Learn to Invest: Myths Dispelled About Corporate Investment

 Learn to Invest: Myths Dispelled About Corporate Investment

Have you ever wondered why, if your money is parked with a large investment firm, you feel so content with 8% or 10% yearly returns? Have you ever wondered why, absent a great deal of risk, you are so afraid to ask whether 20% yearly returns are feasible? The solution is easy to understand. The majority of large investment firms have indoctrinated you into thinking that 20% stock returns are unachievable without significant risk through squawk boxes on MSNBC, as well as through the encouragement of their portfolio managers and financial consultants. I'm here to dispel that misconception and provide you with the knowledge you need to start seeing an increase in returns on your stock portfolio.

Large investment businesses train all of their financial consultants to spread investing myths, discouraging you from posing tough inquiries to them because they don't want you to ask them too many questions. In the event that this preventative measure proves ineffective, the majority of financial consultants receive virtual public relations training from their large firms, specializing in the block and bridge strategy. If you simply listen to any political press conference, you will witness the use of this tactic dozens of times in less than thirty minutes. Expert journalists will quickly get adept at this tactic and figure out methods to get past it, but the average investor working with a large investment firm might find this technique far more challenging. In fact, I would contend that among the most popular commodities sold by financial experts to major investment firms are fear and confusion.

Financial advisors instill fear in you by stating that your average annual return over a 30-year period would drop sharply from 11.83% to 3.28% if you missed the best 90 days in the stock market from 1963 to 1993 as opposed to being fully invested (Source: University of Michigan). They take advantage of your worry to pitch you on diversification and modern portfolio theory. Why?

Because companies can undercut your expectations for the success of your stock portfolio due to the antiquated ideas of diversity and Modern Portfolio Theory. Another name for current portfolio theory and diversification is the lowest common denominator hypothesis. These ideas increase the profits of large investment institutions and are the simplest to teach thousands of financial consultants. Maximizing the potential returns in your stock portfolio is not something that the principles accomplish. You might wonder, though, if it isn't in the best interests of large investing firms to optimize their clients' stock returns?

Not at all. It takes time to teach hundreds of financial consultants more efficient investing techniques, and more time spent by financial consultants attempting to maximize client returns would ultimately hurt the bottom line of the company. Moreover, a very tiny percentage of the financial experts they employ would be able to understand the ideas behind more innovative approaches, leading to a high failure rate. Therefore, sticking to lowest common denominator tactics that will increase the firm's revenues and profits is a much safer course of action for these businesses.

Recognize that financial advisors are masters in "block and bridge" as well. What is this? Bridging is a tactic used to sidestep a difficult subject in order to make an unrelated point, whereas blocking is the act of acknowledging a difficult topic. Say you went to your financial advisor and said, "I heard a lot of people made 20% on their portfolio this year, but I only made 5%." Why is it the case? A financial advisor who employs the block strategy would respond, "I understand that you might be worried about making only 5% this year while others have made 20%." Then, employing the bridge strategy, he or she would state, "Risk is the problem here, though. You informed me when we first met that you had an average risk tolerance and that your goals were growth over a ten-year horizon. Given those constraints, my approach is the most effective and secure for you. You'll notice that the topic of why people only received 20% of the pay was completely sidestepped—and in a way that most likely escaped your notice.

In summary, by realizing that the majority of investment axioms that financial advisors propagate are really sales pitches meant to seal the deal, you can develop the ability to ask pointed questions that will enhance the performance of your stock portfolio.

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