum and it is rife with strong opinions.  ‘The Investing Warrior’ has some compelling reasons why a certain stock is over-priced whilst another is guaranteed to go up 100% in value over the next few years.  The guy must know his shit, he’s using a lot of complicated words and phrases you don’t understand and has built his own discounted cashflow model.

The financial pages of news papers seem to know exactly where you should put your money.

Fund managers are screaming at the top of their caviar filled lungs about their top performing funds, you’d be forgiven for thinking that paying for someone to look after your money was a sure fire way to profit for yourself.

With everyone shouting about their good news you’d be a fool not to start throwing your money at a few companies or funds, after all time is money and it would seem like the longer you wait the more you are losing out on.

Oh my god, it’s a mirage.  I’m telling y’all, it’s a sabotage
Thing is, no one knows really.  Not for sure, not 100%.  Not one of the predictions is 100% accurate.

Brokers inevitably have different views on stocks, while one broker is screaming “strong buy” another is setting off the warning flares with a “strong sell” recommendation.  Barclays stock has 1 of 11 brokers at a strong sell and 8 of 11 at a strong buy.  (I guess at least they are sticking their neck out unlike like the 2 of 11 that are remaining neutral).  They have a vested interest in you trading more.  Buying and selling is good for them.

It’s not that hard to sound convincing on a forum. It’s also easy to get blinded by complication. Just because someone is using a complicated formula it doesn’t mean they are right.  Just because someone has done a discounted cashflow analysis with a degree of prudence in their discount rate and it proves to them that the stock is insanely cheap it doesn’t mean they are right.

Newspapers and financial websites make money by selling their stories.  Features on funds that have outperformed the market sell well, they have a narrative that we like.  A feature on the funds that aren’t doing so well or have just matched market returns over the last 10 years don’t sell so well.

Fund managers earn money when you invest (through fund allocation charges, bid offer spreads and other up front charges) and each year you remain in the fund (through Annual Management Charges).  They have an interest in getting you into one of their funds and keeping you there.

Cause what you see you might not get
There is no doubt that some IFA’s that have their clients best interest at heart, but they still charge a fee as it’s their job,

I’m sure there is some bright young fund manager who will beat the market consistently over the next 30 years (but he’s a rarity and there’s no way to prove it wasn’t just blind luck) and there will be an individual internet warrior investor whose self designed strategy returns 20% a year for the next 25 years.

It’s important to remember that the investment industry is a business.  Not that everyone is trying to rip you off, but they all want your capital, good intentions or not.

Everyone shouts the loudest about their successes and the internet is full of success stories.  No one ever seems to admit that their strategy worked through luck.  The failures tend to get hidden away in the subconscious, never to be mentioned.  Bragging about your failures at a cocktail party is a sure way to yet another failure.

I’m not saying that beating the market isn’t possible or interesting, have a look at this and tell me you’re not a bit interested.

I can’t stand it, I know you planned it
For me, investing isn’t about trying use a crystal ball to predict the future to select stocks or funds that are going to out perform.  It’s about saving towards a target and taking on an amount of risk that I am happy with.  It’s about setting a plan and sticking to it in the long term.  Slow and steady wins the race, right?

If I could go back to when a young Mr Z started work 12 years ago, started looking into investing and then fucked about for a decade over-complicating things I would slap him about the chops then offer him some advice;

– Remember that investing is big business.  Big business means lots of profit to be made for the providers.  With profit to be made providers overload you with positive information.  Try your best to ignore the noise.

– People shout much louder about their successes than their failures.  As tempting as the strategies sound, try and ignore this noise as well.

– Don’t rush into investing.  Reduce your expenses first and so increasing the amount you can save.  Increasing your monthly savings, and putting these into a standard savings account, are better than money spent while devising your world conquering investment strategy.

– Keep it simple.  A world equity tracker and a bond fund will suffice, be cheap and keep you running along with the market.

– Max out the ‘free money’ on the company pension, you pillock

– Read ‘A Random Walk down Wall Street’.

It’s not a sexy strategy, it’s plain and simple, similar to my potato-like face.  It’s a strategy that doesn’t need a crystal ball, which is good because mine is an arse and always lies to me.  If I had started like this way back when I started work and stuck to it I would be well on my way to Financial Independence.

Mr Z

[ Markets took a tumble this morning, and are well below their highs earlier in the year.  The press has been whipping up a fear fueled frenzy.  Even better, the comments in forums and on articles are lighting up.  I even saw one commentor claiming he he knew there was more pain to come and he called this in 2010.  “At some point in the future there will be a correction.”  What.  A.  Gimpoid.

Will my investing time frame stretching out in front of me I will carry on putting money into my trackers and global fund in my pension each month, sticking to my strategy, and for the most part ignoring what’s going on.  With regular investing and a long time frame hopefully this will be a tiny wee blip in my steady shuffle towards Financial Independence. ]

10 thoughts on “Cause your crystal ball ain’t so crystal clear

  1. weenie

    Hey Mr Z
    Great post, I'm just buying as normal, ie regularly investing in the cheapest manner possible!

    Don't forget I need you to consult your crystal ball and choose 5 Zombie stocks for my Monkey Stocks League Challenge before the end of September! 🙂

  2. Mr Zombie

    It makes them seem as if they know so much more that they do, which always made me not take any action. Ignoring most of the media and reading blogs is a far better way forward 🙂


    "What. A. Gimpoid" – Great line. That guy should get into weather forecasting. It will snow "at some point in the future" – very useful mate!

    Some good advice there as well. I guess it almost sounds too easy or maybe just plain boring to some people and they either think that they must go with someone who is offering a more complex (and more expensive) solution, or they want to play with it themselves and hope to get lucky?

    I really need to read A Random Walk. Sounds ace.

  4. Mr Zombie

    Haha yeah, weather forecasting or fortune telling.

    It's quite long (and sometimes a bit repetitive). And the derivatives and options feels a bit tagged on at the end. But it is excellent.

    Mr Z

  5. No more Waffles

    Mr. Z,

    I beg to differ. My crystal ball shows that you have a bright financial future ahead of you! 😉

    Seriously though, I find the experience quite amusing. The newspapers report on the current market situation as if it's world war three on the stock exchanges. Besides, no one can rationalise 3% daily swings without sounding like a nut-job.

    I really hope prices remain low for a while longer so we can purchase cheaper shares and have our massive monthly savings work so much harder for us in the future.


  6. Mr Zombie

    Thanks NMW! Look's like your crystal ball is working peerfectly 😀

    Haha, it's true. Trying to rationalise such a complex system like the stock exchange with a couple of arguments is a sure way to look like a loony.

    I'll drink to that! Just keep our savings rates going, and lets the markets do their thing for us!



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