Wisdom for Money

Remember the year 2003? Anyone? I'll never forget it. It was the year I was so sick of Wall Street and its ways and means of selling investments to people...people like you and I. 2003 was the year I hit the reset button on my then 12-year-old career by immersing myself in decades of Nobel Prize winning research on investing - what works and what doesn't. What I found was a host of myths and truths of investing. This post looks at one of the truths through the lens of the book, The Bet, by Paul Sabin.

The Bet was neatly summarized in a recent issue of Nick Murray Interactive. Here's the gist of The Bet:

• Paul Ehrlich wrote a 1968 book, The Population Bomb, which predicted that in the 1970's, 100 to 200 million people would be starving to death.

• The book falsely predicted that exponential population growth would overwhelm dwindling resources.

• Ehrlich got a lot of attention for his ideas. He achieved fortune and fame from the book - and appeared on the Johnny Carson show more than two dozen times.

• On the other hand, economist Julian Simon believed human ingenuity and the free market would bring forth resources that would not only provide for population growth, but would also do so at lower prices when adjusted for inflation.

• Mr. Simon famously bet Ehrlich that any 5 resources Ehrlich wanted to choose would be more abundant, and cheaper in 10 years. He chose:

• They tracked a $1,000 investment, $200 toward each resource. Simon was betting their value would fall, Ehrlich that they would rise.

• The loser would pay the winner the difference based on the actual 10 year inflation adjusted values.

• Ehrlich lost and sent a check to Simon for $576.07

The moral of the story? It also aligns with our 23-year-old mantra that says...

Never invest based on a forecast or prediction!

The Bet is a classic tale we've seen repeated time and again. Purported "expert" predicts some future event (many times a catastrophe). Purported expert becomes best selling author, and media darling. Purported expert is exposed as wrong. Sometimes they're exposed as woefully wrong.

The most basic truths are really simple:

This approach has worked for our client community for 35 years.

Thanks for reading,

Tim O'Connor