The man in the photo risks falling into the abyss.  So do you unless you fundamentally change the way you invest.

Many people claim to be financial experts.  Few qualify.

One way to differentiate sound advice from meaningless musing is to insist upon seeing peer-reviewed evidence supporting the recommendations so freely dispensed by self-styled “gurus”. All you have to do is ask this question: Show me an article published in a respected financial journal that supports your recommendation?

Harry Markowitz is a real expert – and that’s an understatement.  He holds a Ph.D in economics from the University of Chicago.  His list of publications in prestigious journals is extensive. In 1990 he shared The Nobel Prize in Economics for his work on portfolio theory.  He is the author of four books on investing subjects.

Markowitz was recently interviewed by Robin Powell.  His advice to investors was blunt, simple and easy to understand and implement.

Here’s what he told his waitress at a local deli who asked him how to invest:

…take half your money and put it in a savings account and take the other half and put it in a well-diversified equity portfolio with Vanguard and leave it.

Here’s what he would tell you to do if he was a financial advisor and you were a client:

Diversify and rebalance. They don’t invite me on the television, because my message is, don’t look at television, just diversify and rebalance. The professional investor will outperform the market simply because they rebalance.

It has long been my view that the financial media is a source of misinformation, intended to fatten the pockets of its advertisers at your expense.  I was happy to read that Harry Markowitz agrees:

There are two kinds of people — ill-advised and well-advised. The ill-advised watch Jim Cramer yell at them on CNBC. I may be enthusiastic but I don’t yell advice. The smart investor just buys and holds a well-diversified portfolio, using index funds.

That’s all you need to know about investing.  Unfortunately, most investors don’t follow this sage advice.  Instead, they follow the pied pipers of stock picking, market timing and returns chasing, relying on those with few, if any, legitimate qualifications.  The inevitable result of this conduct is the transfer of your wealth (and the abdication of your retirement goals) from you to your broker.

Don’t be fooled…or foolish!

Resource of the Week

I highly recommend this excellent interview (in two parts) of Harry Markowitz by Robin Powell, at the website of Evidence Based Investor.

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