Are You Investing or Speculating?

During conversations with investors and financial professionals I hear of the hot adviser who beat the market. They made money throughout the ‘great recession’. They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

English: CNBC’s “Mad Money with Jim Cramer” ca...
English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

These ‘hot’ analysts claim they can pick the right stocks to beat the market. If you look at celebrity stock pickers like Jim Cramer and look at his track record you will realize how poor his picks are. And yet people continue to watch him and take his advice. He continues to make bold predictions. He sounds very confident.

During my studies of investing strategies over the last twenty years I have learned trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.

If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers. You would be a fool to ignore the chance of blowing your brains out. Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you, follow a prudent strategy.  Or if you are already in retirement a prudent strategy is a must. In all cases you should follow a strategy which is backed by academic research. This research should use as much data that is available in order to eliminate any chance of bias.  There is data going back to 1927 for many asset classes. Now that is what I call long term.

To succeed in reaching your long term financial goals you should, buy equities……globally diversify….rebalance.

Allow the equity markets to work for you. In most if not all cases it requires the help of an investor coach/fiduciary adviser.

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