Wednesday, August 24, 2016

Active Investing Mountain

Today I was instructed to clean my office by M.L.  One of the most unsightly piles (yes I manage and file papers by piles) is all the correspondence since 12/28/15 from the Prime Clerk office regarding the Magnum Hunter Bankruptcy.

TWO FEET of paperwork with over 80 Federal Express envelopes delivered to my door (nearly one every other day).  The postage alone must exceed $500.  This mountain was the result of R.M. encouraging me to write the Judge asking him to consider Chapter 7 bankruptcy vs Chapter 11.  That innocent letter was recorded in the Prime Clerk office and I was listed as an "interested party". 

And.......  I continue to get paperwork even after the ruling (in favor of the Chapter 11) at the house.  I've decided to stop collecting it to add to my pile and will throw it away today.

My Magnum Hunter stock and preferred is now worthless - along with many other sorry investors..  While painful - it is not financial significant (I feel sorry for those that invested their retirement in Magnum) and I can add this to the list of other risky investments I have made (and have gone bankrupt) over the years (i.e. Symbolics, Learnout & Hauspie, Euro Tunnel, Euro Disney, Nortel, Presidential Casino, Webvan etc.).  

What have I learned in 40 years of investing? -  that passive investing (index investing) is the proper way to invest for your life savings.  Remember LeBouef's Law from his book "The Millionaire in You" -   -  "Invest your time actively and your money passively"

Does that mean you should avoid those tempting get rich quick ideas, or brilliance of buying the early Microsoft?   No - but only if you treat it like gambling and entertainment.  Expect to lose it all - "play money" is the term.  Also expect the time spent to be wasted also.  Don't have the illusion that the time spent on these activities will get any great return also (other than interesting topics at lunch or dinner).

But...... there is a whole industry focused on active investing arguing that with enough time and intelligence (and many add diversification), you can "beat the market".  There are plenty of stories and testimonials about those who have done it.  Just ignore the Nobel Laureates - Markowitz, Sharpe, Miller, Kahneman, and who cares about what Adam Smith, Bachelier, Samuleson, Fama, French, Galton, Sinquefield, Malkiel, von Hayek, John C. Bogle, and yes.....   Warren Buffet himself say.   Listen to those who will profit from your fees -  they have your best interest in mind.

But in the Financial Planner's defense -  They can protect you from yourself....... and TWO FEET of paper :)

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