In his recent book, Money: Master The Game, legendary coach Tony Robbins argues that most people are crazy if they invest directly into the stock market.
He does not actually use the title of the famous book series and call everyone dummies, but he makes a number of very clear points that show that direct investment in the stock market is not easy to do well and almost certainly not for beginners.
His reasoning, while detailed, can be broken down to one easy to understand question: If the stock market is full of well educated, highly trained, hard working experts that use a huge amount of specialised technology, what makes you think you can beat them from your kitchen table working one hour each week?
It is a good question.
As he puts it, we would not expect to simply pick up a tennis racket and beat Roger Federer, so why do we think we can beat the market? This is especially true when you consider just how few professional mutual fund managers can and do beat the stock market or their index consistently.
Instead, he recommends that almost everyone ought to be investing in some form of index tracker fund. A tracker will return almost the same as the actual market, for a very low annual fee and can largely be forgotten about by the private investor.
To be clear, his book explains investment planning, asset allocation, the difference between passive and active funds and much more, but his central premise is a sound one – most people cannot and will not be successful long-term direct stock market investors.
Robbins explains how and why a much larger percentage of the adult population can and should be able to achieve financial security and independence than they actually do, by following his advice and making solid long-term saving commitments and sticking to them.
Many financial professionals might find the advice to be simplistic. There has been a wealth of research from Harry Markowitz onwards detailing the perfect balance for a portfolio and the impact and importance of diversification. Nobel Prizes have been awarded for research in this area.
The reality, however, is almost certainly that Tony Robbins is right and that most people – including many financial experts – would benefit significantly from following the financial planning steps outlined in his book.
However, as he likes to point out, much of the research was made by interviewing some of the most successful investors currently alive. These include hedge fund managers Carl Icahn and Ray Dalio, both of whom know a thing or two about getting results on Wall Street.
In fact, a substantial part of Robbins book is based around the ideas he picked up from Ray Dalio about asset allocation as it relates to economic circumstances.
Reading the book, you do get the impression that perhaps direct investment into the stock market is for dummies (or very skilled professional investors) and that the smarter approach is to play in a very limited way, as he suggests.
If all this fails to impress you, Robbins details a very short conversation he had with Warren Buffett while he was researching the content. He asked Buffett what he would recommend to family members about investment for their future. Buffett answered that, “Indexing is the way to go. Invest in great American businesses without paying all the fees of a mutual fund manager and hang on to those companies and you will win over the long term!”
Clearly there is more to it than that and in his book Tony Robbins details the basic financial planning steps that people should undertake before they start saving or investing in the stock market, but broadly speaking, the decisions required and steps to be taken are much easier than we might have expected and can even be followed by beginners and dummies.