1/ When it comes to successful investing, there is a substantial persuasion gap between what you hear from the value investors and those who invest in the newest thing that's supposed to take over the world. This has enormous consequences for the net worth of every American.
2/ Whenever there is talk of a new industry, the hypemeisters come out and tell you about the 1,000,000% returns that await the space. It takes the frontier spirit you have and tries to map on a form of Manifest Destiny to crypto, electric cars, and sustainable whatever.
3/ Someone was an early settler of Florida, New York, California, Texas, and so on and ended up with hundreds of acres of land now worth countless millions. "Buy this alternative currency and it will be you someday."
4/ This impulse, namely that getting in on something relatively new will lead to riches, funds billions of dollars of speculation that ends in substantial paper losses and erosion of net worth. It uses your imagination to manipulate you.
5/ Meanwhile, in value investor land, there is someone saying, "Hey, there's this stock that is yielding 3%, been paying out dividends for your entire lifetime, and is growing at a 7-10% rate." Often, it is in a boring albeit necessary industry.
6/ The lack of novelty, and the perceived 13% ceiling with such an investment, struggles to compete with "This is the Newest and Greatest Thing Ever That Will Take Over the World and Make You Millions." Hence, so much folly is pursued.
7/ This is because possibility persuades better than probability. With value investing, you get certainty. Someone who owns two dozen stocks like Johnson & Johnson and saves $500-$2000 per month for decades has a 99% probability of enjoying a multi-millionaire standard of living.
8/ Someone who buys Dogecoin, Rivian, and so on has no such probability. You can throw in Bitcoin and Tesla - the analysis is the same. The probability is not even 10% of generational long-term success, but the possibilities lure in billions of investor dollars right in.
9/ Someone who devote their surplus to Berkshire Hathaway, Nestle, and Johnson & Johnson is going to have ironclad protection against failure and near-certain probabilities of success over a multi-decade period. This is the sales pitch that needs to resonate.
10/ Pivoting towards speculation is always costly. If you are young, you are losing the decades and decades of capital gains and dividends you could have generated. If you are older, you are losing capital that you don't have the time to make up.
11/ In a fast-moving world, those Ole Reliables that offer certainty should be discussed in terms that are more attractive (you have a nearly 100% chance of getting rich if you're patient).
12/ Meanwhile, those that offer possibilities should be subject to a reality check in the form of a probability analysis. Look at the dotcom busts, cannabis, and meat-alternative bubbles and failures in recent years.
13/ As always, remember that "what is popular on Twitter" and "what is popular on CNBC" is a spotlight bias in favor of novelty. Look beyond that! Remember, the company most likely to be around in a century is the company that has been around the past 100 years.
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