The Entertainment Business

Regular readers know I’m usually the very last person to employ Warren Buffett quotes (indeed, I make a point of lampooning people who engage in Buffett worship), but make no mistake: There’s a direct connection between Buffett’s success and his long-standing view that any sort of prognostication about the near- to medium-term path for markets is “worse than useless.”

At fairly regular intervals, readers solicit my “advice” on markets and my response is always the same: I don’t, won’t and can’t give advice to anyone, but what I can tell you is that notwithstanding how much time and effort goes into convincing the general investing public otherwise, the incontrovertible fact is that the vast majority of investors and traders — from “pros” to “amateurs,” from daytraders to Stan Druckenmillers — would be better off just maintaining a common sense, multi-asset portfolio and generally ignoring day-to-day, or even month-to-month, price fluctuations.

Druckenmiller claims he’s never had a down year. He’s worth $11 billion on a good day. Buffett is worth ten times that on a bad day. What does that tell you? It tells you a lot of things, actually, but at a very basic level, it tells you that even if you manage to become the greatest trader of all time, you’ll be a relative pauper compared to the greatest investor of all time.

I bring this up Friday in the context of some reader feedback I received this week. It’s very common that I get requests for book recommendations or that I’m solicited for my views on long-term macro themes. Only infrequently do I get asked explicitly for so-called “actionable” ideas which I explicitly don’t provide for reasons I assume are obvious. Beyond the obvious reasons, though, is one simple reality: If you’re not in a position where you have to actively manage or hedge a large portfolio built with other people’s money, you should probably avoid “actionable” ideas like the plague.

For the overwhelming majority of investors, sending money into the field of “actionable ideas” is a lot like an “Over the top!” call in trench warfare. You’re sending money off into no man’s land, where it’ll almost surely die, face down in the mud.

The more “actionable” the idea, the worse it usually is. Just ask the untold scores of regular, everyday people swept up in the 0DTE mania. Bloomberg interviewed some of them recently, including a 30-year-old named Garrett from Florida. Garrett managed to capture a lot in just a few words. “All investing is gambling. Buying 0DTE options is just pure degenerate gambling,” he told Claire Ballentine, adding that “most things we do in life are gambling.”

Wise fellow, Garrett. Certainly beyond his years, but Ballentine’s reporting suggested the allure of the options casino is too much even for Garrett, which means someone his age, but lacking his somewhat somber perspective of life, has little hope of resisting the siren song.

Dark humor aside, investing needn’t be any more of a gamble than anything else you do on a daily basis. Frankly, it shouldn’t be stressful at all. Not if you’re doing it correctly. But almost nobody does it correctly, because everyone wants to imagine they’re someone they aren’t. And it’s lost on them, almost universally, that even if they become the person they want to become (e.g., Druckenmiller or Dan Loeb), they’ll still be 9 Druckenmillers (or roughly 19 Loebs) short of a Buffett.

I know market makers who were able to retire early thanks to fortunes made running the casino, who now squander the money trying to trade in it. If you’ve spent a career dealing cards to gamblers, you should know better than anyone not to become a gambler yourself. A little further down the pyramid, there are countless successful people hailing from all manner of occupations who don’t understand that eschewing a simple mix of ultra-low-cost ETFs in favor of a hand-selected portfolio comprised of a dozen stocks is a one-way ticket to long run underperformance.

At the end of the day, investing (and certainly the thriving media business that’s grown up around it) has turned into an entertainment industry, or at least as it relates to what I’m very confident in describing as 99% of people. I’m gratified by the high ratio of professional market participants to non-professionals who frequent these pages every day. That plainly speaks to the value I’m able to add above and beyond what most professionals have access to anyway by virtue of their occupation.

But from time to time, it’s helpful to step back and remind ourselves that the number of people for whom a lot of the information we’re all force-fed on a daily basis is truly relevant, is vanishingly small.

Scores of readers over the years have insisted to me that at one time or another, something I said or something I highlighted, helped them make money. And yet, when pressed for specifics, most readers come up empty. The indelible articles I’ve penned (the ones people actually do remember specifically) aren’t about CTAs or option hedging dynamics or the macro outlook. In some cases, those articles aren’t even about markets at all. And I’d have it no other way.

To be sure, there are people who need to actively manage risk. Just like there is an actual target audience for institutional research and strategy dailies. But with perhaps a few hundred exceptions within my reader base, they aren’t you. You pretend they’re you, and I pretend they’re you, and Bloomberg pretends they’re you on a massive scale, just like scores of websites pretend you should be holed up in your home office (or in your real office) trying to pick stocks for your own portfolio (or someone else’s) despite the very high odds that such a task is better left to Vanguard, whether it’s your retirement money or your clients’.

They say knowledge is power, but I’ll be honest with you: Beyond the basics you can learn from any Jack Bogle book, the average person is likely to become a worse investor the more they know, assuming they attempt to act on incremental knowledge as opposed to simply viewing that knowledge as valuable in its own right.

To the extent you can crystallize knowledge from financial entertainment, and you don’t try to trade based on the perception that you’re becoming more capable, I suppose it’s not a bad thing to subject yourself to the daily cacophony. But you should recognize it for what it is, and also what it isn’t. And you should recognize yourself for what you are, and also what you aren’t.


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16 thoughts on “The Entertainment Business

  1. A great, sober and sensible reminder to ponder over the weekend as I review the too-large number of individual stocks we own…likely to little incremental value to our balance sheet! [But – it IS FUN!]

  2. I’m a reader because I desperately want to understand why and how these things we vaguely call ‘markets and economy’ do what they do. When my entire world melted in front of my eyes in 2009, I suddenly went from whatever to what the hell just happened?

  3. This post I will remember (even if it does not help me make any money) it is a really good read and raises several points worth mulling over.

  4. Just read an advertisement for a crypto algorithm that sells for a profit 94% of the time. Can’t help but think that there are a million ways to dress up a ponzi scheme. I wish them luck.

  5. you could have inserted an oft used Shakespeare quote and many of us would still resist the necessity of being ourself. the fantasy is too strong to be another?

    Me (not professional though once was) after being an active investor since ’86, have no a ‘no exception’ rule. I can walk out into the woods w/ backpack for weeks and my portfolios will just keep on working. It’s like a garden, the more you futz, the more you disrupt … but ya gotta keep the weeds away and the water and food coming.

  6. Through the many decades that I have been a part-time market participant, I can say with all honesty that the best “trades” I have ever done are the ones where I left it alone for years. I know, intellectually, that my emotional response is to second guess the market so that my portfolio will do better than buy and hold. Only rarely has it worked out. But, to this day, I still feel and have to resist the urge to trade.

    The last couple of years has seen my money sit in ETFs. Every time I get the urge to trade, I pull up the spread sheets and do the math. That is usually sufficient to stop me from shooting myself in the foot.

  7. Excellent points! It’s also worthwhile to remember that life’s not fair – not with what you’re born with, gifted, or luck.
    I personally enjoy the articles and audience as a part of financial literacy helps a ton: finally Treasuries are useful and knowing about bank failures and systemic risk certainly helps too!

  8. Let me give you an example of how you helped me. Based on your articles, I liquidated all of my portfolio in late February 2020 a few days before trouble happened. Also, based on your articles, I got back into the market on April 9th, 2020. Thanks Heisenberg.

  9. It’s difficult to find well written verbiage on the market and you provide it, so thank you. I used to be in bond sales until the market no longer had any use for my services. It is hard to get a proper and timely breakdown of macro data and you provide this which is incredibly helpful. I very rarely trade (maybe once or twice a year to pay bills top up liquidity). But thanks for all your reports.

  10. Baseball players and golfers share a common problem. They are both subject to hitting slumps of unknown origin. Both these types of athletes depend for a living on their ability to repeat a successful swing as consistently as possible. The trouble is that tiny incremental aberrations slip in, unnoticed, and change the base swing so new increments modify the last increment, rather than the base. Soon, the swing these guys make has changed significantly and they can’t figure out just how that happened. Recapturing the paragon can take days, months, or even years. You captured this in your next to the last comment in the post. So very astute!

    To my mind, the secret is to look at the champs and how they did it. I think there are three certain goats. These top of the mountain gurus are Warren Buffett, Jack Bogle, and Larry Fink. Buffett took a small core company, and a weak one at that, and created the most successful conglomerate ever. He used a few repeatable constant principles and built a monolith. He tells us invest in what you know and understand and base your choices on the prospect of realizing excess value, an investment method conceptually created by Benjamin Graham. My doctoral mentor taught me just the same ideas, before anyone heard of Buffett. My mentor was a co-founder of the CFA program, also based on those principles. Like Buffett, he too, knew Graham. Bogle created the index fund, a stunningly simple idea arising from the theory of the random walk. He helped create and perfect the peoples’ platform for low maintenance success in the stock market. Vanguard currently manages over $5 trillion in its various funds. I personally managed my in-laws’ funds in by putting them in several Vanguard funds, reinvesting the earnings and watched as Vanguard increased the value of those funds 15 times. Larry Fink, and his co-founders’ company, did the most with the least in the shortest time. They took virtually nothing and attracted enough capital to become the largest asset manager on earth, with $8.5 trillion in AUM, in only 35 years! As an aside, even Einstein knew the power of compounding and time. So did these other guys. As you said in the post, the biggest traders have a few billion. The biggest investor has ten times as much. I would add, the most successful managers have several thousand times that much to command. Now that’s show biz.

  11. Very “entertaining”. I enjoy the spice I get from your articles so I can go back to rebalancing my very bland portfolio 😉

  12. Over the years that I have been reading your blog there have been a total of 2 occasions where you made an actionable statement that I made money on. I remember the specifics, one regarding a post about lithium mining and a lithium ETF back in late 2017 or early 2018.

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