Posts Tagged ‘Dumb Money’

There are a lot of nice things about being dumb.  You never sit alone at a bar, ball park, or coffee shop.  You always have something in common with your colleagues or fellow retirees.  Some of the nicest people around are dumb.  Once you’re dumb, it doesn’t matter who’s dumber, or even who’s the dumbest.

There are of course drawbacks to being dumb, a number of which are covered by Steven M. Sears in his The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.  There does not seem to be a single test that detects whether greed has turned you into “dumb money,” a term Wall Street professionals use to describe outsiders.  “Dumb Money,” writes Sears, “buys stock when it should sell, and panics and sells when buying makes more sense. . . . If not for the positive effect of inflation, and corporate stock dividends, which represent more than 45 percent of historical stock gains, most investors would have sharply smaller investment portfolios.”

If your local stock broker has not successfully sheltered your investment from sharp declines and has lost capital for you, he may be the modern equivalent of the door-to-door salesman of the past.  He is shuffling and selling to make a buck for himself, sitting in his office just as dumb as you are.  Try this one on him for size, “Explain the structure and reasoning involved in the PIMCO Global Mult-Asset Fund, and what you do for me to gain the same results.”  If he gives his answer without breaking a sweat, then you know you have something in common with him.

The author thinks one step in improving financial literacy in the United States is the creation of an office of Investor Laureate and the appointment of a wise man such as John Bogle or Warren Buffett to popularize understanding Wall Street and beating back the ravenous wolves who feed on dumb money.  The idea has great merit; and if I get the opportunity, I will recommend the idea and this book to both Barack and Joe.

To Sears’ idea I would add the national certification and promotion of an Associate Arts degree in financial literacy with wide-spread classroom and internet opportunities to collect credits toward the degree.  The degree would add punch to the influence of the Investor Laureate and hopefully build a corps of investor warriors.  I would be delighted to work on my fourth degree.  Charles Marlin

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