Investment Myths

"In turbulent times gold or precious metals is a great investment." -- WSJ article

"Junk bonds are risky." --Opportunity in BB rated bonds. (default rate approximately 1.5% compared to default rate on BBB (which are “investment grade" bonds) which is approximately 1%. So the chance of default goes up by half a percent, but the yield on the bond is 1-2% higher!

"The key to investing success is to find a great advisor and let them invest for you."

"Hedge funds are a smart investment. Because the managers are so strongly incentivized to grow the fund (they get 20% of the profits) they will do a better job than an ordinary mutual fund manager." -- Truth is they are incentivized to take more risks (they have no downside and get 20% of the upside!) and they are empowered to use a LOT of leverage to enhance their return—positive or negative! You have no control… no transparency…and often must commit your funds for 5 years—so you have no liquidity! Doesn’t appeal much to me.

Diversification is an important investment principle." BUNK! Just about every successful investor realizes that they need to focus their investing on a fewer number of moves, and they must make those move meaningful when they do invest. Concentration and compression of capital is the mark of the best investors, not diversification. Diversification as a strategy is only good for the uninformed who are looking to get close to the market’s average. If this is the case, most of these folks would do best with an index fund and NOT an actively managed fund because of the lower fees and expenses.

"I don’t understand the investment, but my advisor has a breakthrough new technique/formula/algorithm/software program that is going to help him get me a great return." Good luck! For me, I prefer to only invest in what I know. I prefer to invest in areas where I have Advantages. This is why I get great returns, not a fancy formula or algorithm, but hey, maybe your advisor is special…