Investing Experts Are Politicians

For a good number of years, I earned my living as a reporter covering Capitol Hill. My friends viewed it as a glamourous job, but it became boring to me. After you’ve done it for a bit, it gets to be the same thing over and over again.

Investing Experts Are Politicians

Part of the appeal of making a shift to writing about personal finance was that it provided an escape from the aspects of politics that had become annoying. I had grown tired of all the gobbledygook and trickery used to avoid accountability. It turns out that the joke was on me re that one. Many of today’s most popular investing experts are politicians at heart!

Investing Expert / Politician Comparison #1 — They employ gobbledygook.

John Bogle warns about the dangers of overvalued stocks in just about every speech he gives. He concludes just about every speech by admonishing his listeners to “Stay the Course!”

The only practical way to take action on the warnings about overvaluation is to lower your stock allocation. That would mean not Staying the Course.

AUDIO: Rob’s Financial Freedom Insight #1 — People Who Make Money Selling Stocks Cannot Tell You the Truth About How to Invest

Is Bogle genuinely concerned about overvaluation or is he not? It’s hard to say, isn’t it? My guess is that Bogle understands that he has made it hard for us to figure out where he really stands on the overvaluation question, and that he sees that as being not an entirely bad thing.

Investing Expert / Politician Comparison #2 — They avoid accountability.

If stocks go up, Bogle looks good because he encouraged you to Stay the Course.

If stocks go down, Bogle looks good because he warned you about the risks of holding overvalued stocks.

Gobbledygook serves a purpose.

Investing Expert / Politician Comparison #3 — They divide into opposing camps.

Bogle’s greatest accomplishment was in getting many investors to understand the importance of taking a long-term perspective. Bogle started a revolution in our understanding of how to invest successfully by doing this, in my view.

The implications have not yet sunk in for many investing experts. Both the Bull perspective (stock prices are headed up) and the Bear perspective (stock prices are headed down) are short-term perspectives. Since I was persuaded by Bogle’s urging to take a long-term perspective, I have lost interest in the cosmic silliness of pitting bulls off against bears.

Investing Mumbo Jumbo

Many of today’s investing experts have followed Bogle’s lead in urging a long-term perspective. Few take this advice seriously enough to realize that pitting bulls off against bears doesn’t make sense anymore.

They can’t help themselves. For politicians, the world is divided into Republicans and Democrats. For investing experts, the world is divided into Bulls and Bears. The one dichotomy is just as dumb as the other, in my mind.

Investing Expert / Politician Comparison #4 — They identify with each other more than they do with you.

There was a day when our elected representatives only lived in Washington, D.C., for a small part of the year. Now they are more at home with their own kind than they are with their constituents.

Have you noticed how investing experts employ their own specialized lingo? They make reference to things like “the equity risk premium” and “Efficient Market Theory” and such like without bothering to explain with care what it is they are talking about to you and other investors like you. The other investing experts are able to pick up on the references. That’s what matters most. It’s a club.

Investing Expert / Politician Comparison #5 — They practice “Positioning.”

You will often hear politicians say things that appear to be contrary to their usual positions. They are positioning themselves for possible changes in the prevailing winds.

Investing experts do the same. Jeremy Siegel wrote Stocks for the Long Run, one of the most pro-stock books ever written. His more recent work evidences more caution. His skills are the skills needed to argue persuasively. Like a lawyer, he is able to argue either side of the case, if called on to do so.

I don’t mean to suggest that Siegel does not believe most of the things he says. Most lawyers believe most of the things they say. Those who believe in the merits of their case are able to argue it more effectively.

Siegel believes more than one thing about investing. He stresses different beliefs in different circumstances. He positions himself to keep his approval ratings up.

Investing Expert / Politician Comparison #6 — They are smart.

Money Lies

Most politicians are smart. Most investing experts are smart.

You’ve got to be smart to pull some of this stuff off.

The smartness is not always being employed for the benefit of the person listening to the advice being put forward.

Investing Expert / Politician Comparison #7 — They are well-paid.

Politicians earn more than most of their constituents. Investing experts earn more than most of the people listening to their advice.

I don’t say it should be different. I do say that it affects the relationship between the investing expert and the person listening to his advice. Those who earn a lot more than you cannot relate as well to your concerns.

Investing Expert / Politician Comparison #8 — They cannot afford to focus on the big picture.

Many politicians have a good appreciation of what the real problems are and have a reasonable sense of what needs to be done. They are not in a position to take the steps that need to be taken. They have committee work that has to be done. They have constituent work that needs to be done. They have reelection work that needs to be done.

Investing experts too see that the real problems are not the ones they spend most of their time talking about. At least that’s my impression. I sense this reading between the lines of their articles and speeches. They too feel caught up in minutia.

Investing Expert / Politician Comparison #9 — They want to do good.

What causes Bogle to talk about overvaluation so frequently? My guess is that it’s his conscience. He’s not clear in his advice to investors. But it is my sense that he hopes that a few are able to figure out the message all the same.

Investing Expert / Politician Comparison #10 — They are cautious.

Investing Lies
The failures of the Efficient Market Theory are painfully obvious to any reasonably informed investing expert. A few of the best have spoken frankly about them. Many hold back. My sense is that they worry that, once questioning of the dominant model for understanding investing questions is permitted, there will be no end to it. The model will collapse.

I would see it as a good thing to see the Efficient Market Theory collapse. My sense is that many investing experts are reluctant to begin a process that would leave to wholesale reform of our understanding of how investing works, just as politicians might be reluctant to take on a project as big as tax reform or health-care reform. The feeling is that, when you start down such a road, you don’t know where it is going to take you.

Investing Expert / Politician Comparison #11 — They are focused on the short-term.

Politicians are always worried about the next election. That’s always the uppermost consideration on their minds.

Investing experts are not good at telling us what we need to do to become successful long-term investors. They want their words to sound good today and what sounds good today is not what works best for the long-term.

Investing Expert / Politician Comparison #12 — They place great value on being popular.

An investing expert’s advice doesn’t persuade anyone unless people like him. Investing experts often tell us what we want to hear rather than what we need to hear.

Investing Expert / Politician Comparison #13 — They’re glib.

Investing experts have learned the power of catch phrases to permit them to avoid giving clear and complete responses to hard questions.

Stocks are always best for the long run. That’s a powerful catch phrase. How do we know? The historical stock-return data tells us so.

The same historical stock-return data tells us that stock prices are likely to fall hard from today’s levels (this article was posted in January 2007). Should we be lowering our allocations? No, no one knows the future, say the experts. That’s a second powerful catch phrase.

Honest Investing Advice

The two catch phrases contradict each other. Catch phrases don’t need to make sense. Their power comes from the fact that they have been repeated so often that people have stopped asking what it is that they mean. That’s the source of their appeal to both politicians and investing experts.

Investing Expert / Politician Comparison #14 — They like people more than ideas.

It is the people behind politicians who are the idea people. The politicians themselves are people people.

My sense is that this is often the case with investing experts too. The intellectual curiosity is often not there. They are faces. They connect well with others.

Investing Expert / Politician Comparison #15 — They’re practical.

Politicians are not theorists. They are there to get a job done.

One of the reasons why investing experts don’t want to initiate a reexamination of the Efficient Market Theory is that it would generate so much seemingly non-productive questioning. They would rather continue turning out widgets with a machine that kinda sorts works for as long as it kinda sorta does.

Investing Expert / Politician Comparison #16 — They’re part of an establishment.

The investing expert job is a plum. You pay your dues to get there. You learn to follow the rules. There are consequences attached to doing things different.

Bogle is hated by many for having proposed a different way of doing things. He bucked the establishment. That’s how he came to be referred to by many as a “saint.” Not too many do.

Investing Expert / Politician Comparison #17 — They throw mud.

You want an investing expert who belongs to one school of thought to point out the weaknesses of the alternate schools of thought. You want him to do so in a fair and reasoned way, though.

Too often, it’s not done that way. Too often, the investing expert defends his point of view by throwing mud.

The Truth About Investing

Many investing experts do not possess confidence that their investing strategy is always right any more than many politicians possess confidence that their party is always right. They reveal their lack of confidence with the way they respond to challenges from other schools of thought.

Investing Expert / Politician Comparison #18 — They are skeptical of change.

We think of politicians as change agents. They’re not, really. The political system takes demands for change and softens them so that they do not pose a threat to the overall system. Politicians implement change, but they are not the ones who create the demand for it. Politicians are followers, not leaders.

Investing experts see it as their job to make the people who are looking to them for advice happy. When investors want to hear reasons to invest in stocks, investing advisors provide them. When investors want to hear reasons not to invest in stocks, investing advisors provide them. They generally don’t see it as their job to offer challenges and to change minds.

I don’t dislike politicians. They have their good points and bad points. I don’t think it’s a good idea to place too much hope in politicians doing “the right thing.” They might not agree with you as to what the right thing is. If they do agree, they might not be able to get it done. If they get it done, they might not be around long. The lower your expectations are for politicians, the more satisfied you will be with the work they do for you.

I don’t dislike investing advisors either. I think that many of us put too much confidence in their “expertise.” They really do possess a certain expertise. But it is a limited expertise, and it is often not an expertise that best serves the typical middle-class investor. Listen to the experts. Learn what you can from tem. Tune out what doesn’t make sense. Employ a b.s. detector.

That’s what you do when listening to politicians, isn’t it?