Are you an investing Ahab?

"I need Facebook IPO" phone calls and a recent WSJ article on zombie funds leads me to reflect on the fact that most investors are like Moby Dick's captain Ahab. Ahab was obsessed with catching the white whale, Moby Dick. An obsession that lead him down a path of his own destruction.

Many spend their money paying advisers to produce market beating returns and in the end don't do better than a simple buy and hold strategy. Then there are those who invest with the Madoff's of the world and end up losing much more than a good return.

They somehow believe that they can get instantly rich in the market, they spend money on  software systems or advisory services. They spend hours watching CNBC, and watching the market, and worry about whether they should own more gold or Facebook. 

Unfortunately, many drive themselves into an Ahabian obsession with finding the great return.  They ignore the fact that a simple buy and hold strategy of holding an index of the US stock market since 1973 would have earned 10.5% through 2010. Holding the US market since 1927 would have earned 9.8%. 

Two years ago I attended the Get Motivated seminar at HSBC Arena in Buffalo NY. It is more of a day of infomercials interspersed with motivational speakers. One of the pitches that day was a stock picking software system - just buy on the up arrows and sell on the down. The crowd swarmed to the sales desks by the thousands to purchase the system. They were never told about trading costs or  short term taxes, nor was there discussion about what to do when negative news on one of your stocks hits the market when you are out golfing. I just shook my head at the power of a great sales pitch and the desire of humans to get rich quick and easy.

Study after study shows that over the long run very few outperform the market on a consistent basis. Yet so many sail the seas trying to beat the market. In the end it is the brokers and advisers that sail the seas in their customer paid for yachts. 


 In fact when Harry Markopolos, author of the book No One Would Listen, tried to warn regulators in 2000 that the 15% sustained return promised by Madoff was impossible in the capital markets no one would listen. The point here is that Markopolos knew that those kind of consistent returns dont exist in the stock market. So why do so many continue to reach for returns that have never existed?  Probably because we believe in America that we can get rich overnight, that we can time the market, pick the winning stock. In the end, those tasks are nearly impossible to achieve. Therefore, most investors would do themselves a favor and just purchase a diversified portfolio of index funds that give them exposure to the US stock market, the global stock market and the bond market and relax while the Ahabs of the world make themselves crazy.