Monday, June 4, 2012

Deus Ex Machina

Adjustment Bureau. Perfect example of deus ex machina.

If I could just win the lottery. If I just could just get on American Idol. If I could just get published in Vogue. If someone would just discover me.

I'd show the world. Because I'm a superstar.

No. You're not. What you are is delusional. What you want is a handout. What you believe is unreasonable given your track record of success.

Let's rewind a little.

If you watch CNBC, the analysts on the various shows analyze many companies, commodities, futures, bonds, and other investment opportunities. In addition to reporting the news, CNBC provides insight on what they deem as "good investments" via shows such as Mad Money with Jim Cramer because they understand that their viewership is constantly looking to add "good investments" to their portfolio. In fact, some of CNBC's recent commercials attempt to remind their viewership that by watching CNBC, savvy investors can make informed decisions before the rest of the market reacts.

But being that their reputation is at stake, CNBC will almost never recommend investments that have been historically poor performers unless there is strong evidence that those poor performers are about to go gangbusters. And when you consider the total realm of investment opportunities, there are always exceptions to the rule where companies come from near extinction (like Apple) to dominate their industry. Likewise, there are also stories where top performing companies (like RIMM) go from being #1 to irrelevant.

But needless to say, those examples are rare. They are the exceptions to the rule. Just like Jersey Shore, a show where a cast of seemingly untalented people get selected out of the woodwork to have their own reality TV show and subsequently become a huge success. Yes, miracles do happen.

But I'm not going to hold my breath to be that next miracle.

So what about the rest of us? Well, 'home runs' aside, historical performance is perhaps the number one indicator of how well an investment performs going forwards (even though the fund disclaimers will always say that historical performance is not an indication of future performance). Looking at the history of the US stock market if you had invested $1 in 1928 you'd have about $1,000 in your pocket right now. So investing money in the stock market has always been regarded as a good long-term investment. Because for the last 84 years, it's performed very well compared to other investments.

In a nutshell, people want to put their money in investments that have a proven track record of success.

What does this mean for us?

Very simply that as a talent (whether you're a suit, an artist, a homemaker, or whatever) past performance is also indicative of future performance. And like Janet Jackson asked, "What have you done for me lately?" Because you should be doing something for someone all the time. You should be on the up and up. You should be working hard. You should be grinding gettin' money.

But if you haven't done anything for anyone lately, you my friend are what the investment world would call an 'underperformer'. Basically that you're performing worse than average market returns. And average ain't good. If we look at the average market returns in the past decade, it hasn't been pretty. We've suffered some pretty serious setbacks from 2000-2010. So if you're performing worse than average, then you're really ugly.

And just in the investment world, people want to blame extraordinary circumstances for their lack of performance. "It's the economy" or "I've had a run of bad luck". Just like junkies that can't admit they have a drug problem, people never want to look at themselves as the culprit for the situation they're in. Or worse, they'll say "You're right man. I should just quit this shit" then turn around and shoot right back up.

How do I know? No, I've never been a heroine junkie. But I had a problem with gambling in the stock market back back in late 90's and early 2000's. "Oh the market will bounce back" I said to myself after taking a 10% hit in a single day back in 2000. I was not only invested in technology but at times also heavily leveraged (read: margin). Yeah, I got margin calls. Everyday. But like a junkie all I wanted was just another "hit" and I believed from the bottom of my heart that if I could just survive that day, I'd make it all back and more.

If I could just make it through the day.

And that's how I watched my 6-figure portfolio disappear. Poof. Just like that. When it was all said and done I had 5% of what I had at the all-time high. I kept hoping for a Hail Mary. But Mary never responded.

And that's the problem. We hope for the deus ex machina endings that we see in the movies. We wish for a winning lottery ticket to pay off our credit card debts. And we pray for God to absolve us of our sins.

But actually change our bad habits and work hard for better days? Nah man. All I need is to be discovered. Then I'll show the world. Just wait and see. I'll show the world. Because I'm a superstar. Hell, I'm about to drop my first album... right after I finish smoking my weed and playing this video game.

Because I'm a superstar.

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