When I was growing up, the 80’s cartoons each had standard issue goods guys and bad guys. Autobots battled Decepticons, G.I. Joes battled Cobra, and He-Man battled Skeletor. I think I outgrew cartoons (at least this style of animation) when the villains’ consistent focus on “evilness” began to ring false. The most extreme case of this would be Beastly on Care Bears who would cackle “I’m *SO* bad!” In real life “villain” is often a matter of perspective, and no one thinks of themselves as evil. We’re all the “good guy” in our own story (even when we play the villain in someone else’s).
I’m not entirely sure why we feel this is a good way to structure conflicts when we present them to children. Clearly it becomes an easy framework to convey values to children. If we feel generosity is a valuable trait, then we assign it to the Care Bears (and show No Heart being stingy) and it is clearly conveyed to them which is the better trait. I think it can lead to a variety of problems with viewing the world as black and white as adults, however I’m not sure that early socialization is really to blame (Xenophobia seems to come quite naturally to the human race and I suspect “black and white” thinking derives quite naturally from an “us and them” world view).
This kind of thinking creeps into personal finance in two ways. First, there is a tendency to break people into two groups: those providing good information and those providing bad information. I wrote a pretty scathing review of “Rich Dad, Poor Dad” by Robert T. Kiyosaki, so people might be inclined to think I disagree with everything he writes. I find some of his material incorrect, some of it poorly presented, and some of it worthwhile. Trying to sort these out isn’t worth the benefit, so I recommend steering clear of his books. He suggests joining MLM as a way to learn how to sell, which isn’t AWFUL advice (I think it might be the only worthwhile reason to get involved with “network marketing”). Conversely, I like most of what John Reed has to say about real estate, investing and life. One big idea that he pushes in a number of books and articles is the “unlimited downside” of toxic contamination as a risk in real estate investing. I agree that it’s a concern (and agree with him that it does give you an unlimited downside) however I disagree with his conclusion that it means you should avoid buy & hold real estate strategies.
This sort of thing can creep in to blogging. Long term readers will have a mental image of Mike and myself, and I can pretty much guarantee we don’t match it in real life (Guiness416 and Preet have both met us after reading the blog, please feel free to comment). One reader was briefly very enthusiastic about the blog (she wrote me an e-mail comparing some of what I’d written to Shakespeare and the Dalai Lama). Later she discovered I invest in tobacco stock and told me off. I’m not as good *OR* as bad as she thinks I am. A while back OperaBob took exception to a comment about the DRiP Investing Resource Center. It seemed to me what he couldn’t wrap his head around is that I said good things and bad things about the community he’s a part of. His community isn’t all good (or all bad): nothing is.
Our infamous real estate agents posts have similarly been interpreted as us saying agents are bad, which we never said in the posts or comments (and, in fact, we repeatedly point out parts of the process where the agent is useful). However, because we don’t agree that agents are absolutely good in every way, some people interpret this as meaning we think they are all absolutely bad.
The second way this creeps into personal finance is people who want to view investments as “good” or “bad”. In my recent post “Beginning Investment Strategies to Avoid” Mark Wolfinger left a comment disputing characterizing stock options as a zero sum game. Mark’s comments were interesting (he certainly knows more about options than I do), and presented situations where stock options could be used effectively, however that wasn’t what I discussed in the article. In that post I said that stock options were a) not for beginners and b) a zero-sum game. This was taken as saying options are “bad”, which wasn’t at all what I wrote (or meant).
We sometimes get commenters who want to figure out which is the “right” investment strategy. Cory recently commented on one of my posts that GICs have outperformed stocks over the last 10 years (I’m not 100% sure I even buy this, it’s probably ignoring dividend reinvestment, but let’s accept it at face value for the purpose of this post). There’s another chestnut showing that you’d be better off buying beer, drinking them, then returning the cans for a refund instead of investing in the stock market. These are true, for what they are, but they’re absolutely useless unless we have a time machine. I don’t care whether GICs outperformed stocks over the last 10 years, I want to know if they will over the NEXT 10 years (and no one can know that).
There are people who have made fortunes with Multi-Level Marketting (probably by starting them), there are people who have lost big in passive investing. Some have lost “safe” money when banks collapse, and others who have never lost a dime but have danced through one risky investment after another. There are no absolutes (in investing or in life), and you’re wasting your time and money if you go looking for them.
{ 15 comments… read them below or add one }
I absolutely agree with this post! Oh wait…
There are people who have made fortunes with Multi-Level Marketting (probably by starting them), there are people who have lost big in passive investing.
The difference is that there are many respected sources of information regularly pointing out the dangers of multi-level marketing while most respected sources of information urge Passive Investing on middle-class investors seeking prudent and realistic ways to finance their retirements. Thus, the harm being done by advocacy of Passive Investing is far greater.
I don’t agree that there are no absolutes. Two plus two equals four. That’s absolutely true.
The problem is that we humans often feel more confidence in our views than is justified. I have run into many Passive Investing advocates who are highly confident of their strategies despite the long historical record showing that Passive always ends in financial disaster for all involved. They believe. They are sincere. But they are misguided. And they are so darn sure that they are right that they have closed their minds to other viewpoints.
I think that the answer is acknowledging that there really are absolutes while also acknowledging that we humans have a notoriously hard time distinguishing them from our prejudices. I believe that Passive Investing has caused more human misery than any other idea in the history of personal finance. But I also feel great love and respect for a number of the most prominent Passive Investing advocates — people like John Bogle and Bill Bernstein and Scott Burns, from whom I have learned a great deal. We often don’t learn all that much from those who agree with everything we say. The greatest learning experiences come from interaction with those holding different viewpoints and challenging us in warm and friendly and invigorating discussions.
I really do see some things as being grey. I really do see some things as being black and white too, however. One of the things I see as being black and white is that we need to overcome our temptation to only want to hear praise of all our wonderful thoughts and try to understand that those with different ideas often can end up being our best friends on the planet.
I’ve learned a lot from the Passive Investors. There’s no grey about it. It’s a black-and-white truth. And I’m grateful for what they have added to my life and the lives of all of us.
Rob
“You have to pick the salt from the grain” What Robert K. was really saying is you have to gain Sales skills; it doesn’t matter where you learn and gain it. He learned sales skills from Xerox selling photocopier machines. He just suggests joining MLM because investing time and money is pretty low. Most MLM spent tons of cash in Sales and Marketing Material. So why would you spend time and money to gain Sales and Marketing. To learn Marketing at York University will cost $3,000 plus.
Robert Kiyosaki focus more on Cash flow rather than capital gain. That’s why he recommends creating your own Rental Properties.
You have to have a Team of experts. Real Estate Agents are one of them. Brokers, Agents, Financial Planner, Accountants, Lawyers are some of the team that I have.
GICs outperformed stocks! Lol.. that’s pretty funny. Inflation and tax alone kills your 3% interest gain. I have stock that has a yield of 6% that pays a dividend of $1.26
I guarantee myself by creating multiple on going income. I have several Multiple Income deriving from Passive, Portfolio, Business, and Residual. I’m a domainer, Reseller, and Affiliate Marketers. Stocks, Mutual Funds, and Real Estates. In fact last year, Stocks and Real Estate Fell but my Internets sites were doing well. That’s my way of diversification.
Very unique post Mr. Cheap. First I’ve read referring to my childhood hero Skeletor
Looks like I’ll need to step up and disagree more vehemently to be referred to in a post.
This gets me thinking about forums/blogs and the internet. I never had/experienced as many ‘dissenting’ and passionate responses defending one thing or another in my personal life (sure they happen on occasion at work) – we come to these online sites to disagree with people, but for the most part – few of these topics are discussed outside the protection of anonymity of the internet.
Jess: Sorry, I know my writing wasn’t very clear, but I understood that RK was suggesting joining MLM to learn about selling. I agree this is an OK reason to join.
Sampson: Skeletor was totally misunderstood. He was trying to unite Eternia, and that muscle bound moron kept hitting him with his sword! He also struggle with a VERY serious skin problem. Clearly, he’s the real hero…
I agree, people certainly say things on-line that they’d never say face-to-face.
Disagreeing vehemently *IS* probably a good way to get referenced in future posts
Hey Mr. Cheap. I love the blog, you & Mike do great work.
I feel the need to p0int out the irony of your statement. “There are no absolutes (in investing or in life)…” is an absolute statement.
Not trying to be cheeky, I do agree that many of the statements & ideas that are held up as absolutes are quite subjective, but in life I believe that there are absolutes, truth & lies, reality & fantasy. Learning not to decieve myself (in all sorts of areas) is probably one of the biggest challanges I’ve been realizing lately.
Just my 2 bits for thought.
David: In a previous comment I flagged a similar statement, perhaps I should have made the irony more clear (with markups!
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I DO however find most absolutes tend to break up into subjective beliefs if you look at them too closely. But I agree with you and wouldn’t rule them out entirely. They certainly aren’t as common as is commonly believed however.
Thanks for commenting!
Rob says, “I have run into many Passive Investing advocates who are highly confident of their strategies despite the long historical record showing that Passive always ends in financial disaster for all involved.”
Oh? Are you saying the historical record shows that investing in Vanguard’s Wellington or Wellesley Income funds resulted in financial disaster for the investor? Or investing in the Coffeehouse Portfolio resulted in financial disaster for the investor? It does not appear to me that those who invested passively via any of those vehicles were caused much “human misery” by their choices. I guess it depends on just how you choose to interpret (or misinterpret) the historical record.
Oh I can’t resist making this comment:
Rob B said “I don’t agree that there are no absolutes. Two plus two equals four. That’s absolutely true.”
Obviously you never taken much calculus because you would know that actually there are cases where is doesn’t. There is no such thing of as an absolute.
Mr Cheap – I’ve enjoyed seeing your shades of grey. Thanks for the post.
Tim
*Sheepish* No, its probably clear enough irony, I just missed it
David, no worries – I missed that too!
Obviously you never taken much calculus
I signed up for it. But on the day of the first test I determined that the entire thing was an elaborate Candid Camera episode. Everyone except me was pretending that they understood the questions and writing down answers and all that sort of thing. I decided that the joke wasn’t funny enough to justify me getting an “F.” So I dropped the class.
Rob
Are you saying the historical record shows that investing in Vanguard’s Wellington or Wellesley Income funds resulted in financial disaster for the investor?
Yes. There have been four times in U.S. history when the idea that price doesn’t matter when buying stocks was promoted so heavily that a large percentage of the investing population came to believe it for a time. On each of these four occasions we not only saw a price crash but also an economic crisis (from 1900 forward, there has never been an economic crisis in the U.S. that was not preceded by heavy promotion of the Passive Investing “idea”).
When the entire economy crashes, everyone is hurt in serious ways. Businesses fail. Retirements go bust. Marriages fail. Political instability reigns. There are no winners, only losers. If we could go back in a time machine and ask those who were invested in some fund that just happened to get okay returns despite Passive Investing (Wellington would obviously have performed better had the managers been willing to take valuations into consideration when setting the stock allocations for the fund) whether they were glad to live through a Depression or a serious recession caused by Passive Investing, I am confident that they would say that it would have been just fine with them if investors of the day has been informed about Rational Investing principles.
There is no benefit to buying stocks without taking into consideration the price you pay for them, Carlyle. It’s not even possible for the human mind to imagine how there ever could be one. I’m absolutely sure. (That last part is a joke.)
Rob
I always find it humorous when someone says “GICs have done better than stocks over the last 10 years”. Ironically, that makes me want to get back into the market. It seems like there is a “time bias” out there – perhaps in September of 2008 this was true, but now the market is back up a significant amount from the low which makes it not true. The fact is that asset allocation plays a key role in investment strategy.
Engaging post! I can tell you put a lot of thought into this.
Anyway, it’s interesting to note how common it is to take on the simplistic worldview of “us vs them” and not taking into consideration what the underlying meaning and value of a post is.
We all got a fair bit of “grey matter” in our noggins’ that can critically analyze the million shades of grey in terms of understanding context… it’s amazing how many people don’t take the time to step back a bit and take a look at the bigger picture.