Why Investing is so Hard #1

Charles Ellis said when he was overseeing the $15-billion endowment fund at Yale University:
"Watch a pro football game, and it's obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, 'I don't want to play against those guys!'
“Well, 90% of stock market volume is done by institutions, and half of that is done by the world's 50 largest investment firms, deeply committed, vastly well prepared – the smartest sons of bitches in the world working their tails off all day long. You know what? I don't want to play against those guys either."

Darwin once said: " Ignorance more frequently begets confidence than does knowledge" This actually has been given a name, The Dunning-Kruger Effect. The worse we are at any specific skill set, the harder it is for us to evaluate our own competency at it. So an investor might be terrible at investing but unable to see it. (There is an old joke where a man losing at football betting bemoans it to his bookie. The bookie suggests baseball and the bettor says "But I don't know anything about baseball".)

So not only is the average guy fighting against knowledgeable pros for a seat at the investment table, he may be very bad at investing and impaired in his self evaluation.

There are countless investing philosophies--all with some evidence of success--and countless ways to invest, not just equity and debt but countless subsets of both with new bright ideas coming all the time.

It gets worse. The business community itself has nothing but disrespect for the little guy and lies to him as often as possible. Investing companies give him annual returns rather than internal returns.(Everyone) Companies themselves lie.(Enron) Trading companies sell you one thing and then short it.(Goldman Sacks) The fee for the sale is more important than what is sold.(Everyone) Short term results are more important than long term.(Everyone) Not to mention the prominence of all the seven deadly sins displayed with confidence and pride. No one should invest a penny until he has read a few books on the dangers. A few suggestions: "When Genius Failed"(Lowenstein), "The Big Short"(Lewis) and "Fooling Some of the People All of the Time" (Einhorn) And everyone should see the HBO movie "Too Big to Fail."

It's a mess. What's a guy to do? There are some options but they are all compromises. The cynic in me looks where the average guy is limited in his ability to invest by law, the areas where the government legislates against him. Two areas stand out: Hedge Funds where the people in the company invest their own money and Start-Ups where the company is accessible from the beginning. If the government has restricted entry, there must be something to it.