The problem with investing

The other day I was listening to Ryen Russillo telling the story of how his father is convinced he could score if he would participate in an NBA game.

I obviously do not know Ryen’s father but I thought “sure, they would eat you alive…if you ever manage to touch the ball once”. When I was 16 (or 17?) I went to play in NYC and boy, I can still remember the fear, yes FEAR, I had. And I was playing against kids my age. I was just a lad out of a small Italian town so definitely part of it was me knowing nothing about the world, but there is an element of physicality about the game that you have to account for no matter your skills. There are a lot of huge guys out there. A few years ago I watched the Tony Parker doc on Netflix and in part I changed my mind; no, not about my skills, but about my attitude. You do not have to be 6’something to believe you can do it, you have to work hard. Aside from me having been a chicken at the time, I played and watched so much basketball that I understand what it takes to stay out there with the best of the best.

Actually…

In 1999 McDonald’s organized an exhibition game between the NBA and the Italian championship teams, the San Antonio Spurs and Varese. For God knows what reason, just for that game Varese included in his roster a journalist/TV pundit, who played some seconds at the end of the game. It went like this.

Despite having this evidence in front of me, my Homer Simpson brain immediately birthed another thought: “for sure I cannot stand a chance on an NBA court…but I would make it out of a professional football game”. Not that I would score, but I would not get smoked either. For the record, I never played any form of organized football in my life but, being Italian, you can figure I had my fair share of casual games. Despite my lack of skill, I never felt as embarrassed playing football as I did that time in the US. Because I never felt physically overpowered by anyone: I might not be able to dribble my way to score but as a defender, I will make sure there is at least a part of your body that is not going to move past me. (I am also a firm believer in Daryl Morey’s theory: given the size of the pitch, football games should be played 10 vs 10. In other words, any team at any level can play one man down and still have a non-zero chance to win…therefore my presence can only be an upside compared to that scenario).

Bill Murray once said that any Olympic event should include one average person competing for reference; this way, the casual viewer can better understand what exceptional act the pros do. I am the victim of this fallacy. It is easy to spot the worst player in any football game (usually he is a defender wearing an FC Internazionale jersey), it is harder to compare him with me. For one, you cannot understand the ‘real’ speed of the game because all players have relatively closer skills than the distance between any of them and me sitting in front of the tv. Totti is definitely not imposing as a man but once I saw him live to kick a ball in a 5 vs 5 and holy smokes it felt like one of those Japanese animes.

Somehow, investing (or trading) definitely falls in the same category for a lot of people.

I started my career in a bank but I spent most of it in Corporate Treasury. This means 90% of the time I had to deal with executives that did not have a financial background and, more relevant, got there because they have expertise in other fields. But none of them ever avoided a macro call. Ever.

Sure, you were great managing that project to put some copper cables underground, now on the back of that experience tell me how Trump’s victory will move EUR/USD. Tell me how to change our Strategic Investment Portfolio, which took two years to design, because yesterday at the golf club someone mentioned to you the High Yield bond disaster after the asset class already widened 300bps.

The best example is when I implemented the first FX hedging strategy for a company and my boss started to ask me “so, how much did we gain?” at the end of each month. I mean, there is the word ‘hedging’ in the paper title. Is it a matter of humbleness, to admit to yourself that someone under you might have a better understanding of something? Or is it a certain kind of FOMO, that if you do something in the financial markets you have to generate a profit?

Sometimes I wonder if the same guys go to the IT Dept to suggest to them what’s the best cloud platform to host the company database. My gut instinct was no, I was the only one plagued with this bad positioned takes. Then I opened Twitter and realized once again that today everyone is an expert in everything. Vaccines, wars, politics, inflation: it is not about the complexity of the topic, it is about…entitlement? Entitlement to share your opinion. For ages dentists and engineers were the best targets for phony stockbrokers because they were convinced that if you can solve complex problems in a field, you can do it in something intuitively so easy as investing.

I do not want to imply that I have the capacity to make better macro bets than anyone. My stock comment (pun intended) to my superiors calls is usually “if I knew that, I would be working for a hedge fund now, and you as well (ok, maybe this part stays in my mind)”. I know the futility of even trying to do so because I wasted dedicated a lot of time studying this field. I know where my (lack of) edge is. If only my bonus was linked to CFOs misplaced calls on where the bottom of ECB rates was, I would be FI now.

Learning how to invest is easy

All this lengthy premise just to say that I am sick of reading stuff like “Investing is easy: here 10 steps to successful financial independence”. Imagine someone telling you that wandering around Tokyo with the underground is easy…while omitting ‘if you speak Japanese’. Here is the same. Sure, opening an account with an online broker/robo-advisor and setting up a monthly transfer is not that complicated; the hard part is before those steps. It is learning the language.

Years ago a researcher demonstrated that owning an index beats 80/90% of active investors, so the case is close. Go passive and be rich.

Until you discover that ‘passive’ is not that easy to define. Until you shit in your pants when the S&P500 drops 40% and you lose some multiples of your annual salary. Until your brother-in-law shows you the boat he purchased following that YouTuber.

You do not have to be an NBA fan to know that trusting the process is not easy. There are only 30 GM jobs in the league but anyone can open a brokerage account to trade stocks. Still, you have to earn the right to invest.

Yes, it is equally annoying when I chat with people I love about their financial future and they tell me “that stuff is too complicated for me”. I do not want to scare and push them away from an activity that could really improve their lives, saying that investing is not easy. But it will be irresponsible to trivialise the journey. You have to do your homework.

Learning about investing is something everyone should do otherwise the risks, or the costs, will be very high. The difficult part is to define how much time you should dedicate to it. You do not want to spend too little so that someone else will take advantage of you, but not too much, so that you will focus on what is really going to impact your returns: growing in your career. To find the right balance is really hard and I am definitely not the person to ask because the two fields in my case are pretty close (but not 100% overlapping).

To implement the right plan it takes 5 minutes (almost); to find the right plan it might take a life (hopefully less than that). The world is full of false prophets and investing does not have a great feedback loop: I might do the right thing and lose money or do something stupid and become a millionaire (a bit harder I will stay so but…). Months ago a reader told me to write something about the ‘Everest Formula‘. I never heard about it before. And obviously it turned out to be a scam non-value adding proposition. You cannot imagine the amount of traffic that post generated; it means there is a huge audience out there for these, misleading at best, financial advice.

Half of the industry thrives because they profit selling the message ‘investing is hard, let me do it for you’. Pushing the ball on the other extreme of the field does not help anyone either. I wish I had a better solution…at least great educational content is also growing in numbers, see for example bankeronwheels.

What I am reading now:

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