Indomitable Investing with Steven Sears: Part Five
- April 27th, 2012
I recently had a chance to ask Steven Sears who writes The Striking Price column at Barron’s and is also the author of new book The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails a handful of questions. He was kind enough to provide some really fleshed out answers to my questions, so I am going to run one each day this week. You can read the earlier posts in the series here: part one, part two, part three and part four. Without any further ado here is part five:
AR: Financial illiteracy is a plague on American savers. Can Wall Street (and government) really be part of the solution?
SS: Absolutely. I don’t think Wall Street, or the government, has really tried to do much of anything to address the financial literacy crisis. To be clear, I am not advocating a Nanny state where everyone is a winner and gets a star on their homework. I am advocating a concentrated effort to show people how to think and act like investors. If we do not do something meaningful, we will face another significant crisis.
Here’s why: in the past 40 years, America morphed from a nation of savers to a nation of investors. Electronic trading, and online discount brokerage firms, coupled with a few bull markets, spread the cult of equities across America. At the same time, people have been forced into the market to save for retirement via IRAs and 401k(s) and that has sent many people climbing up the risk ladder pursuing investments or speculations to make even more money. No one really stays invested long enough to qualify as a long-term investor. Instead, they think they are long-term investors, but they act like really bad traders, which creates problems because everyone depends on the market for retirement, tuition for college and so forth. Now, if we know people will buy stocks because someone on TV tells them too, why not take advantage of that psychology and appoint an Investor Laureate to lead a national dialogue about how to properly think about investing. Each quarter, the Laureate, who would be drawn from the retired ranks of top investors, would prepare a report on the State of the Markets. It would become a media event. Some of the process, and analysis, that characterizes investing would get out.
The Street could take a portion of advertising budgets and allocate it to investor education. Some of the Section 31 fees used to fund SEC could be used to launch a major investor education initiative. As I understand it, the government created the Section 31 fee to fund SEC by collecting a fraction of a cent on every trade. More money is collected than is used to fund SEC. I am told a large amount of money is swept away by Congress into general funds and used for other purposes. A small portion of that money could, and should, be used to find investor education.
Problem is Washington speaks through complex regulations that never seem to do much of anything to prevent another crisis. Wall Street speaks at America through marketing, but it should change how it talks to customers. The big banks are pushing heavily into the asset management, stockbroker business. If they teach their customers how to be better investors, it will make those customers stickier customers.
If we don’t start giving people a square deal and fair talk on investing, I am afraid the credit crisis of 2007 may pale in comparison to what lies ahead as Baby Boomers retire, or realize they cannot retire because they don’t have enough money in their self-directed accounts.
Thanks again to Steve for participating. We hope you enjoyed his insights into a wide range of topics.
Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Abnormal Returns has over its seven-year life become a fixture in the financial blogosphere. Over thousands of posts we have striven to bring the best of the financial blogosphere to readers. In that time the idea of a “forecast-free investment blog” remains as useful as it did six years ago. More »
- Friday links: avoiding complexity
- A transitional moment for advisors
- Active vs. passive: try harder or do something easier?
- Thursday links: sticking to beta
- Wednesday links: the allure of stock picking
- Tuesday links: unbundling risk and return
- Software is eating investment management
- Monday links: lottery stocks
- Sunday links: true confidence
- Top clicks this week on Abnormal Returns