For Love Of Money

Via Ezra, Matt, the new Cogitamus blog, and just about everyone else in the 'sphere, everyone ought to check out Michael Lewis' profile of Blaine Lourd in Conde Nast's Portfolio magazine.

For a variety of reasons, mostly having to do with the fact that I have many better things to do with my time, I've never heard of this guy. I don't watch CNBC, or really pay attention to the stock market.

I think, for reasons that have entirely to do with my personal style and the way my brain work, rather than the fact that I've done a really deep and detailed study of the alternatives, the general concept of the efficient market hypothesis really makes a lot of sense to me. If you believe that the stock market represents, in some way, the general knowledge of the tens of thousands of people who are actively partaking of it on a day-to-day basis, then I really think you can't also reasonably believe that a single person could really 'beat' that market.

Not that one person can't be smarter than the market, far from it. It did not take a genius to see, in 1998, that tech stocks were wildly overvalued. But the thing of it is, that genius who saw that, and got out, would have missed out on a lot of money to be made. The point is that nobody is really smart enough, or good enough, to pick out the signals from the noise, and know when the right time to make any particular move is.

However, it's also a historical fact that the market has outperformed just about every other wealth-creation mechanism since 1930. That doesn't mean it will be a fact going forward, of course, but enough examples of a trend tend to point towards an underlying reality.

So, my general position on investments is pretty simple. Put in what you can, as early as you can. Get in a broad-market index, and also something representing small-cap companies, which seem to have slightly outperformed the market at large. If you're really pro-diversity, then get into some international stuff. Balance every year or so to make sure you stay balanced. Check in every 6 to 12 months to make sure nothing is looking really crazy, but otherwise sit the hell back, and try not to think too hard about it until retirement time.

I know, not a very sexy investment strategy, and certainly not enough to fill much more than a single segment of 'Mad Money'. But still, the best historical strategy for minimizing long-term risk, and happily also something that works well for a 'not very interested in this sort of stuff' guy like myself.

Anyhow, you should read the profile. It's long, but really worthwhile, and does a good job showing the way that the whole edifice of Wall Street is really more like a big house of cards, built ever-higher-and-higher on the shakiest of foundations. Although, really, it's built on the foundation that people are lazy and stupid, and willing to believe that someone out there has a magic answer to all their problems, which probably means the foundation isn't all that shaky at all.

Holy crap, I'm a cynic.