Part of self-control is knowing how to tune out the “noise” all around us. This brings me to another one of my beliefs: I believe you should tune out what billionaires and legendary hedge fund managers think about the markets. These people don’t share your circumstances, time horizon, or risk profile. They don’t know your cash flow situation or family dynamics or financial plan. Why should you take investing advice from them? I’ll be the first to admit that these individuals are wildly fascinating and brilliant people. But holding onto every word that comes out of their mouths like investing gospel is a fruitless effort.
It seems like every billionaire investor or pundit this week is commenting on the war between Hamas and Israel and how it may impact the markets. Can we take a step back and consider how radically complex that situation is and how naïve we must be to boil down that war into a series of portfolio trades to discuss on the financial news networks? It’s absurd.
But this is beside the point. I want to dive deeper into why you shouldn’t take personal finance advice from billionaires.
First, billionaires have more money than you or me. Many of them earned that money by taking extraordinary amounts of risk early in their careers as young entrepreneurs or investors. As such, to preserve that wealth, many espouse asset allocations that are wildly different than what is likely appropriate for a “normal” individual. In fact, they have so much money that it almost doesn’t matter what they do with it. If you park $1 billion in a money market fund, you’ll earn $50 million of interest income on an annual basis alone. $50 million in just passive interest income is more than the lifetime earnings of nearly every working American. We are talking about extraordinary sums of money.
However, I personally don’t know any individuals that could park their net worth in a money market fund and live on the interest proceeds alone.
Next, saying one thing and carrying out those beliefs in their portfolios are two very different things. Investors like Gundlach, Gross, Dalio, Marks, and Grantham have been remarkably bearish in their public statements over the last few years. Are their portfolios actually mirroring this view? We don’t know. Again, when you have billions of dollars, you can afford to park it in short term bonds or choose to hold cash or choose to be wildly aggressive… it doesn’t really matter for them. For many Americans that need consistent real growth and a sound financial plan, this isn’t the case.
Ultimately, when a billionaire investor is interviewed on TV, it’s important to remember that they aren’t there to provide fiduciary advice.
In 2009, Jon Stewart interviewed Jim Cramer, the famous CNBC financial news commentator. When Stewart pressed him on his contradictory and often erratic antics Cramer said, “Look, we’ve got 17 hours of live TV a day to do.” Just think about that for a moment. 17 hours of live TV to fill! In between gold and crypto commercials, they have a 17-hour void to fill that bridges the gap between news, entertainment, and some actual financial analysis.
This is not meant to be a hit piece targeting the financial news networks or billionaire investors, but I do have a court-side seat into the effects that the financial news networks and their comments have on client behavior. Watching this week and the same buzzwords and phrases constantly surface: “Stocks Tumble!” or “Global Markets Sell-off as Israel Intensifies its Assault!” When seen on financial news networks, these headlines are often shown in fire-engine red as they blaze across our screens. This is fear mongering at its best. If you felt a guttural reaction to such headlines…they’re working. If you then opened your portfolio to execute a few trades out of fear…then you became a victim. You see, it’s hard to keep our attention for 17 hours a day, but sowing continual fear is one way.
The financial news networks are not fiduciaries.
Legendary hedge fund investors giving public interviews are not acting as fiduciaries. A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interests ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests. At Howe & Rusling, we are a fiduciary, and we aim to create partnerships that can support the weight of truth.
Maybe what would help make us better investors is if we turned the volume down, minimized the noise, and accepted that market corrections can and will happen…regularly. As Americans, we collectively have short memories. We forget that an equity risk premium exists. Stocks are risk assets that generate higher returns than bonds or cash because they’re expected to be more volatile at times!
If you measure your time horizon in years and decades, rather than trading days, you learn to live and cope with the volatility that comes with being an investor. Even if you happen to nail the timing on the next correction, you’ll likely never be able to do it again. So how do we combat this? We try our best to combat this by understanding our own risk tolerances, remaining diversified, and owning quality assets over long time periods.
As writer Nick Maggiulli says:
“This is how to not panic. You know history. You understand the risks. And, most importantly, you know yourself. Then you let the chips fall where they may. You don’t obsess over the headlines. You don’t try to predict the future. You enjoy your life. You go out with friends and family. You make cherished memories. You laugh. You cry. You remember that things like this happen. And you remember that they will happen again.”