How sound investing can help you mercilessly crush your kids at board games.
Once again my kids lead me into thinking at investment in a very uncommon way.
I was playing, a few weeks ago, Monopoly with my 8 years old son. It is amazing how this game still lives on. I was not planning on any preconceived strategy neither grand life lessons to my son. I was just playing. Relaxed. Cool.
But I am a nerd, and while I did not really cared to win, I did amuse myself in trying to “master” the game. To be able to win or lose if I wanted to (the later been useful as a parent). So I started over-rationalizing things. Planning and computing odds.
And it stunned me all the sudden.
All the sound investing principles I profess to my clients and use for myself are actually quite useful in this game too ! Sweet.
An short example is worth more than a long lecture. Here is a real life example of what an investor can really expect from private equity, and why it does matter.
This, is a hot topic. Indeed was I recently contacted multiple times by clients who were “proposed” private equity investments by their private bankers.
They were all promised highly attractive returns ( “Internal Rate of Return” ) and were drawn to it. It was fun, sexy investing. They just wanted confirmation, validation, they were going to do it.
But still… they all noticed the same diffuse smoke in the air, forming a hazy screen of complex figures and arguments, and they could not find its source. Something was not right and they did not know what.
They all received the same advice from me :
Don’t. Just don’t.
I want to explain why. But I will try do it the less boring way I can, which is still far from being fun, I will use a real world example.
So here a real world case of a private equity fund. And here is why it is “not as good as it looks like”, and why anyone interested in finance should be aware of this.
In investment, as with all economic decisions, we must often pick between hopes and probabilities. The asset management industry uses this to trick us, here is how.
Recently, my older son told me a joke. It was simple and naive. It seemed innocent. It was not.
Toto the boy is playing cards with his grand-mother. After a few turns when he keeps winning, he is busted cheating by his grandmother.
– You are cheating Toto !
– Indeed I am !
– This is unacceptable ! Do you know what happens to cheaters in real life Toto ! ?
– Ummm yes… they win !
This simple joke, albeit deeply cynical, is actually pretty representative of what sadly happens in the grown-up world, on a regular basis. Cheaters often win. Misrepresentation often win. And even liars, often win.
In my very specific field, investment, this behavior is actually widespread, consciously or not. Part of the industry is, with very different degrees of awareness and gravity, “cheating” to win the money game…
Seeking to live solely on investment returns is both a big fantasy and a big mistake. Avoid it at all cost.
“This guy retired at 35 with this amazing and safe investment strategy. Want to know how? Click here”
Biggest financial clickbait. I see it regularly, and you probably do too. It usually features a very handsome young man/woman on a yacht, clearly not working for his/her living, and having a load of money anyway.
Beside the obvious scams that those ads are not hiding very well, the underlying message, the biggest investment myth ever, stay strong. This myth can be expressed by this sentence :
“By investing correctly, you can easily earn enough money to stop working, and your life will be wonderful”.
A lot of websites, including some that are not scammers but true believers, advise how to make it, how to get a life where you will never ever have to fake liking your boss or your client again. What a relief !
As you can read this promise is twofold : it promises you that “you can easily earn enough money to stop working” AND it promise you that “your life will be wonderful” if you do.
Some industries are rooted in exploration, discoveries and deceptions. Here is the story of two of them.
Today I want to talk about two industries that seem to have no relation whatsoever. First of all, their birth is one century apart. Oil history emerged at the end of the 19th century, “Technology” at the end of the 20th.
The first one is deeply rooted in exploration, land and hardcore industry. It is physical, heavy, it has a dark n’ dirty product that can only be found deep in secluded grounds or under mountains of ocean water.
The second is made out of thin air, its value relying ultimately in its intellectual property. It is a service industry created in clean, whitewashed, cosy atmospheres of startup open spaces.
Creation of the first French fiduciary & evidence-based financial advisor
A little personal message today. Just today.
I am very happy to announce the creation of a the first fiduciary financial advisor in France, Alpha & K. We are launching this company today with my partner and friend Philippe Maupas. And I just want to present it quickly to you…
Financial analysis education became too analytical and de-humanized. It needs to get back to more balanced, human, basics.
3 years ago, as every year for 8 years now, I volunteered as a “mentor” in a student financial analysis contest known as the “CFA Research Challenge”. During the French final, one of the student team was confronted with a very harsh and deep-meaning question about investment, a question they did not expect, a question they should have been taught about.
It was memorable because, while anecdotic at the time, it reached to something bigger, a problem that undermine the way young investment professionals (and some older) relate to their job. A question about the meaning of it.
Blockchain is a very promising technology. But for now it is young, flawed and still a bit inelegant.
A tech-addict friend of mine recently confessed to me the frustrating pain he felt when he desperately tried, a few weeks ago, to explain the concept of elegance in technology to his smirking colleagues. I padded him he back with compassion, and thought : “OK I will have your back on this. I will write about it”.
Meanwhile I thought about it and realized : “Holly cow ! There is no better example to explain this than to talk about cryptocurrencies !”
Global warming is frightening, and hope is thin to contain it. So maybe we should start not only fighting it, but also preparing for it.
In my last, and more obscure, post about data-mining bias ( that you should of course read, see here ) I illustrated my argument with the example of extreme weather news reports. To sum it up, my point was that while the increasing regularity of extreme heat/frost waves is probably a consequence of global warming, one separate occurrence was absolutely not sufficient to prove anything about it.
In the meantime however, summer passed in the north hemisphere, and it was hot. Damn hot all around. And while still not proving anything “by itself”, it did make me think about global warming. And I am sure you did too.
Global warming is here. No doubt. What was once upon a time a scientific theory became a few decades ago a scientific and political issue. Now it is starting to turn into a scary and material reality for everyone. And it is probably just the beginning.