Juju investing advice
From Toward Rational Exuberance: The Evolution of the Modern Stock Market:
What must have been most galling was a simple point Cowels often made that was never answered effectively by the investment advice practioners. As Cowels put it, “Market advice for a fee is a paradox. Anyone who really knew just wouldn’t share his knowledge. Why should he? In five years, he could be the richest man in the world. Why pass the word on?”In spite of the conclusions he reached, Cowels never doubted that investors would keep buying newsletters. As he put it, “Even if I did my negative surveys every five years, or others continued them when I’m gone, it wouldn’t matter. People are still going to subscribe to these services. They want to believe that somebody really knows. A world in which nobody really knows can be frightening.“
The quote is from Alfred Cowles, the early patron of econometrics. It’s kind of like The Bachelor, people know it’s not really going to work out, but they keep watching just in case there’s a repeat of Trista & Ryan. This book was written in 2001, but a great deal of it will be of interest to those of us who live in 2009 (see this review).
Labels: Finance
Market advice for a fee is a paradox. Anyone who really knew just wouldn’t share his knowledge. Why should he
It’s not a true paradox. Obviously if someone had exact knowledge of future movements, then yes they would hardly have need of outside investment. But supposing the more plausible case of someone who:
- could achieve returns (on average) of 3% above market
- had only $100K of his own capital to invest
His knowledge is only worth $3K per year to him, but he can likely make more if he has a successful newsletter. And in any case if his approach is scalable he loses little by putting out the newsletter while *also* following his own advice.
Finally, of course, it’s not always all about the money. Given a choice between having $15 million and being an unknown, successful small-town investor, or having $12 million and being a highly-regarded New York investment advisor, I’m sure many people would choose the latter.
Bart,
I’d choose the former – if you have lots of money, better that people don’t know that, IMO…
Cheers,
Paul
I thought you dont watch TV Razib.
Those currency trading software, supposedly representing a live market? I bet those are behind by a few seconds and there is a program that can “read” the market.
I thought you dont watch TV Razib.
it’s in the news.