10 Investment-Related Things That Don’t Make Sense
October 25, 2018
Stupid Things About Wall Street
Some things just don’t make sense. Some things get my blood boiling.
Especially in the investing world. In fact, the more time I spend in finance and deal with other Wall Street types, the more things start to puzzle me.
I have infinite patience, but only up to a point. Sometimes I can’t help but rant about the silliness of this business.
Take the following, for example:
Business News Networks: In the old days, television networks shoved business news into a 10-minute segment each evening. Today, four 24-hour networks blast financial reports all day long. I highly doubt the number of newsworthy business stories has increased materially since then.
Real-Time Account Updates: Brokers make it easy to see the value of your portfolio throughout the trading day. For the life of me, I can’t figure out why. Seeing my account balance fluctuate by thousands of dollars only leads to emotional decisions. If you have a 50-year investment time horizon, why worry about the next 50 minutes?
Day Trading: I worked on a trading desk. You learn pretty quickly that these guys constitute the sharks of the financial business. When somebody starts day trading, they enter a rigged game of dark pools and high-frequency algorithms. If you’re flipping stocks in your E-Trade account, trust me here: you’re the prey, not the predator.
Analysts’ Estimates: Corporate profits don’t miss analysts’ estimates; analysts’ estimates miss corporate profits.
Quarterly Earnings: Quarterly earnings put an unhealthy focus on short-term results at the expense of long-term returns. Management teams should run their businesses with the next 10, 25, or even 100 years in mind. Why do we track performance in arbitrary 90-day increments?
Robot Journalists: As a financial writer, I have a clear bias in this department. But while more newsrooms automate their reporting, I have yet to find a single article written by robots worth reading. Most of these “stories” amount to a long list of financial statistics—no plot, no analysis. Gee, thanks for the insight, R2-D2.
Market Recaps: “The Dow plunged 35 points as investors react to blah, blah, blah.” Please, stop it. First, you should never call a 35-point drop on the Dow a “plunge.” Second, most journalists just make up a reason for these stories. Nobody knows why stocks moved the way they did on any given day.
Gold: You can keep your wealth in a productive business that pays you dividends each year, you can stash your money in bonds that pay you regular coupons, or you can own a chunk of metal that just sits there. Which option do you think will make you wealthier in 50 years?
Technical Analysis: Have you ever met a rich technical analyst? No. Apparently doodling lines on a chart doesn’t amount to serious business analysis.
Performance Chasing: Investors have this innate desire to own “what’s working now.” Last year, everyone wanted to own cryptocurrencies. Before that, they wanted gold miners. Rather than sticking to a proven system, the pattern of disappointing returns continues.
I could probably tack another 50 points to this list. But then I would just be wasting your time.
And that wouldn’t make much sense, either.
