You and me? We’re the same. We’re simple people. We like simple quotes that wrap up life in a tidy package with a red ribbon. Here’s a couple of quotes I’m thinking about this morning. “If it’s too good to be true, then it probably is,” and, “If it ain’t broke, don’t fix it.” Simple. Concise. Easy to understand. Why, then, for cryin’ out loud, do investors mess with these truisms, and make a mess of their life’s savings? I’ll try and explain.
Let’s start with the first one. Real easy. Say it out loud with me, replacing “it” with “an investment(’s).” Here we go, “If it’s too good to be true, then it probably is.” Why then, when Tom Selleck (loved Magnum P.I.) starts talking reverse mortgages, investors grab a pen and do the same when William Shatner talks health insurance? How about bitcoin or annuities, both of which Your Survival Guy views as rat food. Yet money’s being thrown at all the above like it’s 1999.
“If it ain’t broke,” too many investors say, wait for it, “I can fix it.” “Yes, sir, I can fix it with just a little ‘research.’” And that investor squirrels away in his den turning over every nut in the rare earth’s market, for example, filling his squirrel brain with information he’ll use to corner it. Then something happens. “What happens?” you ask. Life. He’s at some family event, away from his computer, and something goes terribly wrong, like a virus from China or whatever the next disaster will be. The “what” doesn’t matter. The explanation to a spouse? That’s the disaster.
Here’s two relevant facts. First, we’re seeing mad money thrown at bonds that don’t price on a regular basis, by professionals, that need to make good on annuity promises. If you haven’t been paying attention, and I understand you’re busy, some insurers are selling their annuity book to hedge funds. What could possibly go wrong?
The other fact. In the top-heavy S&P 500, five companies (not 500) account for close to a third of the performance. Remember, stocks are like trees. They grow to the sky, but they don’t grow forever.
Action Line: If you know someone that’s messing with his life savings, perhaps, a friend, of a friend, of a friend, then I’d love to talk with him. But only if he’s serious.