The Little Man and the Taoist Portfolio

The little guy (you and I) should do two things:

  • avoid “professionals”; and
  • invest only in index trackers

I have been “letting go” of late. Always a latent Taoist, I have been letting the world pass me by and viewing the frenetic activity of humanity and its 10,000 things with wry amusement.

Happiness is about inner tranquility. Peace is about keeping out of the flow of detritus which most people are caught up in and nowhere are people more caught up in entirely useless and damaging nonsense that the arena of finance and investment.

Successful investment is much the same – it requires keeping away from the 10,000 things.

It’s all so simple, it really is. Just invest in what “is” and diversify cheaply across a wide range of markets and assets using index trackers.

Why is it that someone who has spent a lifetime in complexity is so clearly able to see the vital importance of simplicity whereas those who are most in need of a clear view can not?

We had the Vicar to stay the other day. A charming, good natured and wise individual who is, unsurprisingly, unversed in the wily ways of markets and the tricks of oily salesmen.

His old mum had been royally stitched up by a crook I shall call Gary. Gary is a financial adviser. Mum of Vicar was naive in the extreme and was ripe for the plucking. She was one of those rare people who “say no evil, see no evil and do no evil”. Sadly now deceased, she was one of the nicest and kindest people I have ever known.

Anyway said lady’s husband had died, she downsized and she had a bit of cash to invest. Quite a few hundred thousand pounds, and Gary’s eyes lit up.

Oily Gary drove a Porsche and if the good soul hadn’t been quite so naive this very fact alone should have put her off. It did not.

Oily Gary’s first move was to charge her an upfront fee of 6% on her capital. Oily Gary’s second move was to have her invested in a tangled web of funds which entailed total fees of around 2.5% a year. Out of which Oily Gary also took his pound of flesh.

Is it any surprise that Oily Gary drives a Porsche?

How can the man live with himself, how can he look in the mirror? How many Oily Garys are there in the financial sector I wonder? Or are they all Oily Garys?

No, I don’t think they can be, because a more honest bunch than most came up with the index tracker. Vanguard and Bogle were among the first to espouse the path of righteousness. Suddenly, you could invest as little or as much as you wanted in thousands of stocks and bonds all across the world at a charge of a few basis points per annum.

But of course you still needed to avoid Oily Gary and his ilk or you would end up paying for his “advice”. So that even if index trackers were what you wanted, Oily Gary would make sure you ended up paying through the nose for them.

I have turned a bit of an odd corner in my life. I recently re-visited Quantopian and Quantconnect and was left feeling “why bother”?

I spent many years chasing complexity only to realise that not only was it unnecessary, it was also positively damaging.

Let’s put it this way: have you seen the recent awful performance of most hedge funds? Have you noticed how many old hands have performed so badly they have closed shop?

If not, then take a pause for thought. Complex schemes last a while, they have their time in the sun. And then, like all things, their life comes to an end.

And so with those two websites. They are good and indeed interesting if you believe that endless mathturbation (as legendary investor Ed Seykota would call it) will conquer the universe. And mathturbation might do so for a while but such schemes usually have sticky endings. Eventually and for whatever reason.

If you are seeking the skies, if you want to be king of the heap and master of the universe, if you have endless energy and if your luck holds, you may well be able to make your fortune out of mathturbation. And who knows, your clients might even benefit if they got in right at the beginning before the inevitable rot set in.

But for the small man, mom and pop, you and I, we will avoid the plight of Icarus if we take the Taoist route and simply stick our cash in a few trackers. If you manage to avoid Oily Gary as well, then you may rest in peace and let the world pass you by.

Leave a Reply