Mc Donald's Great Place For Fries & Shakes, Not Investment Advice

Mc Donald’s, A Great Place For Fries And Shake, Not Investment Advice

                                                   April 17^th, 2012

                                                                                            By: Brendan Magee

A week or so ago, my wife and I decided to stop on our way home and get a chocolate shake and fries at Mc Donald’s.  As I am waiting in line , I can’t help but over hear a conversation a fellow customer is having with a friend she has just run into.

She is warning him to take all his money out of the stock market. Something she has read has told her that another economic collapse is going to occur within the next few months. Her friend left and I just couldn’t help myself from asking this woman a few questions.

First, I asked where she had come upon these predictions of economic collapse? She was nice enough to let me know that credibility could be given to the forecasts because amongst those making these predictions were Donald Trump’s economic advisors. She told me the analysts were predicting that a gallon of gas was going to go to six dollars a gallon and that was going to fuel the economic calamity. She said their advice was to get out of the stock market and put everything into cash until the storm blows over.

My next question to her was, “So Donald Trump’s advisors can predict the future? They know what’s going to happen in the next few months?”  The women responded that she didn’t think they were engaged in predicting the future.

I then asked her, Do you believe that any one can predict how six billion people around the world are going to react to events that haven’t even happened yet? Before she could answer, I said because in order for Trump’s or anyone else’s advisors to be able to know where the stock market is going that is exactly what they’re going to have be accurate on.  As she was walking to the door, probably more than a little annoyed at the jerk giving her such a hard time about well intentioned advice she had made to a friend, she justified her position with a couple of comments.

She said:

The advisors weren’t engaged in predicting the future, rather, they were advocating being “prepared.”

She said she didn’t take any risks with money.

So here are a couple of truths about investing she was either in the dark or in denial about.

One, when you make decisions with your investments that are based on predictions or forecasts about the market or the economy, you are engaged in gambling and speculation. The only way to consistently win at that game is by being able to predict the future.

Two, there is no such thing as a risk free investment. As she is going about her investment decisions, she has several risks, two of which I will elaborate. She is engaged in market timing. She will have to be right at least twice. She will have to be correct at which time to get out and when to get back in to the market. Being wrong about having her money out of the market and missing the best days of the market is going to be devastating on her returns.

Three, if someone really knew what the stock market was going to do, they would not be telling you, they’d keep the information to themselves and make an absolute killing.

Four, all the knowable and predictable information about the economy is already factored into the price of stocks and current market levels. It is only unknowable and unpredictable information that will move the market. It’s possible that gas prices could go to six dollars a gallon and if it does it will have an impact on the global economy.  It’s also possible that that won’t happen at all. Your guess is as good as mine or Donald Trump’s for that matter. It might be fun to debate such things, but it has been academically proven that it is detrimental to your portfolio to base investment decisions on such kinds of predictions.

So every once in a while treat yourself to a treat at Mc Donald’s, but do not employ any investment advice you may over hear.

By the way, the young lady who was kind enough to speak with me, thanks for being nice enough to engage in a conversation with a perfect stranger, and I owe you a milkshake for your hospitality. Just call or e-mail me and let me know where to send the gift card.

Brendan Magee is the president of Inevitable Wealth Coaching. With questions, comments, or suggestions, call 610-446-4322 or e-mail Brendan@coachgee.com.