Ignorance Is No Excuse For Investment Failure
- Why it's better to be a dumb investor, rather than a smart one.
- Always test conventional wisdom for investing, since it's often wrong.
- Turn your financial ignorance into an asset.
I'm a really dumb investor.
The reason I say that is because smart investors believe they know stuff. Dumb investors realize how little they know, so they test everything to figure out what's true.
I'm as dumb as they get, but I suppose that's why my portfolio earns consistent positive returns in most market environments.
You see, the only difference between you and me is I already know I can't invest my way out of a paper bag if brain power is required.
If my profits resulted from my knowledge and ability to reason, I would already be broke.
Unfortunately, that's probably true for you as well, but you just haven't figured it out yet.
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In all likelihood, you believe you know certain things about investing, causing you to accept conventional wisdom as true:
- Buy and hold for the long-term is an appropriate investment strategy at all times.
- Stocks outperform bonds and real estate.
- Daily news and events drive market price movements.
- Expert financial advice equals profitable portfolios.
- The Fed controls interest rates.
- and much more…
I'm dumb enough to realize I don't know if these (and many other) supposed investment truths are really true or not – so I test them.
In fact, I've spent two decades testing more investment ideas you assume to be true than I care to remember.
Amazingly, what I've learned is very little is actually true.
Much of what passes for investment wisdom is either a dangerous half-truth, or an outright lie. Very little conventional investment wisdom holds up to critical analysis.
That's why I'm so dumb. The more I test, the less I know.
Things that used to pass for knowledge are now proven false. I've learned enough to know how little I know.
In fact, I've reached such an incredible level of ignorance that it could almost pass for wisdom.
How To Turn Dumb Investing Into Profitable Investing
But here's the rub…
No matter how wrong conventional investment strategy is, you still have to invest in order to achieve financial security.
You can't achieve financial freedom without a portfolio of assets.
So not investing is no solution. Ignorance is no excuse for failure in pursuit of wealth.
There has to be a basis for sound investment strategy that can produce consistently profitable investment results.
As it turns out, the answer relies on inviolable mathematics – specifically, the concept of mathematical expectancy as the basis for all investment decisions.
Logic backed by science proves what's false, and logic backed by science also proves what's true.
Using positive, robust mathematical expectation as the crucible for a viable investment strategy wasn't perfect because it reduces investing to an actuarial process.
But anyone who tells you they have a perfect investment process is either a liar or self-deceived. No such thing exists.
Statistical certainty is as good as it gets. It's not perfect because you'll still be wrong and lose money occasionally, but with proper risk management your gains will exceed your losses tilting the payoff portion of the expectancy equation resulting in reliable profits.
I discovered a portfolio of low-correlation investment strategies with provable, positive mathematical expectation based on rigorous research was about as good as it gets.
No hunches, hot tips, hot stocks, expert advice, financial forecasts, or any other nonsense would qualify as a viable investment strategy because those were all examples of gambling – not investing.
Rigorous research that proves positive expectancy with an acceptable risk to reward ratio is the only way to reliably make money when you're dumb like me. It's okay for smart guys to think about brilliant investment ideas and lose money, but not us dummies.
Now, you may be reading this thinking it all sounds nice, but you don't have the time or inclination to do years of research so you can escalate your ignorance to my level.
Fortunately, you don't have to, because most of what you need to know already exists for free on the internet.
For example, in an article titled “‘Five Hot Stocks That Could Double This Year' And Other Useless Financial Advice”, I share with you my hard-learned experience of going down the rabbit hole of financial market forecasting. You'll learn the sordid history of financial forecasting, become “curiouser and curiouser” as to why it exists at all, and question what value it holds for your investment strategy – if any.
This is an example of the second level of knowledge where you learn what works, what doesn't, and why for investment strategy. Read this article and move one step closer to blissful investment ignorance.
In summary, if you want to be consistently profitable, then learn investing for dummies – or rather, invest like a dummy.
Discover how little of the common financial wisdom is really true so you can eliminate such nonsense from your investment strategy.
Get really ignorant so you can reach the second level of financial knowledge that allows you to focus your precious time and energy on the few things that actually work – and discard all the rest.
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If you invest, then it’s a near certainty you’ll encounter investment fraud. Nobody is immune.