Other than enriching the managers and intermediaries most of what occurs on Wall Street is merely noise. Few of us oughta care what the Dow does on a daily basis. It’s the equivalent of caring about how many steps it takes to walk to the bathroom when all we oughta care about is whether we make it in time.
Homunculus, a sensory map of your body. The homunculus looks rather strange because the representation of each area is related to the number of sensory neuronal connections, not the physical size of the area.
IN PLAIN ENGLISH: The size of his hands represent how much of our brain’s processing power is devoted to our hands. That shouldn’t surprise anybody given the complexity of activities our hands are involved in. And in case you didn’t notice, note how much processing power is devoted to, as my mum might say, the private parts. That shouldn’t surprise anybody either.
“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.” Warren Buffett
I recently quit Wall Street to help improve the investment industry. I do this through promoting intelligent investing in the form of low-cost indexing – google it, literally.
Despite the emphasis Wall Street places on active investing strategies – stock picking, mutual funds, etc. – the arguments in favor of low-cost indexing have been made over and over and over. In fact, the arguments are so simple, factual, and conclusive that they can be condensed into a handful of bullets:
- Active investors fail: Stock picking is a fool’s errand and few mutual funds beat the market. Over the past 20 years, more than 80% of active investors FAILED to beat the market.
- Asset allocation matters: Active investors fail because gambling on the direction of the market (market timing) and stock picking (security selection) don’t work and don’t matter. Instead asset allocation accounts for 90% of the variability in returns.
- Distinguishing luck from skill: At the very least it’s difficult to distinguish luck from skill – see Fama and French. As Michael Lewis once wrote, “If millions of monkeys throw a bunch of darts at the Wall Street Journal, at least one monkey would pick a group of winning stocks.”
- Indexing is not dismissive of active managers: The market isn’t efficient and exceptional investors exist (e.g. Bruce Berkowitz). Unfortunately, it’s near impossible to systematically take advantage of inefficiency and to identify and bet on exceptional investors over the long-run (e.g. Bill Miller).
- The only predictor of investment performance is low-cost. It’s a fact. Even Morningstar concludes that low fees are a better predictor of performance than its own ratings.
- It’s not a “stock picker’s market”: Poor U.S. index performance over the last decade doesn’t imply it’s a stock picker’s market – the index still beat almost all stock pickers. Instead it implies that global asset allocation matters most.
Unfortunately, despite the conclusive arguments in their favor, index fund assets only account for around 5% of mutual fund assets.
As Charles Ellis writes, “leaving almost 95 percent of assets in the hands of wealth-destroying active managers.” Why? Because we don’t invest; we gamble. Improving Wall Street and the investment industry means changing this. It’s that simple.
**ADDENDUM: To my readers in the mutual fund and alternative asset industries. I am a student of investing and am enamored by truly exceptional investors. My views on investing are factual and targeted at the aggregate, not you or your fund in particular. Please stop sending me emails telling me how wrong I am and telling me how much alpha you create. It’s not about you. It’s about your industry. I’m sure you are all above average.
Getting what you want is easier when you focus on what matters. While planning and execution are the essential practical steps that enable success at any goal, it is our mindset that determines our ability to plan and execute. Mindset matters and cultivating a powerful mindset is a crucial enabler of success.
All people, and most certainly successful people, have noisy minds; you know, that inner voice that just never shuts up. While it’s not possible (or desirable) to shut it up, it is simple to shut it out and to quit paying attention. Here’s an easy solution, no meditation required. Buy and read this short, elegant, and transformational book – The Untethered Soul by Michael A. Singer.
Here’s some of my favorite quotes:
- “Your thoughts have far less impact on this world than you think”
- “Come to know the one who watches the voice, and you will come to know one of the great mysteries of creation”
- “Instead of being aware of your thoughts, you’re aware that you’re aware of your thought”
- “We’re not really trying to be free of our stuff; were trying to justify keeping it”
- “Your mind is always telling you that you have to change something outside in order to solve your inner problems…but…Your mind’s thoughts are disturbed by its fears”
- “In time, you will come to realize that the center from which you watch disturbance cannot get disturbed”
- “Life is not something you get; you experience. Life exists with or without you”
It’s noisy online. How does anyone get heard on the web, Facebook, or Twitter? Even with only 200 friends on Facebook I struggle to hear anyone. And on Twitter, even my two friendly followers have hundreds of people they follow and thousands of people who follow them.
The Internet is like a crowded cocktail party. From any spot in the room the chatter sounds like a stream of noise, yet up close you can tune in to a limitless number of conversations. For this reason it’s hard to attract an online audience and even harder to keep their attention.
So, how do you do it? I don’t know yet. But I know others do. And I know that success at any goal can be broken down into three steps – Define It, Get It, and Get It Done. So, if Define It is the goal and Getting It Done is just doing it, what is Getting It? Well, I define Getting It to be the activity of deconstructing any goal into the few factors that truly matter to success. In the context of building an online audience, although Getting It Done is not, Getting It is simple:
- Content: People with little to say stand alone at cocktail parties and online. Excellent content helps, but producing any appealing content matters most. Writing is akin to manufacturing and a writer must produce.
- Publishing: It’s gotten harder and easier to publish. The collapse of the traditional publishing industries – books and journalism – has made it harder and easier and self publishing has never been easier. Writers must seek out traditional and self publishing and build online communities.
- Promotion: Whether it be traditional or online publishing, writing is a business of self-promotion – like success in many facets of life, it’s about getting your voice heard. Hence, writers must become self-promoters, a la the shameless, noisy, and remarkable one-time author, Tim Ferris.
Now, think of your most important goal. What really matters to success? Are you Getting It?
Rumor is Lindsay is on the way from the big house to rehab. I say good luck, Lindsay. I also say it’s time America started to support her. We owe her; for our benefit she has lived her life on our stage. I’d challenge anybody to walk in her shoes, to live in her mind, and to live their life seeing the world through her eyes. I wrote this to support Lindsay and to support America. We’re all in this together.
**This is a format I call economic poetry. But that’s my fancy name for bullet points**
- WE ARE THE LINDSAY LOHAN ECONOMY.
- WE’VE IGNORED OUR LONG-TERM PROBLEMS BY PARTYING LIKE IT’S 1999;
- AND IT SEEMS WE ARE CONTENT AS LONG AS THE DJ KEEPS SPINNING.
- WHILE THE MUSIC WAS PLAYING WE SPENT ON FRIVOLOUS CONSUMPTION
- AND WHEN THE PARTY ENDED WE NAIVELY WONDERED WHAT WENT WRONG.
- BY PARTYING HARD WE HAVE RISKED OUR LONG-TERM PROSPERITY,
- BUT WHEN YOU’RE A STAR YOU CAN ALWAYS TURN IT AROUND.
First impressions count. In the field of communications and influence they say we only get one chance. Today, however, I’m writing about execution and a different type of impression, a physical impression – the result of an action.
In order to make any impression – to make a dent in the universe, as I lifted from Rework – we must take action. However well we plan an action, it is for naught until we take it.
But because the first impression counts, it can be hard to take action. Instead, it becomes easy to stall, delaying action while ever-planning the perfect first impression. Unfortunately, often this prevents us from making any impression at all – to paraphrase Voltaire, the perfect becomes the enemy of the good.
And without a first impression, there can be no second, third, fourth, and so on. In this context, the first impression counts because it builds the momentum required to achieve any goal. As Chinese philosopher Lao Tzu noted, “a journey of a thousand miles must begin with a single step.”
I’ve been researching a book for years and planning a blog for months. In doing so, I’ve been talking my book, planning the steps, improving my writing, etc. But when Napoleon Hill hit my inbox last week – Don’t wait. The time will never be just right – I realized I’d made the task too big and was stalling. So, I dumbed it down and am stepping up to take action, to make a first impression.
Today 35 years ago and six weeks premature I made my first impression. Today at least six weeks premature I’m making a different type of first impression. In the field of communications and influence a first impression is only the first step to building rapport. Visit again. We’ll have more to discuss.