The Money or the Smarts?

By Slow Dad - August 08, 2017

When surveyed the Personal Finance blogosphere chose $100,000 cash over all the financial knowledge in the world. They were wrong. Here's why.
Earlier this week J.Money posed a question asking whether bloggers would choose $100,000 cold hard cash or the combined knowledge of contained in all the world’s Finance books.

To my simple mind this was an easy question, a rephrasing of the timeless quote “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

What’s more, the Rockstar Finance Forums are the playground of folks blogging about Personal Finance... in more than a few cases purporting to be experts or coaches in various facets of the topic. Therefore I would have, perhaps naïvely, they should have been more financially savvy than the general population.

Imagine my surprise when I read that at the time of writing almost all of the respondents opted for the cash!

All the world's knowledge

Now I supposed it could be argued that here is a bunch of financially savvy investors who possess sufficient knowledge already, therefore adding any more knowledge to their existing wisdom and experience would be overkill.

However for the purposes of the game this contained ALL. THE. WORLD’S. FINANCIAL. KNOWLEDGE.

The combined documented wisdom of all the Nobel prize winning economists, finance professors, successful investors, entrepreneurs, journalists, and fund managers. Everyone from Warren Buffet to Adam Smith to Jack Bogle to JP Morgan to John Maynard Keynes to Mayer Rothschild to Robert Shiller.

About the stock market, bonds, futures, options, currency, real estate, precious metals, and the list goes on.

In other words people could be granted the world’s entire collective knowledge of finance.

... or a relatively small one off payment

Or they could take a one-off payment of $100,000.

Almost all* the bloggers took the money.

The internet provides people with ample opportunity to demonstrate stupidity in public.

Initially I was stunned that anyone would take the money, then a bit disappointed, before shrugging resignedly.

It is little wonder that much of what passes for investment advice in the blogosphere these days is “put all your money into VTSAX” and “you can ‘safely’ retire when you have saved 25x your annual expenditures”. I've got issues with both of those urban myths.

Sure index funds are a great tool when used correctly, and Vanguard is as good a provider as any. However shouldn’t people want to understand how and why things work?

What causes share prices to rise and fall?

What factors influence the profitability of a firm?

What will the impact be on a company/sector/index of unemployment rates? Wage growth? Inflation? Interest rates? Competition?

Why are tariffs, rent seeking, and subsidies all bad things seeking to protect inefficient industries and line the pockets of special interest groups?

Which firms will should perform better in a growing/static/shrinking/stagflation economy?

And so on.

Personally I think they should.

Just because nobody else is doing it, doesn't make me wrong

It appears that I am in the minority however, and that by “buying the market” in the form of an index tracker perhaps people no longer need to understand the finer points… or even having any inkling how the economy works.

There is certainly a bunch of clichés out there that support this.

  • don’t try and time the market

  • dollar cost averaging eliminates needing to worry about market rises and falls

  • asset class allocations are arbitrary, and therefore a form of active investing

  • just buy the index, let the market determine what proportion of your funds should be held in each company or sector

Am I a dinosaur, or just a cantankerous old man?

It occurs to me that perhaps I’m just a dinosaur, with an old fashioned interest in economics and finance.

Am I a dinosaur, or just a cantankerous old man?

This dumbing down of the general knowledge of economics and finance may actually be much the same as the way few people these days could explain how an internal combustion engine works, or how to make pasta from scratch, or how a simple set of maybe 20 instructions running on the processor inside your smartphone are capable of providing the incredible array of functionality available across all the apps listed in the app store.

Granted there will always be a portion of the population who is dazzled by the prospect of a quick and easy buck, particularly an unearned one. The business model underpinning lotteries, sports betting, casinos, whole of life insurance, and much of the consumer focused investment advice industry rely upon it.

So what?

I just wonder whether this general dumbing down is a result of the generally poor quality content produced in the Personal Finance blogosphere, or whether this may be part of the cause?

* In fairness Steve from ThinkSaveRetire opted for the knowledge. As did I.

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4 comments

  1. Very good article. I would have said "knowledge". With that "knowledge", I would have made the $100k within 6 months.

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    Replies
    1. Thanks Andrew. I agree. And another $100k, followed by another... all the way to financial freedom.

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  2. Thanks for the shout out, Slow Dad (Steve from Think Save Retire here). For me it was an easy question to answer for the reasons you've cited. Yes, you could take the $100,000, invest it and make money - but with all the knowledge in the world, you aren't limited just by what the market can provide. Think Bill Gates. Warren Buffet. Jeebus, add another four or five zeros onto the end of $100,000 and now we're talkin'.

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