Rise of the New Stupid

Posted on Feb 13 2015 - 9:30am by Sharpe Trade

Several years ago we saw the re-emergence of ‘a’ stupid financial religion that has been with us for a long, long time.  Too long.  The lingering effects of this ‘re-emergence’ is still with us to some extent.  The ‘true-believers’ and those who continue to ‘hang on’.   That particular brand of stupid was …

Buy Silver at Any Price

When it got really nuts, one particular pundit began to urge everyone to buy silver bullion in order to (and I swear I’m not making this up) … ‘Crash JP Morgan’.  He seriously stated that a 222 Billion Dollar institution whose obsession should be identifying risk, had opened itself up to complete ruin by the common citizen buying one ounce of silver.

Which I said at the time … was stupid.

Well, it seems there is a ‘new stupid’.  Let’s call this … ‘The Rise of the New Stupid”.  With the S&P 500 Index about 200% off of it’s 2009 lows, it seems that only now … after this 200% rise, some are urging new investors to simply “buy the S&P 500 Index” using something like SPY, or possibly IVV.  Not that this is wrong in any way.  They are good instruments.  What is wrong, is that this is the entire plan.  The argument goes that ‘no one’ can pick individual stocks with success (which is false) … so the only thing to be done is to buy the SPY with everything you have.

Worse yet … it seems the ‘New Stupid’, is being reffered to by it’s adherents as “Passive Investing”.

At first I thought this was a joke.  A ridiculously talented options trader I follow was talking about ‘people passive investing by buying the S&P 500 Index’.  I thought he had temporarily gone off his rocker … after all … no one is so stupid as to passively invest by simply buying the SPY with 100% of their assets.

Right?

It seemed the joke was on me.  He hadn’t gone insane.  There are people actually doing this.  And they think they are ‘passively investing’.

Listen … if you want to passively invest?  Awesome.  Great.  Nothing wrong with that.  I have an entire segment of my portfolio that I consider a ‘passive core’.  And then I actively trade to stack gains on-top of that passive core. Benjamin Graham taught us all how to passively invest neigh over 70 years ago.  And by God, it’s not by doing something as blatantly stupid as going all-in to  “just buy the SPY”.

For those new, and the uninitiated … this is stupid because …

Well by God … didn’t Silver teach people anything?

We have this little thing we learn on our first day of investing called ‘downside risk’.  Every asset on this planet has ‘downside risk’.  You know … because assets can go down too?

Learn true low-effort, passive investing.  You needn’t sacrifice great gains in order to passively invest.  And you can avoid the downside risk of another 2008 style event.  In 2008, my particular style of true ‘passive investing’, returned 0.9%, while the “SPY” was complete crushed …

2008 PASSIVE CORE

It took four years for the S&P 500 Index to catch up, and the strategy continues to provide great risk-adjusted gains.

2008 PASSIVE CORE to PRESENT

That is passive investing.

The lesson here?

Is that simply ‘buying the S&P 500 via the SPY, and going all in’ is not passive investing.  Benjamin Graham taught us that over 70 years ago.

Avoid people and pundits who tell you to do buy this one asset because that asset ‘always goes up’.  Nothing ‘always’ goes up.

In short … just avoid the New Stupid … ok? 

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