Information Sources
If you want to be a successful investor, it’s absolutely essential that you find sources of information that are accurate, and advice that is truthful. We define truth as the absence of spin. Spin simply means bending the facts so that they will fit a particular point of view. This can be done intentionally, or unintentionally. If done intentionally, spin is just a kinder word for lies. If done unintentionally, spin is another word for bias. But either way, spin is dangerous to your financial health.
Spin is everywhere in the investment world. It’s in the blogosphere, in the mainstream financial media, and in the financial services industry itself. Financial professionals are very good at tilting, shading, twisting, coloring, enhancing, or otherwise distorting the facts for the purpose of advancing their agenda. Whenever you read or hear something about investing, always remember to consider the source. Does this person have something to gain by presenting this point of view? Spin is very hard to detect, but it’s everywhere.
Advancing The Agenda
An example of spin on a massive scale is the widespread promotion of ‘Buy and Hold’ as the best investment strategy. Most brokers and advisors will tell you that the best way to make money in the long run is to buy a basket of stocks and bonds, and then hold them for a very long time, through bull and bear markets. The idea is, by staying invested through good times and bad, you avoid the risk of missing out on the biggest “up days” in the market. But research has shown that buy and hold is not the most efficient way to manage your investments.
The spin comes from the idea that brokers and advisors would like for you to keep your money invested with them for as long as possible, and the best way to do that is to keep you fully invested. If you were to sell your investments and go to cash, there is a fear that the cash could easily walk out the door and down the street to the competition. Brokers and advisors will do anything to keep that from happening, including telling you the big lie about buy and hold.
Biased Advice
It’s human nature to form opinions and take positions on all sorts of issues. This is normal and healthy behavior for most avenues of life. But one place where this does not work at all is in the world of investing. The most successful investors are the ones who are able to adapt to the constantly changing investment environment. Having an opinion, or a point of view about how things are ‘supposed to work’ is not conducive to making money. Markets are fickle, and they are in a constant state of flux. As soon as you figure out what’s going on in the market today, it will change and your idea will no longer work. Top investors know this, and they adapt constantly to fit the changing environment. They avoid getting locked into any pre-conceived notion of what works and what doesn’t. In other words, they have no spin, because they have no bias. But these are the rare investors who have made it to the top of their profession. Most investment professionals are not like this. They have firm opinions and take hard positions on how they think the investment world works, and as a result, the advice they give is loaded with spin. This is because they have to fit the facts of reality onto their biased framework of the market, and the only way to do this is with spin. Do you really want to trust your money to a person who thinks this way?
How ZenInvestor is different
We start with the bedrock principles of finance. These are concepts like the time value of money, compound interest, tax-deferred growth, probability theory, and risk. We take great effort to avoid engaging in spin, so whenever we make statements that include our own opinions, assumptions, projections, or judgments, we try to identify them as such.
To this mix we add two more essential ingredients, psychology and context. We include psychology because no matter how accurate our models might be, a human must take the step of implementing the model and keeping it properly balanced. Anything that interferes with this process can usually be traced back to psychology, in the form of behavioral missteps.
We include context because there is no universal investment model that is appropriate for all investors. For example, a recent college graduate who can afford to save $200 per month and has 40 years to invest will need a model that is far different from the one that works for the 55 year old who has already accumulated a nest egg of $800,000 and wants to retire in 8 years. Models will also differ between investors with different risk profiles.
We take these and other variables into account in designing our models. Then we go one step further, for those who feel they need it, and coach you on how specifically to implement our models in your personal portfolios. The idea of context is as important to our approach as anything else we consider.