Barney Frank: An example of why the democrats cannot be trusted with large sums of money ...

Gambling your future on historical precedent?


I have been invited to a paid public performance of an investment guru. A man who has made some notable observations in the past and thus has achieved a degree of recognition. His current offering is an outlook which can be characterized as either unduly pessimistic or outright calamitous.

Therefore, in preparation for my attendance at this event, I started to think, not about this presenter, but about the  nature of financial gurus in general.

Looking backwards to foretell the future …

Economists, stock pickers, and even climatologists, are always looking backwards, searching the historical data for clues to future events. Plotting numerical values on charts and manipulating the results in the hopes that a repetitive pattern will appear. Sophisticated mathematical techniques, chaos theory and fuzzy logic have all been used to attempt to highlight micro-trends in data which is seemingly random. All to provide an edge to an investor seeking their fortune.

The lucky few …

And among the hundreds of professionals that engage in financial analysis, there are always those few professionals who are able to call a trend, provide a rational, or at least plausible, explanation of their reasoning and then capitalize on their prognostications. In essence to monetize their wisdom in books, speaking engagements and the sale of ancillary materials.  It should also give one pause to note that sometimes those who predict unusual or way out trends are lucky whack-jobs, simply because the results of the other trend-spotters seem to be clustered into the safe and “most probable” scenario.

However, not all is what it may seem …

Unfortunately, there are times when coincidence is able to pass for experience and foresight. That lightning has struck a particular point does not insure that lightning will strike a second time – although it is well known that lightning can and will strike the same point multiple times.

The breakdown of analysis …

Black swan events: While there are those who claim that our current financial crisis is actually based on well-understood long term cycles is to ignore that many events are associated with a so-called “black swan” trigger – an event that is so exceedingly rare that it has never occurred before and thus is not represented in the historical data. In reality the black swan event may be a single event or a confluence of events that produce the storied “perfect storm.” But, by definition, the information is not readily discernable in historical data – unless one uses perfect 20-20 hindsight to develop a story that uses historical data in such a way as to make the analyst’s story believable.

Random patterns: I can assure you that clouds do not contain information. They are a random product of prevailing weather conditions and infinitely mutable, changing to meet the demands of physics. Seeing a pattern in random data can be simply explained. Your heredity, environment, education and experience have all combined to produce a series of recognizable patterns which can be further extended by your reasoning process. Therefore, you are, in a sense, seeing what you expected to see based on the patterns you have experienced in the past or extrapolate from combinations of these patterns. Look at the cloud picture below. Ask yourself, is there any information contained in this picture?


Hindsight and back-testing: There is a well-known tendency among researchers to posit a theory and then test it against historical data. Using present day information to devine historical precedent. Unless there is a rigorous examination of the entire analytical process, the information that is derived may be both coincidental and unrepeatable in the future. As with many efforts involving historical analysis, the time-range and conditions chosen by the researcher may enhance the effect that they have come to believe is a significant sign of a projectable trend.

The inherent danger of gurus …

Simply put, there is a significant danger in investing significant resources with those who have claimed to be able to devine future trends and point to both historical cycles and their past successes. The best advice that can be given under these circumstances is to use a qualified investment advisor who acts in your best interests, has fully disclosed their corporate associations and referral payments relative to your investments, and diversifies your investment to accommodate your needs and risk profile. In this way, you may achieve some isolation from some wild and crazy ideas. 

The HALO effect …

Those with significant backgrounds and/or magnificent achievements are people that are seen in a different light. They are surrounded with an aura of achievement, wealth and believability.  A golden halo, if you will. However, the sad truth is that stellar performers rarely are able to repeat their original accomplishments. And those who are extremely wealthy may have simply been in the right place at the right time – and it was more fate and relationships than knowledge and experience which resulted in their achievement. One needs to be very wary of someone of great wealth or achievement that offers advice to the general public for a price – as they or their customers may not be able to replicate past results in today’s difficult economy and circumstances.

Everything gravitates to money …

Once someone has achieved critical mass, that is they have a significant amount of personal wealth, control a significant amount of investment capital or have a sterling reputation of achievement, good deals are presented to them before lesser individuals. They are given a “piece of the action” to front deals which use their name and character. In essence, they may become paid endorsers of a product or a particular philosophy. Similarly, the ability to attract media attention or become a walking advertisement is likewise valuable. Therefore, investment results may be significantly skewed by the winnowing of good investment opportunities as money attracts more money and great deals.

This performance has a purpose …

While the speaker may be getting paid for his performance, there often are ulterior motives that should be considered.

Is this a direct promotion of a current book or product (often sold in the lobby and with the extra benefit of being autographed and individualized)?

Is this an event which will attract the media and this add to the preponderance of good press and promotional materials?

Is this an appearance before a distinguished association, major corporate entity or governmental body which can be used to lend additional credibility to the promoter and their product?

Is this a sponsored presentation by those selling ancillary goods and services which feature tie-ins with the promoter’s positions and products?

The danger of self-doubt …

Because I may not be as wealthy, credentialed, experienced or as well versed in the subject matter at hand, I might have the tendency to accept the promoter’s words as gospel while my self-doubt overcomes any  nagging questions I might have as to the veracity of the promoter or the effectiveness of their product. A over-ride of my common-sense? However, since I seem to have a varied background and a well-tuned bullshit detector, I am prepared to meet the future.

It is with this in mind that I am prepared to listen to a person who is being touted as a giant among investment gurus – perhaps I can learn something new; and then again, possibly not. Can’t hurt to listen.

What can YOU do?

Before you invest your hard-earned money …

Do not overlook the fact that one needs a sufficient capital base to invest as to make the investment pay off. While one can earn 50%, 100% or more on a few dollars, the end result will not allow one to live comfortably and may not be worth the effort – or may not be sufficiently scalable to achieve more attractive results.  Alternatively, one must have sufficient capital to withstand the risk of total loss without altering your income generation potential or your present lifestyle. A balancing act to be sure. Which is a way of saying that the odds do not favor an individual becoming wealthy in a short period of time or by making investments where the risk/reward ratio approaches gambling. Money attracts money.

Do not overlook the fact that there are some well-credentialed, wealthy people of achievement who have seemingly struck it rich. Possibly based on the luck of being in the right place at the right time. No guru should be awarded a “halo” for their past activities which may be the unexplainable products of genetics, environment, education and experience.  The fact that one is a person of renown and can write down the steps for achieving wealth, happiness or any other state of being, does not mean that this skill is transferrable to those who simply read the book or attend the lecture. In fact, I would venture to say that there exists an entire class of “information junkies” who flit between courses and never put forth the requisite effort to achieve the results they desire. Somehow their motivation ends with acquiring the knowledge or maybe exerting an attempt at its application. The day-to-day perseverance and killer instinct is lacking and thus the results will be somewhat less than satisfying – often pushing the person to chase the next great idea. Note that I used the words “seemingly struck it rich” … fake Presidential Rolexes can be purchased for a few hundred dollars. Expensive cars can be leased. Do not confuse the symbolism with the substance (the essence of any good con)

Do not overlook that many people monetize their knowledge and capitalize on notable events in their past. Their real fortune is built from making speeches and selling materials to the hopeful. While there may be great tips and techniques in the materials provided, unless one is prepared to use these guidelines in an all-out effort, again, the result may be somewhat less than anticipated.

Do not forget that intermediaries, such as investment counselors, are, in the final analysis, sales people who want to earn a commission by selling you on an investment idea or product. Unless singly employed by you under a strict fiduciary contract, it is best to treat these people as sales people. Remember, people who give speeches, teach courses and sell materials may also want to steer your investments. So be wise and be wary.

Be wary also of the paid sponsor or shill. The paid sponsor who lends his credentials, fame or position to singing the praises of the promoter and their product. The shill is likewise a paid promoter, but one who feigns no association with the promoter and thus is perceived as an independent and credible source of information. And while I am on the subject, be wary of plants – no, not the garden variety – but the people who have been pre-positioned in the audience to ask specific questions which lead the speaker into a prepared speech or who seemingly provide independent corroboration of the speaker’s position. Often these are the first people to “seed the crowd” by being first to sign-up for courses or purchase materials. These people are often well-dressed and well-spoken and serve as a visual reinforcement of the product’s worth.

Take the time to learn about scams and scammers. It might just save you a few bucks in the future. It might have saved a few hundred people up to $50 billion dollars.  It is wise to remember that at the heart of all scams is a mark who is either greedy or afraid of loss. Those that seek to maximize return for a minimal investment, usually find out that the way it works is for them to make a maximum investment for a minimal return.

The wisest investment advice seems comes from the Better Business Bureau: Investigate BEFORE you invest. That goes for both the promoter and his proposition. One need only look at the current Bernard Madoff Ponzi scheme scandal and note that very famous, wealthy and sophisticated investors were wiped out overnight when the scheme was revealed to the authorities.

-- steve

Quote of the Day: “It was beautiful and simple as all truly great swindles are.” O. Henry

A reminder from a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

If you should wish to join me on the journey to help me build a web site dedicated to YOUR survival in today’s uncertain times, you can sign up for my free report on job loss related panic at or by clicking on the site logo below.

subscribe to

“Nullius in verba.”-- take nobody's word for it!

“Beware of false knowledge; it is more dangerous than ignorance.”-- George Bernard Shaw

“Progressive, liberal, Socialist, Marxist, Democratic Socialist -- they are all COMMUNISTS.”

“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS

"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius

“A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell