Investor Points of Few – Cheap As Chips or An Expensive Lesson?

By Alan Steel

“Cheap.”  

Yep, that’s the chirping call of today’s investors. 

Get it cheap. Cheap as chips. And I’m not talking about the kind that serve as the foundation for a fish supper either. 

Nope. Technology has stolen the ubiquitous and wonderfully simple “chip” (short for microchip – once just a small fry!) and created an incredibly complex yet tiny thing that stores computer memory and helps makes logic out of data.

And from it has sprung the algorithms, robotics and other such innovations that appear to be taking over the world.

Of course, the headline writers then spin yarns about technology consuming jobs like this was a new thing: “The Robots Are Coming” and “The Algo-Apocalypse Is Here.”

But it’s not. 

Folks, there’s a good reason we don’t have people working as Bowling Alley Pinsetters, Lamplighters with long poles extinguishing and refueling street lamps, and Switchboard Operators any more.

Innovation eventually replaces repetitive tasks…well…not all repetitive tasks.

And if only investing were just that – doing the same thing over and over again.

But it’s not. 

It’s not one size fits all, pour your money into the same pot, everyone has the same goals, risk considerations, time-frames and financial objectives. 

Yet we’re seeing about $2 billion each week of investor funds going into the world’s largest ETF from Vanguard because it’s cheap and easy.

The investor herd is voting with its feet; buying those cheap chips. In fact, that’s considered the new technologically-driven solution that will fix all ills.

Well, maybes yes and maybes no.

But what it doesn’t fix is human nature – that all-too-common reaction to when markets go down and not up. 

That’s when investors literally cut their chips and run. They get spooked and sell up. 

And the problem with doing so is that you’ll always lose money getting out of your investments on the back of scary headlines – the scribes and sub-editors who write these s%€t headlines and articles are mainly clueless, and wouldn’t know the difference between a fish supper and a buying opportunity.

There are three things to know about newspaper financial headlines and articles:

1) They’re primarily written by people with no qualifications or investments themselves.

2) No one is ever held accountable for their “advice” because they are exempt from liability under the Financial Services Act of 30 years ago.

3) They’ll only quote the “experts” that suit their story. The “angle” that’s taken in these articles is decided by their editor in order to ensure it catches the most readers’ eyes, and to sell the most copies. What these articles are not there to do is make you money and assist in the growth of your retirement income.

In fact, go check back over the last 25 years and try to spot one occasion when scary financial headlines actually called it right.

(Hint: You’ve a better chance being knocked down by a fish supper on the M6.)

And, in the words of our good friend Mike Williams: “If you feel that ‘cheap’ fixes human nature then let this be your warning.”

Now, personally I might feel a bit more comfortable if Warren Buffett, Charlie Munger, Ben Graham or someone of their ilk had been one of the IT chefs slicing, dicing and cooking up these “chips” in the developer’s kitchen, so to speak.

But they’re not.

So it makes you wonder whose market nous you’re relying on when you opt to automate your investments.

For me, I’ll take the human approach – speaking face-to-face about individual needs, goals, objectives and risk – and leave the chips in my supper.

Because after all folks, it’s your money we’re talking about here.

Alan Steel, Chairman, Alan Steel Asset Management

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