Our world is full of bad advice. There is straight up false information and then there are cases where information is given without context and lacking any indication of scope and target audience. The areas I am thinking about specifically are investing, health and fitness, human psychology, careers and education, and the list could keep growing if I had more space in my brain. I don't so those other ideas don't exist (yet).
In an article I wrote last Summer I touch on how I went from over 300 lbs to 180 lbs in 11 months while consuming a lot of fat, close to zero sugar, and never working out beyond walking everywhere. I cover a few of the wellness industries' one size fits all advice in that article and I won't go into more details here. Give it a read here.
Human psychology, career selection, and education, are all great topics worthy of their own article, but today I will focus on stupid investing advice. Reminder I am NOT talking about false investing advice, I am talking about poor advice given with little to no context and with no target audience in mind.
Some of the most common advice given to almost all people is "invest all your money in low cost index funds like the S&P 500 because most people never beat the market index at least not consistently". The other piece of advice and strategy that I most often hear recommended is "Build a portfolio of 60/40 stocks to bonds that can weather inflation and multiple recessions". Next out of their mouths is how you have to "diversify across hundreds of companies in multiple asset classes". None of this advice will cause you to lose your home and most of it will likely make you some money.
The point is this advice makes many assumptions about almost everyone on earth, and many financial advisors and industry types pass judgement on any opportunity that doesn't fit into the thesis of the aforementioned advice. Here are some of the reasons this advice is shit:
- It assumes everyone should only pursue one investment strategy
- This advice assumes your objective is either to preserve wealth, or build it very slowly
- It assumes your time horizon is forever (or at least deep into retirement) for every dollar you invest
- It assumes you have no interest in learning the markets and different strategies and makes no effort to encourage your education
Other investment strategies and ways of building and preserving wealth are only allowed if you make it your career and are professionally trained. Building wealth is only legitimate when done slowly and based on fundamentals. All of this advice is great for you if you have no interest whatsoever in markets, trading, and investing. If that is you, great you can stop reading. However, that is without a doubt not everyone and we might be approaching a period where that isn't even the majority of people.
In my day job I am a Technical PM at Facebook, on my own time I am a trader, and investor in multiple asset classes and strategies. I am doing fairly well this year, my combined trading and investment income year to date is matching my salary from FB with potential to double or triple my salary by year end if one or more of my plays across a couple of different strategies pays off as expected. The thing is I am NOT special and not claiming to be some gifted master of the universe. There are also many people doing much better than me.
My point is if you look at my trades and investments you will notice I build up concentrated bets in a select 2–6 plays or opportunities at a time. I trade reverse merger plays in the OTC market, these are stocks I hold for anywhere from one week to four months it depends on the catalysts and market dynamics. I am also an angel investor, I invest in pre-seed and seed stage companies, making bets on founders who are trying to change the world. I trade and invest longterm in several crypto currencies. I actively manage my retirement accounts (401k and Roth). I also invest long term in mid and large cap stocks in my taxable accounts. I am considering making some alternative investments in art and collectibles on an app like Otis
My portfolio has diversity due to the number of different kinds of investments I am in, not because I bought an index fund or stuck to 60/40 stocks to bonds ratio. Because of the concentration in each asset class, when one of my strategies plays out in my favor the return is outstanding. You can call the short term swing trading I am doing gambling, but if so I am robbing Caesars blind. This is real money, made very quickly and some of those earnings will go into long-term investments and some of them will go into making more money in short term plays. Call it whatever you want, but I call it making money.
Risk ≠ Bad
These plays all have risk, but some risk is required to achieve long term success. Risk does not equal bad. Risk CAN equal bad. Again if you have zero interest in investing and learning the markets, then ALL of these opportunities are too risky. If you see someone on Twitter make a bunch of money on "options" and run off and buy a bunch of options with no research you will lose a ton of money and you deserve to lose a ton of money. I have a feeling this isn't as many people as the "experts" shilling this advice would have you believe. If you are interested you can follow these tips to drastically reduce your risk in any investment opportunity:
- NEVER invest your rent money or any funds you cannot afford to lose
- Know and understand the time horizon of a given investment strategy. When is a good entry point? How long should you expect to hold onto the investment before selling or reaping a return? What are the sell/exit signals?
- Do your due diligence! Do NOT trust people on the internet. People can give you leads and pointers, but do your own research. Figuring out what to research and how to do due diligence in a given strategy or thesis is part of the learning process. It differs for every type of investment. The content and process I use to research a reverse merger play is 100% different than when I am researching a potential angel investment or long term equity to hold
- Take profits when you can! The shorter the strategy, the earlier you should aim to get some return. On my short-term plays I set GTC sell orders at different price points ahead of time to take all emotion out of the selling equation
Money isn't everything, but if you are trying to achieve security why does it have to come slow to be legitimate? If you are afraid of making bad decisions when money is made quickly or you are afraid others will make bad decisions, try to figure out why. Learn from your own emotions, and you can eventually tailor your investment strategy to the way your brain works. Whether you are striving to build wealth quickly, slowly, or both (like me), there are multiple approaches and some of them might be easier for YOU than blindly putting all your money in index funds and bonds. If you think the game is rigged you are absolutely right, but how many genuinely successful people do you know who refuse to play?
I am pretty sure if you can figure out a way to make some money relatively quickly once, you can do it again even if you fuck up the first time or the first 12 times like I did in my 20s. Making mistakes managing your money isn't reason to avoid making more of it. Succeeding at money management is about gaining perspective and for most of us maturity also plays a big role. You can get better at building wealth and managing it at the same time, plenty of people do, contrary to what your financial advisor is telling you!
I would love to hear from you! Next time I will dive into some of the strategies I am learning. Until then writing this has me kind of fired up and ready to trade crypto!
Ben J Holcomb