Friday 9 April 2010

Tight Fist Tip #36: Wealth Managers Are Charlatans

Ask The Experts: Bear Sterns is Fine!

After over a year of practice, I must now assume that my readers are getting pretty good at Tight Fisting. While your foolish friends are out wasting their sorry lives and money on coffee, fine wine, and gym memberships, you dutiful Tight Fisters are out there biking, cooking, and living the good life. But if you have a job, all that unneeded money is probably starting to pile up. We all know if you have a pile of money lying around you're supposed to like, invest it or something. But how the heck do you go about that?

Fortunately for you there is a whole industry designed to 'solve' this problem, so why not leave it to the 'experts'? Certainly people whose whole life's work is in 'investment' must know what they're doing, right? I mean, why else would
private wealth managers and investment advisers and hedge fund managers exist? They must provide some value!

Well folks, if you still think that just because someone is willing to take your money they must be offering a valuable service, we should talk! I'd like to offer you an amazing hydro-homeo-accu air bath that will make you healthier, better looking, and help you learn Swahili! And it's a great deal!
This year I invested in pumpkins.
They've been going up the whole month
of October and I got a feeling
they're going to peak right
around January. Then bang!
That's when I'll cash in

For the rest of you, the lesson is simple. Wealth managers are simply complete charlatans trying to take advantage of peoples' ignorance about finance. No matter what type of fancy education they have, some 32-yr old yahoo from citibank does not hold the key to easy money in the markets. Because if he did, why the hell would he waste his time giving the advice to you? He only became an investment advisor because he was too stupid to become an investment banker anyway! (Not that I think bankers are really any better.)

The facts back me up. There are a million articles on the subject, but it's pretty clear that 'active management' (meaning someone who picks certain investments) does no better on average than 'passive investment' (meaning just buying index funds). I'm no expert on the literature, but here, here, and here are a few papers.

Any decent study on active versus passive management deducts the manager's fees when calculating managed funds' return. So maybe the answer is to simply do the active management yourself. No problem! After a long day's work, just come home and log onto the computer and spend hours researching companies and market trends. And after all that, you might get lucky and make a little money. Sounds great, right? I WOULD RATHER SHOOT MYSELF IN THE FACE!

Sadly, there are people like this. If you are one of them, please never speak to me again because I might die of boredom. The joy of being a Tight Fist is that you never have to worry about money. Spending all your time obsessing about money is completely against the ethos of being a Tight Fist.

Instead, just find a low-cost online investment firm (such as E-trade or Vanguard) and chuck your money into some indices. And just relax. Happy investing!


  1. this post does not help my future job prospects stein!

  2. Henry you should have studied philosophy.