How Well Do Nobel Prize Winners Do?

There is a lot of discussion going on about allowing people to divert a portion of their Social Security funds into privately managed accounts. As I have my doubts about the wisdom of this, I was intrigued to read an article in the Los Angeles Times that reported on the investment practices of winners of the Nobel Prize for Economics.

One winner, Harry M. Markowitz, was dubbed the father of "modern portfolio theory." You'd think that a high powered thinker like this would be pretty wealthy, even if all he did was manage successfully his prize money. That seems not to be the case. He freely admits that the way he managed his money may not have been all that different than what you have done with yours.

In fact, that is a common response by all of those who were interviewed. Most of them seemed to make the same mistakes that all of us do. Some of them kept too much money in money market accounts, or invested too little in stocks when they were younger. Others just said they did not want to spend the time necessary to manage their investments.

As you know, examining how people make the decisions they do is one of my favorite hobbies, so this is especially intriguing to me. If the investment management behavior characteristics of those who are really smart about economics is the same as the rest of us, what is going on? Isn't an education important?

I offer this observation: maybe it has to do more with being human than being smart. One common thread of my articles is that there are some behaviors that are rooted in the limbic systems, the base level of our brain's operation. Maybe this is another one.

I also must look at my own behavior here. I look back over the last 40 years or so that I've worried about money and what to do with it and, frankly, there are times when I have been keenly interested in managing it. I was most active when managing my Mom's portfolio, trying to generate enough cash to pay the considerable bill for her nursing home.

At times when the market was good, I checked my portfolio daily, sometimes twice. When the market is stinko or just moving sideways or I really don't know what to do, I may go for a week or two without checking it. How similar is that to what you did or do?

The fact is that most of us have two jobs, being a parent/spouse and whatever we do to earn a living. It is very hard for most people to find time for that third job: Investment Manager. I think that is true whether you are a barber or a Professor of Economics.

Those of us who write books and articles like this are trying to educate people about our particular niche, real estate and financing in my case. But when you look at the amazon.com best seller list, there are only a few books on finance and investment. Those books are, in my opinion, in the "popular" class as opposed to textbook class. I'm not positive but I lingering suspicion that these are what I will call "feel good" books, ones that make you feel good while you are reading them but which have no long-term impact on your behavior or decision-making ability. I hope no one ever characterizes my books like that!

To that point, you'd think that the popularity of real estate investing today would spark some kind of interest in real estate education. Not the case, however. The best ranking one I found for a real estate book is about 700. My book used to rank from 2,000 to 4,000 out of the 3,000,000 titles available at amazon.com. Today it was 22,000. I guess all those buyers are just winging it!

When you think about all of this, you'd have to have some real questions about how astute it would be to let people manage part of their Social Security funds.

I think that it is possible to be a better investor and a more astute homeowner too, for that matter. An education helps, and I encourage you to buy and read more about topics that are important to your future. But I think that the real POWER is just doing it. I hope you will.