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Too good to be true: how to approach investment opinion, commentary, and third-party analysis

A flush of cards, with the caption ‘cards on the table’, as I candidly talk about the limits of investing articles

Like nearly every publication that talks about active investment ideas and strategies, our new Mogul membership articles will come with disclaimers.

Some may see this as a cop-out. Or as arse-covering.

And on the latter they’d be right, at least in our case.

Our articles cannot be personal financial advice or guidance. It should be obvious that an anonymous website with anonymous readers cannot give individual financial or investment advice.

But it’s not obvious to some people. Hence it’s prudent and important to have a disclaimer.

However I would object to the argument that it’s a cop-out.

It’s much more complicated than that – and as Monevator has always been about educating people in (excessive) depth, let’s get into why.

Capital at risk

To me, it seems pretty clear that you shouldn’t expect to find can’t-miss winning lottery tickets in the guise of 2,000 word posts on a free or low-cost investing website.

Tens of thousands of people are paid six-to-seven-figure salaries to beat the market, and the vast majority of them fail over time. So don’t expect any better from a low-cost newsletter.

Nevertheless, as a past and present member of several investment info services myself, I’ve seen that – again – some people think otherwise.

Let me be clear: if you’re thinking of signing up as a Moguls member to secure a string of winning stock tips or market timing signals, then please don’t.

I say as much in the marketing. But if you missed it then please do feel free to cancel.

Because while I’m uncertain exactly how the content will pan out over the months ahead, I know a guaranteed way to beat 95%+ of investing professionals is not on the menu.

I’ll talk about my share ideas. Definitely! But I won’t claim they will be sure market-beating stocks.

This is not arse-covering. If you’re the type who’ll be at home with Moguls, then it should be common sense.

Investing: I did it my way

Now, you might be wondering exactly what kind of self-defeating message I’m delivering here?

Are we over-subscribed with members already? Because as a pitch to sign-up, I can see this seems straight out of Reginald Perrin’s playbook for ‘Grot’.

But not so fast.

If I wasn’t writing Moguls myself then I’d be joining it. Truly! This blog has been around for 17 years, and I’ve got to know and like its writers’ style and perspective…

And as for myself, for more than 20 years I’ve learned almost everything I know about investing from such articles, as well as books, forums, Tweets, and even the occasional YouTube video.

Not to mention the thousands of company reports and updates I’ve digested.

Without all this material made available for mass consumption, then I’d be none the wiser.

Indeed, for many of us investing would remain the preserve of opaque professionals charging a fortune for exposure to the markets.

(Without public information how would we even learn about index funds?)

Furthermore, I personally believe the right kind of person – with the right mindset and more than a little effort – will do better picking their own stocks and funds than by paying the average advisor or fund manager to do it for them.

Partly because it can be cheaper. Partly because we can be more nimble. But mostly because you and they have different incentives – you care much more about you – and different time horizons.

You have to love the challenge though, because the thrill of the game is the only certain payoff. And it helps to be a little obsessed and weird, too.

That’s all a long way from saying that I believe any particular article – mine or anyone else’s – should be taken a personal directive to buy and sell.

Learn to fish for yourself

The point is to read and learn as much as you can – with an increasingly discerning and skeptical eye – to make ever-better investment decisions for yourself.

As Morpheus in The Matrix might put it, by the time you’re able to fully parse an investment idea, the last thing you’ll want to do is to follow it blindly.

And that is where I’m hoping to contribute with my Mogul articles for Monevator.

Information and education – and imparting what I think and I’ve learned, for what it’s worth – partly illuminated with examples of where I’m investing and what I’m seeing.

Nothing more. But nothing less, either.

Reasons to be wary of everything you read

Let’s really ram this home by running through a laundry list of why it’d be silly to think a sensible route to riches is to invest blindly based on stock tips you get via email or on the Web.

Firstly, investing skill is rare (and may be non-existent)

The biggie. It’s been widely shown that the ability to beat the market through stock-picking is at the very least uncommon. Even winning fund managers tend to mean revert over time.

And while I’ve seen research that finds professional managers might slightly outperform in aggregate before fees (with less skillful punters making up the difference in this zero-sum game) such an edge is evidently unevenly distributed. (A subset of managers mop up the pre-fee wins).

Which is exactly why most people should invest the bulk of their money passively in index funds.

Now, given skill is rare, what are the chances that you’re reading the fundamental analysis of someone who has it?

The Seeking Alpha website has had 17,000 contributors over the years. I’m not aware that any has turned out to be the next Warren Buffett.

Other investing opinion outlets are similarly diverse.

As I said in my introduction, that doesn’t mean I think these articles are useless for those who invest actively – whether as a hobby or to try to beat the market.

But it’s obviously naive to think they are all serving up winning share ideas.

(As for short-form social media influencers – finfluencers – maybe you’d do better to short them.)

What about me? Do I have skill? My jury is still out. My confidence was shaken by a rotten 2022.

So read my stuff with that in mind. I may prove to be at best a lucky coin-flipper.

Winning stocks are heavily skewed

Anyone who has run a traditional stock portfolio for a long time knows that a small number of their decisions will deliver the majority of their returns.

The father of value investing Ben Graham generated most of his excess returns from a single growth stock, GEICO.

My own portfolio’s performance was strongly juiced by a couple of multi-bagging shares. (And it should have been further boosted to the moon by one that I fluffed, Tesla.)

Small cap investment writer Richard Beddard has commendably published a market-beating stock portfolio for years. You can see that just a handful of his selections delivered much of the returns.

And as we’ve covered before, an analysis by academic Henrik Bessembinder found only 4% of stocks delivered all the US stock market outperformance over one-month bills since 1926.

Or look at the US index today. Apple had grown to comprise more than 7% of the S&P 500 over the past 15 years. That’s a lot of index points that one behemoth has put on the board.

Run your winners, as they say.

Certainly that’s one takeaway. But another – more relevant for this discussion – is that statistically most stock ideas you read are more likely to come from Bessembinder’s mediocre 96% than the winning 4%, especially over the long-term.

The legendary stock picker Peter Lynch said: “If you’re great in this business you’re right six times out of ten. But the times you’re right, it overcomes your mistakes.”

Even clinical and emotionless quant funds are wrong all the time (albeit often with only small amounts of capital at risk with any particular trade).

Of course there are many ways to approach the market. Modern systematic or multi-asset fund managers staffed by should-be rocket scientists are playing a very different game to a traditional equity fund manager, with different risk and reward profiles.

Even so, an insider at the legendary hedge fund Renaissance Capital once revealed the firm started to find its edge when it was right about medium-term trades just 50.75% of the time.

On the back of that tiny win ratio was built the greatest wealth-compounding machine of all-time, with average annual returns well over 60%.

The bottom line: most stuff you read about will not beat the market, regardless of who wrote it. A minority of shares deliver the majority of returns. Even if you’re reading something written by a rare person with skill, there’s a high probability they’re talking about one of their duds. So most ideas you read about will probably lose to the market.

Common sense: what is realistic for the price of a pint?

Monevator Mogul membership is an extra few quid over the passively-orientated Mavens.

I will try hard to deliver a deep and interesting or educational article every month for members. And of course I hope to share some profitable ones. Though as I said, no promises.

But ask yourself…would I be giving away sure market-beating investment ideas for £5 a month?

Spoiler: no.

If I had such a golden goose, I wouldn’t even be working in the lucrative – and market-laggard infested – financial services industry.

I would borrow heavily and care for my goose on my own account.

Back in the real world, while I’m happy to put my interest-only mortgage where my mouth is, I do not believe I have an invincible formula or brain or strategy or time machine to inevitably beat the market.

Hence my aim with Moguls is to share ideas. To get you and me thinking better and more creatively about our investing. And to be there month in, month out, so that we learn together over time.

I’m looking for comrades, not customers.

A lot of the people who have signed-up to Moguls say they’ve done so simply to support our wider Monevator mission. We couldn’t be more grateful!

But I hope those who love the active investing game like I do will also enjoy the journey.

Incentives and career risk

“Show me the incentive and I’ll show you the outcome,” says Charlie Munger.

This statement is true almost everywhere in life, and clearly with investing.

Have you ever seen an advertisement for an active fund that mentions how most fail to beat the market? They don’t even talk about their rivals failing. Better not to bring the subject up.

That’s because the incentive for most money management shops is not to outperform. It’s to gather all the assets they possibly can. They will then take a percentage of the money they run, to some extent regardless of how well they do.

These people are not dumb. They are as aware as anyone of how hard it is to beat the market. So they naturally bury that difficulty deep in the messaging.

The Behavioural Investment blog just ran an interesting piece on the things that managers should say but don’t.

Some relevant ones include:

  • “We are managing too much money, it’s probably not in your best interests to invest with us.”
  • “Our recent strong performance is totally unsustainable.”
  • “I have to admit, we have been incredibly lucky”.
  • “Our new CEO is really focused on improving short-term performance.”
  • “The performance fee structure means that I can become very rich, even if I underperform.”

For a fund manager, keeping their lucrative job is the top priority. They will typically speak and act – and even think, rife as they are with cognitive dissonance – accordingly.

But I don’t get off the hook! What are my incentives with Moguls?

I’ll want to keep you subscribed, where possible. So I’ll want to keep you interested.

Even if I felt the same single stock had the best chance of beating the market every month, I’d be unlikely to only write about it again and again. I’d fear you’d get bored or feel short-changed.

What if I saw no good ideas, for months on end?

I hope I’ll say so. We’ll see.

Elsewhere, like everything else the wider investing media strives to get your attention.

What will Google searchers click on? What stocks are held by the most people, and so are of the greatest interest? What’s the point of discussing an obscure small cap if nobody clicks to read it?

Our membership articles will be behind a paywall. They won’t suffer from the clickbait curse. But it’d be overly-innocent not to imagine that other forces won’t shape our editorial instead.

Only you know what’s going on in your portfolio – and your life

Only you know how much money you have. How secure your job is. That you have two kids and a partner who is out of work. That you just paid off your mortgage – or you just took out a new one. You’re 35-years old. Or you’re 70-years old. You hate risk. Or you eat risk for breakfast. Your individual stock picks are made in a fun side-account with just 5% of your portfolio. Or you’re (very ill-advisedly) trying to catch-up on many years of not saving by striving to beat the market, fast.

Given all that, it should again be clear that any investment article is not speaking to you.

If you go to a professional and qualified financial adviser – ideally paid a flat fee, by the hour – and they talk through your aims, look at all your finances, understand your tax situation, and invoice you £3,000 at the end of it, then you’re entitled to believe you got personal financial advice.

If they didn’t then that’s not what you got.

Were I to say the consumer goods company Unilever – the maker of Dove soap and Ben & Jerry’s ice cream – is ‘low-risk’, then I’d mean that compared to other companies its future looks more predictable, its cashflows more stable, and perhaps it has a stronger balance sheet.

I could turn out to be right or wrong about that. But either way I would not be saying anything about the risks to somebody cashing in their private pension to put all their money into Unilever in their SIPP.

I’d not be saying anything at all about what any individual might do.

Does everyone understand what I’m saying here?

You say worth a punt, I say risk-adjusted portfolio diversifier

Everyone is different, and is in a different situation.

So if you read somebody on Twitter or ADVFN or Seeking Alpha saying they’ve put £10,000 into an particular share, know that without much more information it should give you zero extra confidence.

Perhaps they’re multi-millionaires? Maybe they have 100 individual investments of that size?

On the other hand, maybe they have a five-stock concentrated portfolio. But even this doesn’t tell you much, if you don’t know much more. How old they are. Whether they will inherit a fortune from their parents.

Whether they’re idiots.

Sure, you can get a better feel with exposure over time – it’s why I hope my long record of at least showing up on Monevator will make our membership more appealing – but you can never be sure.

It’s your money. It’s your life. You must make your own financial decisions every time.

Welcome to The Suck

Active investing began as an offshoot for me from passive investing. As I got ever more interested – those who know me might say obsessed – the index funds went, and the passion blazed.

Many of my favourite active investors have been great writers and sharers. I set up Monevator to write about my active investing, too.

Yet over the years it’s become painfully obvious that a majority of people should stick to tracker funds. Hence it’s felt counterproductive to talk much about active investing here, at the risk of diverting a typical reader from that path.

This is the prime reason why I added an active tier to our membership push.

Of course I want it to be an income stream too, but at least for the foreseeable future it’d be quicker and easier for me to do a couple of extra hours of my usual work a month instead.

No, I want a safe space to talk active investing. Without diverting the main message of our site.

Mogul material

Some of you nodded through all above. Those who did – and who are also a bit obsessed with investing – will hopefully enjoy Mogul membership for years to come.

Another of my aims with my articles will be to leave more people nodding than I found them.

But maybe it’s not for you? Absolutely no worries. Most people will do best to join our Mavens tier – to enjoy, learn from, and support The Accumulator’s passive investing mission.

Let’s all enjoy our investing, whichever path we take and with our eyes wide open.

{ 19 comments… add one }
  • 1 The Investor May 18, 2023, 4:18 pm

    As always, constructive comment — including judicious and thoughtful criticism — is welcome on this thread.

    However throwaway jibes, abuse, trolling, or hostile passive fundamentalism will be deleted.

    I had enough of that on my mortgage post and am not in the mood. 🙂

    I don’t think I could have been more candid about the cons than I was in my article, and also that most people should be passive investors.

    If you don’t like the idea of active investing or reading about it, no problemo! Nobody is forcing anybody to sign-up to anything. You do you. You’re probably right, which is why I’m going to be talking about this stuff to a minority behind a membership wall.

    (Can you see why I want my ‘safe space’ haha? 🙂 )

    Okay, that’s that said. Hope most of you got something from the piece.

  • 2 ermine May 18, 2023, 7:25 pm

    Haha, let the good old days of just post GFC roll again.

    I am ten years older, I am not as desperate as then, and arguably more risk-averse since I have largely won the battle.

    But I do remember reading between the lines of some of early Monevator, and it worked for me. From the original kick up the arse on to some interesting nooks to poke a mustelid snout. And I’ve missed that in the passivista takeover.

    But yeah, point taken. As Dion Fortune wrote of The Cosmic Doctrine, the aim is to train the mind, not inform it 😉

  • 3 Matthew May 18, 2023, 7:45 pm

    Active could go well with activist, then any underperformance doesn’t matter so much and it could give a new reason for being to managing.
    There was Tulipshare which would buy sin stock and vote ethically, otherwise it’ll end up in the hands of value investors, but they closed – I assume it’s more expensive, hence there being no activist index funds I’m aware of.

    The biggest active gains I think are in asset allocation and keeping the faith.

  • 4 jon May 19, 2023, 9:04 am

    @TI, Looking forward to the first Mogul article, when will it be published ?

  • 5 JDW May 19, 2023, 9:19 am

    @TI, is there an upgrade option for those like myself who have signed up to a Maven membership, but would like to potentially upgrade to Mogul level in time? And how would that work in terms of potential pro rata membership (if at all!) part way through a subscription term? Or just best to change at point of annual renewal next year? I signed up on the lower level, which, as you say, suits most (and me for now) but this post has perked my interest further in the higher tier, although I am not actively dabbling/buying non passive investments at the moment.

    (Appreciate it is all fairly new and potentially a work in progress! Thanks again for all the hard work setting it up)

  • 6 The Investor May 19, 2023, 9:34 am

    @ermine — I’m so glad you signed up, as probably our longest-running regular commentator. And, as ever, I appreciate the nod to our younger days of glory haha. (In the Tennyson sense: https://poets.org/poem/ulysses)

    @Matthew — Yes, it was asset allocation / market timing that really threw me off the passive bandwagon. (I dumped a lot of equities in the Global Financial Crisis days, too late but not *too* late if you see what I mean). The difficulty of doing anything like that repeatedly (see me buying into discarded US disruptive growth way too soon in late 2021 / early 2022) is more evidence that my warnings in the article above are absolutely not just theoretical…

    @jon — Next Thursday! Was going to go today, but I saw a few comments around and so wanted to try to get everyone’s head in the right place as best I could. (“First, do no harm” etc).

    @JDW — You can upgrade and downgrade your plan by clicking on “Account” in the sidebar, then via the Memberful pop-up that appears (access its menu via the hamburger menu top-right of that little pop-up). Note that it’s not super-flexible, as is the nature of any subscription service. But the options are there. Cheers for the generous words of support and for signing up. 🙂

  • 7 The Investor May 19, 2023, 9:42 am

    @all — Apologies if there’s been formatting issues with graphics when reading on mobile with the last couple of articles. The email editor has changed how it works (again!) and I think I need to try something else to make it look pretty on both desktop and mobile. Hopefully can get it right tomorrow. 🙂

  • 8 xxd09 May 19, 2023, 9:43 am

    Maven here!
    Learned all I know from financial blogs especially initially from American ones -all free and mostly still are
    It got me over the line via index investing
    But nothing lasts forever and one of the fun aspects of life (and investing) is keeping up with the constantly changing scenery
    Active investors and their purchases/outcomes make for exciting reading but unfortunately/fortunately for me very much reinforce my financial limitations
    I admire from a distance
    Learning your financial capabilities and limitations is so important for the amateur investor
    My subscription is mostly therefore in recognition of the work involved in maintaining a functional financial U.K. website-so necessary for fine tuning a U.K. based portfolio
    Keep up the good work

  • 9 Brod May 19, 2023, 11:40 am

    Hi TI,

    Love the post. I subscribed as a Mogul as a thank you for getting me to, not FIRE exactly, but “I think I’m FI, but it’s scary.” (So ITIFIBIS?) Trouble is, each month I work (very part-time) adds £50 a year index linked to my Civil Service Pension in 10 years (so – almost! – an index linked beer a month?) Not sure when I’ll pluck up the courage…

    I might start a “side hustle” and punt £500 a go into 10 or so individual stocks
    via InvestEngine. It won’t move the needle either way, but could keep me engaged. Sounds like hard work though.

    But again, thank you TI & TA for showing me the way and saving me many £1000s since I came across this wonderful site around, I don’t know, the time of the GFC?

  • 10 jon May 19, 2023, 12:00 pm

    @TI, just to clarify, I signed up for Mogul but will I receive the Maven articles also ? I would like both 🙂

  • 11 ZXSpectrum48k May 19, 2023, 12:28 pm

    Personally, I see this as entertainment. I’ve never invested in single stocks and never will. I can’t imagine anything more boring than thinking about what a specific company will or won’t do. Too close to the (so called) real world.

    What may be more entertaining is to see how a bull market conviction trader operates. High conviction usually isn’t compatible with disciplined risk management. Does TI even have a stop-loss strategy when the SHTF?

    I think the caveats though are necessary. Yes, it’s £8/month so what can you possibly expect? Just look around. When anything goes wrong, the people will blame anyone and everyone except themselves. The “other” gets it again. Paying for any “service” only exacerbates that risk.

  • 12 The Investor May 19, 2023, 3:43 pm

    @xxd09 — Sensible, of course. Whilst there are examples of apparently very successful older active investors (Buffett and Munger…) there’s plenty of research showing cognitive skills decline after a depressingly young age (from memory c.50) and — far worse — those affected might not notice it. I wonder what I’ll do…

    @Brod — Thanks for the kind words and support and congrats on getting to such a good place in your financial life!

    @jon — Yes, you get everything as a Mogul. 🙂 If this is not clear from the membership sign-up page then please tell me why, so I can maybe improve it!

    @ZXSpectrum48k — Entertainment is definitely in the product offering mix. I’m extremely biased but I do think we write more entertaining articles than many outlets, especially @TA. But of course I think you also mean entertainment as ‘spectacle’. Not sure if I’m the Christians in that case, or the lions. 😉 Either way thanks for signing up. I fear you may be disappointed as I’m not sure what level of granular detail I’ll go into; as of now I don’t envisage laying my books bare or to disclose more than a selection of trades. But I’m sure there’ll be some speculation/timing posts in the mix. As we’ve discussed before (and I’ve reflected on your comments since) I don’t systematically hedge or short, no. My observation is most stock pickers who do, do worse because of it. To some extent I’m happy to buy my returns with volatility; I have no clients to satisfy nor risk of clients pulling money. A lot can go wrong when investors like me start trying to short or market time. For just one example see Carl Ichan’s current $9bn travails. I have dialed down risk in my own way at times, but generally buy back in ‘too soon’ (see early 2022) but I’ve put that in quotes because over the long-term I’d much rather be too early than out. (Learned that from sitting out the London property boom.)

  • 13 Fatbritabroad May 19, 2023, 8:28 pm

    Ahh the Gerald Ratner of personal finance blogs ? Lol

    Actually as a staunch index investor I’ve always quote fancied using part of my portfolio for fun punts but came to the conclusion long ago I just couldnt wrap my head round how to value companies enough to even start.

    So if there is education In this area or even a portfolio of trades with reasoned analysis of why you’re investing I could follow (in the secure knowledge that any underperformance knowledge is completely my own as with any online information) I’m more likely to sign up. If nothing else for guilty viewing pleasure .

    Plenty of blogs already do this (thinking examples uk dividend investor and naked trader as well as money to the masses 80/20 offering) so this seems a great idea . I certainly wouldn’t pin my future retirement on what I find behind the pay wall.

  • 14 Fatbritabroad May 19, 2023, 8:39 pm

    Just to add- my interest has been peaked by finally getting round to reading ‘how to own the world’

    While I definitely don’t subscribe blindly to everything in there (I’ve always viewed owning gold and in fact any commodities as a complete waste of time though he seems adamant it should form part of the portfolio, and while i definitely see a place for bonds i perhaps naively see them more for decumulation and for mitigating downturns if you’re liable to panic and sell)

    I do wonder if my staunch 100% equity stance could use some finesse especially as I get older.

    I’d always envisaged moving straight from 100% to a simple 60/40 tracker a few years from retirement but now wonder if I should be looking more diverse than that .

    You don’t know what you don’t know and I’m certainly not egotistical enough to think I can’t learn more

  • 15 Al Cam May 19, 2023, 11:19 pm

    @TI (#12):

    See: “Old Age and the Decline in Financial Literacy” Finke, et al, 2011 at e.g. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1948627

    According to this paper: “Financial literacy scores decline … after age 60” and “Confidence in financial decision making abilities does not decline with age”. So potentially a double whammy. Yikes!

  • 16 pourquoi pas May 20, 2023, 10:09 am

    Tempting! I’ve signed up for the passive track, but it’s good to hear the upgrade path is there. I’m an index investor, but could consider stock picking for ESG reasons. Though timing the market sounds like a terrible idea, mainly because you need to time it twice: when selling and when buying again. Curiously, I do think that timing can work in the real estate (still waiting to buy my an apartment).

    TI, if you want to revise the signup page wording, a pretty standard way of explaining subscription packages is “: you’ll get everything included in the plus…”

  • 17 Time like infinity May 20, 2023, 6:02 pm

    An excellent and informative piece. Thank you to @TI.

    NB: My apologies if this comment ends up appearing twice. I clicked Submit and the first version disappeared without trace, and so I’m giving it another go.

    Re: “Henrik Bessembinder [in 2018, looking at 1926 to 2016] found only 4% of stocks delivered all the US stock market outperformance over one-month bills since 1926”: Also perhaps worth reading Bessembinder’s papers “Long-term shareholder returns” (March 2023) and “Extreme Stock Market Performers, Part I Expect Some Drawdowns” (July 2020).

    The more recent paper covers 63,785 stocks, of which 46,723 were non-US. Half of all value created for investors from January 1990 to December 2020 came from a mere 159 firms (0.25% of total), and 10.3% came from just 5 firms (0.008%). If anything, the skewness of the cross section of stock specific returns appears to get more extreme in recent decades and after broadening the perspective from the US to Global stocks.

    The earlier paper meanwhile looked at the top 100 stock/decades from January 1950 to December 2019. These are self selected as the best possible stocks per decade choices over seven decades. Amazon saw a 91.3% drawdown from February 2000 to September 2001 and Citibank was 97% down over 2006-2009. And these, to reiterate, were the winners. Even with God-like foresight, it would have been emotionally taxing and patience stretching to have held on to such single stock selections during such steep peak to trough paper losses.

  • 18 The Investor May 20, 2023, 6:36 pm

    @TlI — I’m not sure what happened but your comment ended up in spam (not moderation — I never saw it). This normally only happens with long comments when there’s a link, but I guess there was something the robot didn’t like. Enjoyed your first line of your spammed comment! 😉 Thanks for taking the time to type it twice, hopefully it won’t happen again.

  • 19 The Investor May 21, 2023, 9:29 am

    @Al Cam — Thanks for that link. Sobering stuff, and yes it’s the double-whammy that will get you. I suspect I am particularly at risk of this, given how investing and general financial literacy is so wrapped up in my identify, first with my active stock picking for decades but even more so with editing this site 😐

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