The Road to Riches is Very Noisy
Everyone who invests their own money is on a journey to riches. Well, that is everyone’s intent at least. The reality is that most people’s journey, including my own, is full of volatility, especially at the beginning. We’re all pretty dumb in the beginning and our annual returns are all over the place. This makes sense because financial investing is not taught in school, it’s mostly self-taught. Unfortunately, it also means we can be very susceptible to questionable influences in a very noisy market environment.
I made a lot of money in the market when I was young and dumb but also lost almost as much. I once murdered $100K during the tech bubble; that was pretty dumb. This type of behaviour is typical for most small investors. Learning from one’s mistakes can eventually break you out of that pattern, as it did for me. Alternatively, you can seek professional help, not the mental health kind, although there is an argument for that as well. Sadly, many small investors stubbornly choose to keep trying without any success, often based on bad advice, becoming part of the bleak long-term statistic of returning 3-4 percent annually (by average). If you are reading this Blog, you are likely much smarter than most and have realized that the road to riches is paved with myths, lies, and not-so-good intentions.
The Distractions – aka Market Noise
The investing world has changed significantly since 1987 when I officially opened my first discount investment account. At that time, there was no internet (not as we know it today) and as a result, financial information was difficult to find except in newspapers, or from your broker, which was limited and lagging. Today, everyone has the financials right on their phone in real-time. The playing field is more level than it has ever been but the same technology has also inundated us with unlimited distractions, from TV pundits, all-day news networks, bloggers, Reddit, and the worst, financial vloggers on YouTube.
You would think that with all the information now available, the small investor would surely be making market-like returns (9%). Unfortunately, this is not the case, mostly due to investors’ inability to drown out the noise. I have learned over the years to be careful about what I read and watch. It’s virtually impossible to not be influenced in some way or another by the noise. So I generally only follow a couple of investment YouTubers that I feel have it mostly right. The rest I avoid, but as I am always looking for new ideas, I sometimes visit these other channels out of curiosity and am often appalled by what I see. Some of it should be illegal.
Understanding Incentives
It’s no secret that everyone works on incentives and if you keep that in mind, it’s easy to see what is wrong with the YouTube Financial Gurus. The YouTube platform works on complex algorithms that reward YouTubers for creating content at regular intervals and using titles that match what people are looking for or reacting to. If you have a boring YouTube video title, the algorithm will not reward you with as many viewers. A good YouTuber will recognize this and adjust his or her content. Before you know it, their channel has reached 100k subscribers and as a result, they get a YouTube plaque (reward) and are well on their way to living off the proceeds of advertisers and corporate sponsors. In other words, they are now dependent on the algorithm for their continued success and financial well-being. The problem is that they become a slave to the algorithm, which reinforces the subject matters that generate the most views and reactions from people, typically those based on fear and greed. You just have to search the YouTube financial channels and note how many titles are about “10x your return”, or “a crash is coming”, etc.
There’s Another Problem
Another problem is that most of these YouTubers are really young and as a result, inexperienced and often arrogant. The reality is that anyone can start a YouTube channel when the market is going up and show over-performance by simply increasing risk. Those who have been around longer than the last bull market know that real skill is seen when the market is in decline. Without this experience/knowledge, novice investors can murder their money forever. This is what actually happened to most of these YouTubers more recently in the tech downdraft. Suddenly, their real performance is no longer something they talk about on their channel because who wants to follow someone who murders their own money? They have instead started ignoring their losses and carrying on, hoping no one figures out how badly they’re doing. Subscribers have nevertheless lost enthusiasm for investing and left these channels in droves. As a result, the YouTubers’ revenues fell big time.
Case in Point: I had an online discussion with a Canadian YouTuber that I was following regarding how risky many of his positions were, but he was unwilling to acknowledge my advice. At that point, I realized that it did not matter whether he agreed with me or not, because his content is driven by his incentive to make money by maximizing the YouTube algorithm, not by sticking to sound investing principles. If he is living off this YouTube revenue, he has no choice but to feed the algorithm. In the end, the small investor will almost always find either fear or greed being peddled by these YouTubers. Most of them are charlatans and not your friends.
To be fair, I am generalizing and admittedly, I have not reviewed all of the channels out there – they are endless. I should also state that I am referring specifically to the financial channels that are stock-related. There are many other types of financial YouTube channels out there.
Wait a Minute… What are my Incentives?
Everything creates bias, including this blog. There is no way around it. The noise in the market is everywhere and just being aware of it is not enough. Understanding yourself and how you react to the noise is somewhat valuable. Understanding the incentives of others also goes a long way in determining if they have your best interest in mind. As I said before, I am very picky about what I watch or read and you should be too. Those who tend to get addicted to daily financial news on average trade more often, make more bad choices, and in the end have lower returns. The noise might be loud and inescapable, but you still have some choice in how you consume it.
If you have read my past newsletters, then you know that I create this content as a retirement hobby. It’s an activity to make myself a better investor. It’s more about me than it is about you (sorry). I share my thoughts in hopes that people might find the content interesting and I may even help them in their investing path. That is all. I do not need the reader in order for me to make a living, I do not need to scare you and I will not make you rich fast. There is also no money in it for me (it actually costs me money to keep a blog), and no fame. So you are pretty safe here. You don’t have to smash a like button, or even subscribe – unless you feel that it’s in your best interest…which it is (wink).
Marc-Approved YouTube Channels & Resources
The only two YouTube channels that I watch consistently are Sven Carlin – Value Investing, and Fisher Investments. Sven’s Channel is my favourite. He has solid content and is quite honest about how he struggles with the YouTube algorithm issue. He has actually sold off one of his public portfolios because he felt that he was being influenced by the need to get views from his channel. Ultimately, he sells a research platform to subscribers so unfortunately, the incentive to keep content unbiased is very difficult, but he tries.
Ken Fisher of Fisher Investments has written several excellent books and is always trying to educate his followers by busting investment myths and highlighting the big picture. He is a somewhat awkward but prolific billionaire who, despite not needing the money, likes to get out there on YouTube to share his knowledge with those willing to listen. My favourite book of his is: “The Only Three Questions that Count”.
In addition to these YouTube channels, I also enjoy:
- Paul Merriman: An older dude with a no-nonsense website and podcast. He’s big on simple ETFs and the big picture.
- Excess Returns: Two very nerdy dudes with a Podcast that focuses on value investing.
Money with Marc 