Do we really know "bad" financial choices when we see them?
In August 2007, I persuaded my wife to take almost all of our assets out of the stock market, and parked the money in real estate, money markets, and short term bonds.
About two months later, my wife saw a financial "expert" mocking the people who had bailed out of the market in fall of 2007. We talked about it, and to her credit she still agreed that we had done the right thing. Not because we knew anything, but because we wanted to be safe.
Well, Mr. "Expert," you can blow me now. And, unlike a lot of people, I can actually PAY you to blow me, because I made 2% on my retirement fund in 2008. I've even made a little bit this year. Angus talked a little while ago about another guy who made more than that, but there are not many of us out there.
The question is: should we provide better financial advice to poor people? Should we flog idiots like that "expert" who was so sure he knew what he was talking about? Should there be some standard for financial literacy before you get to invest?
I have my own answers. But this Fed paper is quite interesting, and provocative.
(nod to SH)
5 comments:
Or market-efficiency is at least true in the semi-strong form and you got lucky.
One thought that intrigued me... The oft-advised-against maneuver of making yourself a loan from your 401K would--if done in late 2007--have given you among the best-performing 401Ks out there.
But how did the real estate piece of your holdings work out?
On real estate: not too bad. I bought 35 acres of land, a pine farm, south of Pittsboro.
It appears to have appreciated slightly, because of the value of the trees.
But, remember, the point is that I am trying to buy something that will hold value. Undeveloped land, rated for tax purposes as "Agricultural," and with a legit crop (trees are quite valuable, over the long haul) holds its value well.
If I had bought a condo in Arlington, VA, or in San Jose, CA, then sure I'd be ready to kill myself.....
And, for Max M: of course I got lucky. I make no claim for special knowledge.
My point is that the expert had no business giving advice, either. Nobody knows anything. I am wiser only because I know that no one knows anything.
Call me "Sock Rat Tease."
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