Finance is full of hobbyists. I went to school for this. I paid $45,000 (in 1999 dollars) to get an MBA with a concentration in finance. My bachelor’s in math counts, too. Then I went through a grueling training program at one of the top Wall Street firms and had seven years of experience as both a prop trader and a market maker. I know what the hell I am doing.

And then I will be on Twitter, and some rando will come along and absolutely blind me with science about macroeconomics or FX trading or single-stock valuation. And I’m like, how do you know this?

This isn’t how it used to be. It used to be that there was smart money and dumb money, and the smart money used to trade against the dumb money. But the dumb money is smarter these days. My own subscribers may be doctors or dentists in their day jobs, but they put a lot of time and energy into their hobby and get to be pretty smart investors.

Notice I didn’t say good investors. I said smart investors.

What I’ve found is that there is not a great deal of correlation between being smart and good.  Remember, the idea is only 10% of the trade; the other 90% is position sizing and risk management. And position sizing and risk management are very difficult to teach. You either have a feel for it, or you don’t. 

Sure, you can get better at it over time… if your capital lasts that long. I run into a lot of amateur investors who have done deep dives into a stock, worked up a great deal of conviction, and then made it 90% of their portfolio. 

Guess what happens next? The market proctology exam. I see this happen over and over again.

Pick Another Hobby

I just bought a guitar. I would like to say that it is fun, but I’m not good enough for it to be fun yet. Right now, it’s still arduous.

But my time playing the guitar is much better spent than spending an afternoon reading Nvidia’s K’s and Q’s. Or trying to figure out Turkey’s FX reserves. That is a worthwhile pursuit for somebody, but not for you… unless you’re interested in the inner workings and hidden mechanisms of Nvidia just for fun. 

At least be honest about your intentions. Getting smarter about business and markets is a worthwhile pursuit in its own right—and not necessarily a way to make money.

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You know who has access to really good information? Journalists. Know any rich journalists? Wouldn’t you love 10 minutes with Stan Druckenmiller when he’s not miked up? How much would you pay for that?

Anyway, the overarching point here is that the amateur investors are a lot smarter than they used to be. I think this phenomenon started in the late 1990s with the stock message boards, where people used to share information about companies. Now we have Twitter. And there are some very, very smart anonymous accounts on Twitter. 

Of course, my suspicion is that they are all professional investors hiding behind a cloak of anonymity.

Index Funds

The index fund promoters will tell you that this is all a big waste of time and that you should just put your money in an index fund and give up trying to beat the market. I have my issues with index funds, but this is probably good advice. Free up a couple hours in the day to focus on something else, like spending time with your kids, instead of getting into wars with Tesla bulls on Twitter.

Or, if you do want to get smarter about markets, do it on things that matter: position sizing and risk management. That is a good use of your time. Instead of spending all your time finding which stocks to pick, pick a bunch of stocks at random and then spend your time managing risk.  You’ll get a lot smarter as an investor in a hurry. 

Sometimes I’ll buy a stock I’ve never heard of just so I will develop an opinion on it. If you have a position in something, you will have an opinion on it. I assure you of that. If it goes up, add more. If it goes down, cut your losses. I’m actually not kidding about buying stocks I’ve never heard of. I do that from time to time.

But yeah, if you put your money in the Vanguard Total Stock Market Index Fund ETF (VTI)—or even better, the Awesome Portfolio—you wouldn’t have to be checking the app on your phone every five minutes, and you’d be a lot more relaxed and stress-free. 

Plus, your performance will improve in the long run. So, investing is a terrible hobby—take up guitar instead.

My Hobby

As you know, my hobby is electronic music, and I recorded another mix over the weekend called The End.  Please check it out!

Jared Dillian

subscribers@mauldineconomics.com