Are you a “jackass investor?”
Here, courtesy of author Michael Dever (and with apologies to comedian Jeff Foxworthy) are ways you can determine if you are:
· If you believe that stocks provide an intrinsic return, you might be a jackass investor.
· If you lean toward buy low/sell high, you might be a jackass investor.
· If you believe it is best to follow the advice of experts, you might be a jackass investor.
· And if you believe there is no free lunch, you most definitely might be a jackass investor.
Dever, founder of Brandywine Assets Management, challenges these and other conventional wisdoms in his book Jackass Investing: Don’t do it. Profit from It, a provocative, “everything you know is wrong” tome inspired by his more than three decades as a trader and market researcher. He began writing it in 1999, he told Millionaire Corner. “I repeatedly heard investors regurgitate things they had been told and that I felt strongly, based on my experience, were wrong.”
His original title for the book was “Exposing the Myths: Profiting from Wall Street’s Misguided Beliefs.” Jackass Investing was catchier, he decided. The title echoes the “Jackass” gang on television and in movies, in which goofballs perform outrageous and dangerous stunts. “Taking unnecessary risk to me is the definition of jackass investing,” Dever said. “In the TV show and movies, you’ve got guys taking risks for the fun of it, but this is bad form in investing.”
Jackass Investingmay be the only book about investing that contains references to “Seinfeld” and Geddy Lee from the cult fave band, Rush. “I wrote this for the everyday investor who reads a number of magazines or listens to the gurus and (I feel) is being steered in the wrong direction by these people. Hopefully it is entertaining enough they will read it from start to finish and come away from it with an understanding of what really drives markets and how they can truly diversify their portfolio.”
Dever distinguishes between a portfolio, one that is “properly diversified across multiple return drivers,” and a “poor-folio,” a “poorly-constructed portfolio that is exposed to far greater event risk than necessary.” Return drivers are at the heart of Dever’s investment strategies. “When, for example, when we were looking at what drives stock returns,” he said, “the theory that stocks provide a return because there is risk to me is hogwash. We explored a number of different factors and two primary ones were earnings growth and P/E. ratio, the enthusiasm people have for owning a stock. That explains 90 percent of stock price activity.”
Among the other myths (there are 20 in all) that Dever explores in Jackass Investing are: “You can’t time the market;” “Commodity trading is risky;” “Trading is gambling, investing is safer,” and “It’s bad to chase performance.” An “action” section presents specific ways to take advantage of each of the myths.”
For example, Dever said, “embrace volatility. It creates better opportunities. Many people react emotionally (to day-to-day market swings) with knee jerk reactions. They do not have a strategic plan in place and that’s how they lose money.”
The response to Jackass Investing has been gratifying, Dever said. “I’ve had a number of emails from people saying that the book has changed their life. So many people told me, ‘I couldn’t figure out why my portfolio wasn’t working for me, and now I understand.’ That’s exactly what I want people to get out of it.”