If there is one thing that should raise a red flag for investors seeking to understand how to best react to the market, it’s when a financial advisor says, “Trust me.” If you run into people who feel compelled to sell you on their trustworthiness, then chances are they aren’t worth trusting. They may be able to point you to many successes–times they “got it right” and helped their clients make a lot of money. What they are unlikely to tell you, though, is all the times they were wrong and their clients lost money for it.
The financial media certainly is no help in this area. Just like the sports media likes to focus on a basketball player who has a “hot hand,” or a team that’s on a winning streak, the financial media loves to showcase its heroes. Of course, the success never lasts, but it’s enough to fill the news cycle until the next story comes along. If the financial media says you can trust a financial professional one day, they will be running a story on that professional’s demise the next. The graveyard is full of gurus. Eventually, the hot hand goes cold and the financial guru’s luck runs out.
If you can’t trust the self-professed financial gurus or the media that cover them, who can you trust? There are wolves in sheep’s clothing everywhere you look–people with incentives who will try to get you to trust them just so they can take advantage of you. So, how do you know who is really trustworthy? On whom can you truly rely? Who can you depend on to help you make the best decisions for your financial life? Well, we’ve got a few suggestions.
First, for the most part, you can trust academics. There is a whole wealth of information out there in scientific and business journals that show research on investing. These journals are typically peer-reviewed and held to the most rigorous standards. To be sure, the professors and researchers publishing these pieces have incentives. However, their incentives are not to sell you on anything; rather, they are to get the research right. Their reputations hang on the quality of the research, not on whether or not you buy it.
Secondly, you can trust the market. A statement like this might sound odd, given that the market is volatile and unpredictable. Even so, you can trust the market to always be volatile and unpredictable! The market isn’t going to show bias in one direction or another–at least not for long. Sooner or later, it will always correct itself. If financial advisors tell you that you can beat the market, don’t trust them. Trust the market–the market always wins!
Lastly, you can trust yourself. Of course, even this must be said with a caveat. Just like everyone else, you are a human being subject to biases and illusions. You can easily become overconfident or impulsive in your investing activities. Nevertheless, you can trust yourself in the sense that you know what you want. Only you know your values. Only you know what’s important to you. Look inside yourself and ask what you want out of life–the answer you get is one that you can trust.
We won’t tell you that you can trust us. If we are to gain your trust, it is because we will have shown you that we deserve it. Don’t trust the one who promises trust; trust the one who earns it. If you’d like to understand more about the world of investing, feel free to reach out to us for a complimentary consultation. Our incentive is to help you succeed and that, we believe, is something you will come to trust.