Comments on: You might want to screen the advice from your ‘experts’ a little better … http://7million7years.com/2009/03/14/you-might-want-to-screen-the-advice-from-your-%e2%80%98experts%e2%80%99-a-little-better-%e2%80%a6/ How to make 7 million in 7 years ... Thu, 24 May 2012 09:20:05 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Adrian http://7million7years.com/2009/03/14/you-might-want-to-screen-the-advice-from-your-%e2%80%98experts%e2%80%99-a-little-better-%e2%80%a6/comment-page-1/#comment-2476 Adrian Sat, 14 Mar 2009 22:36:58 +0000 http://7million7years.com/?p=1742#comment-2476 @ Rick - You make a good point; we often talk about stock investing as something that we 'have to do' ... it's almost as though 'investing' is synonymous with 'stocks'. It actually used to be that 'investing' was synonymous with 'real estate', but excellent marketing, online trading, and mutual funds changed all of that. But, 'investing' should be synonymous with 'Number' [AJC: stretching the meaning of 'synonymous' a loooong way :)] .... ... you need to find your Number, hence your required Annual Compound Growth Rate then choose the best investment class FOR YOU that gets you to that Number and BECOME AN EXPERT in that. It might mean starting a business (and, being satisfied with market returns should you choose to reinvest excess cashflow outside of your business, as you suggest) ... or, it might mean actively trading (with all of the risks that entails) ... or, ???? @ Rick – You make a good point; we often talk about stock investing as something that we ‘have to do’ … it’s almost as though ‘investing’ is synonymous with ‘stocks’.

It actually used to be that ‘investing’ was synonymous with ‘real estate’, but excellent marketing, online trading, and mutual funds changed all of that.

But, ‘investing’ should be synonymous with ‘Number’ [AJC: stretching the meaning of 'synonymous' a loooong way :) ] ….

… you need to find your Number, hence your required Annual Compound Growth Rate then choose the best investment class FOR YOU that gets you to that Number and BECOME AN EXPERT in that.

It might mean starting a business (and, being satisfied with market returns should you choose to reinvest excess cashflow outside of your business, as you suggest) … or, it might mean actively trading (with all of the risks that entails) … or, ????

]]> By: Rick Francis http://7million7years.com/2009/03/14/you-might-want-to-screen-the-advice-from-your-%e2%80%98experts%e2%80%99-a-little-better-%e2%80%a6/comment-page-1/#comment-2475 Rick Francis Sat, 14 Mar 2009 21:22:30 +0000 http://7million7years.com/?p=1742#comment-2475 I agree that Warren seems to have something that makes his a superior investor. However, looking at the performance of professional investors as a whole makes me believe that superior investing is not a skill that can be readily learned. If it were there should be a large number of mutual funds that beat the market averages consistently. Since there isn't a clear path to becoming a superior investor, and there are so few of them does it make sense for someone to try to beat the market? I've tried it and sometimes I did beat the market but sometimes I got hammered... Looking back I would have been better off just invest in index funds and taking the time I spent following individual stocks to do something else that could earn money. I like the idea of starting up a side business with low startup costs- I just have to find something that would be interesting enough that I would be willing to devote the time to it. -Rick Francis I agree that Warren seems to have something that makes his a superior investor. However, looking at the performance of professional investors as a whole makes me believe that superior investing is not a skill that can be readily learned. If it were there should be a large number of mutual funds that beat the market averages consistently.

Since there isn’t a clear path to becoming a superior investor, and there are so few of them does it make sense for someone to try to beat the market? I’ve tried it and sometimes I did beat the market but sometimes I got hammered… Looking back I would have been better off just invest in index funds and taking the time I spent following individual stocks to do something else that could earn money. I like the idea of starting up a side business with low startup costs- I just have to find something that would be interesting enough that I would be willing to devote the time to it.

-Rick Francis

]]> By: What you need to remember to find or avoid mispriced investments « Silicon Prairie http://7million7years.com/2009/03/14/you-might-want-to-screen-the-advice-from-your-%e2%80%98experts%e2%80%99-a-little-better-%e2%80%a6/comment-page-1/#comment-2474 What you need to remember to find or avoid mispriced investments « Silicon Prairie Sat, 14 Mar 2009 20:19:41 +0000 http://7million7years.com/?p=1742#comment-2474 [...] market hypothesis doesn’t match what we can easily observe. I just read a post on the How to Make 7 Million in 7 Years blog, where the author disagrees with  Larry Swedroe about the reality of efficient markets. The [...] [...] market hypothesis doesn’t match what we can easily observe. I just read a post on the How to Make 7 Million in 7 Years blog, where the author disagrees with  Larry Swedroe about the reality of efficient markets. The [...]

]]> By: Silicon Prairie http://7million7years.com/2009/03/14/you-might-want-to-screen-the-advice-from-your-%e2%80%98experts%e2%80%99-a-little-better-%e2%80%a6/comment-page-1/#comment-2473 Silicon Prairie Sat, 14 Mar 2009 19:42:02 +0000 http://7million7years.com/?p=1742#comment-2473 Regarding efficient markets, it is true that it's very difficult to get an information advantage regarding stocks that are traded frequently. There is another possibility - the market's decision about the value of something could be wrong. A few years ago any of the large investors who make the market so "efficient" could have bet against the housing market and financial industry but they wouldn't have wanted to admit to going against common knowledge and missing out on more record profits. Buffet is one of the few exceptions to this - he's stuck to his methods long enough for people to believe him, and even if all the Berkshire investors left it wouldn't change his opinions. Since most investors and money managers aren't as principled there is a large possibility of mispricing according to rational expectations. Government bonds will always have an efficient market because you know exactly how much you'll be getting and the risk is extremely small; in any other market the uncertainty will often lead investors to push the price in the wrong direction. Even in the government bond market you might decide that just because millions of others have decided they want no return on their investment doesn't mean you have to follow them! The idea of efficient markets largely ignores the fact that people can come to different conclusions based on the same information and some of those conclusions will be wrong. I'm still buying index funds of course; it's a lot more fun to focus my attention on my own business rather than trying to analyze other companies. Regarding efficient markets, it is true that it’s very difficult to get an information advantage regarding stocks that are traded frequently.

There is another possibility – the market’s decision about the value of something could be wrong. A few years ago any of the large investors who make the market so “efficient” could have bet against the housing market and financial industry but they wouldn’t have wanted to admit to going against common knowledge and missing out on more record profits. Buffet is one of the few exceptions to this – he’s stuck to his methods long enough for people to believe him, and even if all the Berkshire investors left it wouldn’t change his opinions. Since most investors and money managers aren’t as principled there is a large possibility of mispricing according to rational expectations.

Government bonds will always have an efficient market because you know exactly how much you’ll be getting and the risk is extremely small; in any other market the uncertainty will often lead investors to push the price in the wrong direction. Even in the government bond market you might decide that just because millions of others have decided they want no return on their investment doesn’t mean you have to follow them!

The idea of efficient markets largely ignores the fact that people can come to different conclusions based on the same information and some of those conclusions will be wrong. I’m still buying index funds of course; it’s a lot more fun to focus my attention on my own business rather than trying to analyze other companies.

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