What is the first rule of intelligent investing?
DON’T PAY SOMEONE TO LOSE YOU MONEY!
You may think that people who have earned a Ph.D. in economics know everything about investing. That’s not true. Ph.D. economists may know a great deal about building economic models that help business executives and government policy makers pursue intelligent decisions. But most of them may have little knowledge about financial investments—That’s why they end up hiring others to lose them money. I do know this very well. I was one of them!
On a Saturday morning in the winter of 1985, I was shopping at Mid-Island Plaza Mall in Long Island New York where I came across Sam, an investment consultant, who was soliciting business for his firm. He asked me whether I have any investments. I told him that I have an Individual Retirement Account (IRA) with Long Island Savings Bank.
When Sam heard the word “bank,” his jaw dropped, making me feel a little bit stupid. And when I told him that I earned 7 percent (I wouldn’t dream of it today), he found such returns to be too low, compared to 18 percent I could be earning in the Special Situations Fund.
At that point, I did feel really stupid! My mind began racing, calculating the returns I was forgoing by keeping my savings in a money market account rather than handing them to Sam who could deliver twice as much!