Michael Rogan – Magical Thinking and Investing

Many of you possess vast knowledge, from personal experience, on the subject of having teenagers in your life. I, on the other hand, am just beginning to learn. I’ve been recently musing on their ability to believe in fictions created in their young minds. This seems to especially occur when they are asked, by an authority figure, “Who did this or that?” Or, my personal favorite question, “What made you think (whatever they just did) was a good idea?” Often, to them, when two things happen simultaneously, one must have caused the other. In other words, correlation means causation. This then led me to think about how, for many of us, the belief in what we wish was true never fully leaves us.

 

The media know this. Politicians know this. Advertisers know this. Product creators in all areas know this. So, they pander and posture for our attention. The media and politicians know we prefer there to be “good guys and bad guys”, so they always portray people with opposing views as the bad guys while they naturally are in favor of the good guys. They also excel in creating narratives about extremely complicated situations that are so simplistic that, once they are repeated often enough, become things we “know” to be true. A good example would be that “greedy bankers” caused the financial crisis. (To the extent you believe that some/most/all bankers are “greedy”, do you really think this trait only became attributable to them in 2005?)

 

Advertisers and product creators also know that we want magical solutions to the nagging problems in our lives, so they take advantage of our strong desire to believe in the magic of some new gadget or system. Examples include virtually anything offered for $19.95 on a TV commercial, especially those that offer to double your order for only additional shipping and handling. Diet pills, diet programs, and any of the myriad of devices designed to help us lose weight and get into better shape while we don’t really need to exert effort or barely watch what we eat are perennial examples. We want to believe these will work. We need to believe in them. Most of us are begging them to create a fix without any effort on our part. My personal favorite weight loss product of all time is the Sauna Belt. This will heat up, and sometimes, vibrate your midsection promising to get rid of fat around your waist with not only zero effort but, even better, while watching TV, drinking soda and eating chips! I’ll take 2 of those!!

 

In the investment world, new products are constantly created that promise you growth “similar to stock market returns” with reduced or even no volatility. These cannot and do not work. In investing, you get rewarded with returns generally commensurate with the amount of volatility you are willing to tolerate/ignore. The more volatility, the more potential upside. The less volatility, the less return. Period.

 

Another form of magical thinking amongst the media and academics when it comes to investing is that cheaper is better. This is stated as an unassailable truth. The reality, as always, is much more complex than that. In the next blog, we will discuss the new “free” mutual fund investments and whether or not they are the great deal they are portrayed to be.

 

In the meantime, realize that there are many inputs that create the financial outcome of your life. Like everything in our lives, there are no shortcuts to a successful long-term financial life. This may initially disappoint some, but in reality, it is liberating knowledge. Just like magical diet fads and products, once you accept that there are no shortcuts, you stop wasting time trying to find them, thus freeing up time in your life to spend on the more rewarding things.

 

Focus on the important things in your life and go catch the sunset today!

-Michael Rogan

By |2018-09-09T17:27:16+00:00September 12th, 2018|Uncategorized|0 Comments