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The Only Guaranteed Way To Build Wealth Is To Invest In Yourself


The Only Guaranteed Way To Build Wealth Is To Invest In Yourself

Don’t Turn to the Financial Media for Advice

Sometimes, I’ll scan financial news on Reuters, Bloomberg, MSNBC and so on, not for information to make investment decisions, but just for ideas to write another blog entry. Occasionally I’ll find something to comment on. By most of the news that I find in the mass financial media is junk. Case in point. A couple of weeks ago, Chevron, Devon and Statoil announced the discovery of massive oil reserves, perhaps as much as 15 billion barrels, in the Gulf of Mexico. Major news media commented that day that oil prices plunged in response to this discovery.

However, because this massive reserve of oil is located in deep waters, 1.3 to 5 miles underwater, the impact of this discovery may not alter oil supply significantly for another decade or perhaps not even until two decades or more. So are people really stupid enough to let a discovery that won’t significantly impact oil prices for perhaps 20 years out in the future significantly affect the price of oil price futures today? It’s not as much attributable to stupidity as it is to a mob mentality. So many people today do not want to put any effort into their investing. They make ludicrous decisions about where to invest hundreds of thousands of dollars based upon ten-word headlines and 15-second sound bites because it is easier to let someone else tell you what to think than it is to critically think for oneself.

When Seeking Investment Advice, You Get What You Pay For, and Sometimes Not Even What You Paid For

Though you know by now if you have read any of my other articles or my blog that I am relentlessly critical of the financial media for leading investors astray, today I will actually give them a little bit of credit. I read an article online that I feel actually contained some good advice. This article was interesting because I discovered this article on a website that I feel contributes heavily to global investment firm’s “dog and pony show”. This article quoted another advisor that stated, “You get what you pay for, and if you’re relying on ‘free’ research and online chat rooms and your next-door neighbor that’s a big mistake.” Then the author stated, “Leave impulse buying for the supermarket and out of the stock market. Have patience. Time gives individuals a rare edge over short-term minded institutions and hedge funds, which tend to trade frequently.”

However, just when I thought that I had finally found an article with solid advice, I clicked to the next page and read this statement: “The most successful investors I’ve known buy stocks at attractive valuations and hold them for long periods,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors. “It’s time, not timing, that is the secret to success.” Just tell that statement to all of the investors that listened to all the salesmen that told them they had to get in on the action in the India Sensex, the U.S. Dow, the Chinese Shanghai markets, the German DAX and so on earlier this year and subsequently have lost a lot of money.

Again Chief Investment Officers will continuously eagerly and happily spread myths like this, using the mass media as their pawns to accomplish wide exposure of their myths, because such myths serve their firms. Buy and hold strategies lead to much higher asset management fees for investment firms than would the strategic repositioning of stock portfolios into and out of assets as dictated by global market conditions.

The Only Guaranteed Way to Build Wealth is to Invest in Yourself

While most people take “you get what you pay for” in investing to mean the more fees you pay an investment advisor, the better your returns are, this is also a huge myth. Many investment advisors that have $100 million of assets are more under management are nothing more than superior salesmen. They would be top auto salesman and top real estate salesman if those industries, and not the investment industry, were their professions of choice. In fact, many times they are able to convince many new clients to hand them over significant amounts of money solely based upon the fact that they have lots of money already under management.

Surely if someone manages $100 million for other individuals they must be competent, right? Wrong. The majority of financial consultants employed by large global investment houses are nothing more than middlemen. You give them your money, and they simply turn around and hand over the money you just gave them to an outside or internal manager to manage their clients’ stock portfolios. Although now the name for such an occupation has changed from financial consultant or private wealth manager from stock broker, the word stock “broker” is a much more accurate name. All they do is broker the money you hand to them without any real value-added. This means that your stock portfolio performance would be no different than if they handed it over to a fresh-faced 22-year old recent college graduate. Because a 22-year old kid could do the same thing. Don’t get me wrong, as you may be reading this and saying my financial advisor is great. There are great ones out there. In my experience, however, the great ones are less than 1 in 500.

Much of this culture of “willingness” to hand over large sums of money to a financial consultant that outwardly appears to be successful has to do with investment psychology. Many people want their financial consultant to drive a 7 series BMW or Jaguar so by association, the world will see that they are successful. In essence, many people crave a “trophy” financial advisor just as some men crave “trophy” wives. Yes this is ridiculous, but it drives the investment decision making process of some people, at least the foolish ones. So in investing, the phrase “you get what you pay for” means much more than just a direct relationship between cost and quality of advice. In investing, if you wish to build wealth, the necessary payment to achieve success is an investment in yourself.

Spend the time to learn a comprehensive investment system, and your returns will no longer be held down by the charlatans that occupy the global investment industry. Invest in outward appearances, or fail to invest in learning how to invest properly, and you will most certainly earn the types of returns (and most likely losses) that you deserve.

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