People Are Dumber Than They Look

by: IndexUniverse

By Jim Wiandt

The answer to Matt Hougan's questions is obvious: People are dumber than they look.

Buy-and-hold is dead at exactly the moment you should be liquidating the farm, pouring it into the stock market and buying and holding. These are self-evident facts, and it is astounding the nonsense that people come up with, particularly in times of crisis. Matt—you pretty much hit it right on the head.

The other issue is that people like Tommy Lydon and Bob Pisani and even us to a degree, Matt, make their living off of the catchy story, off of selling people on the idea that we know something or know someone who knows something that can help them time the market, to avoid a catastrophic downturn or to catch the crest of the next wave.

The thing they won't tell you generally, but that Matt just has, is that it's all a fool's game. The market is a zero-sum game generally—but there's one part of it that is not. And that's that your costs are coming out of your returns and going into the pockets of whoever is charging the fees.

All of this ridiculous, ludicrous hubbub, right now at the worst possible time to be preaching that active sermon, reminds me very much of all the research from a few years ago saying international diversification benefit was dead ... that you could now safely allocate 5% or less to international. How did that look to you as the euro, or China or then again the dollar made their run? The idea that nations and their micro economies would just fail to mean anything anymore was ludicrous on its face.

Even more crazy is the idea that we can all outguess ourselves and outperform ourselves by trading ourselves silly.

Buy-and-hold at the lowest possible cost as broadly diversified as possible: in the past, now, forever. If you think otherwise, especially now, you may want to consider taking off those big shoes and that funny hat with the bells.