The slaughter (The Financial Athlete #83)

Back when I was a college exchange student in Japan, an American friend and I were watching professional baseball at the stadium in Osaka. The Hanshin Tigers were up 5 to 0 against the Yokohama Baystars to start the 7th Inning. I predicted, “It’s about time for the Tigers to let the Baystars score at least one run. In Japanese professional baseball it is customary to not humiliate your opponent with a very lopsided score.”

My friend felt betrayed as a new fan. “So there’s no chance to see a final score of 12-0? That’s not real baseball! You got to always play your best.”

I laughed. “The Tigers want to win, just not with a slaughter.”

In the world of Wall Street, a humiliating slaughter is the norm. “Smart money” always outwits “dumb money”. Wall Street is no place for the financially illiterate unless invested in the safest of index funds and TIPS (Treasury Inflation Protection Securities).

As for active investors, remain skeptical. Trust no one wholeheartedly…not CEO’s, not analysts, not brokers, not fund managers, and certainly not hot-headed hedge funds. Keep your portfolio money in a major brokerage account under your name. Never let anyone trade stocks on your behalf. Never let anyone manage your money. Better to pay down your mortgage or save money in a bank than to allow someone to manage your money. You will prevent substantial losses if you hold the cynical world view of when it comes to money everyone is out for himself first.

As you will not have others manage your money, do not volunteer to manage other people’s money. Never involve friends’ and family’s money into your investments, no matter how eager they are to invest. This will keep relationships more harmonious. People overestimate their tolerance for risk and underestimate their appetite for reward. If things go wrong, you may get blamed. If things go “too right”, they may refuse to sell an overvalued stock. If you want to help your friends or family financially, then give them cash or shares from your account so they have nothing to lose and you are not beholden to them as a source of information.

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