Barry Ritholtz has words
of advice for young and old:
1. Advice for Investors: Never buy anything you do not understand.
This is a very simple rule, regularly ignored by all too many people. If you
don’t understand what a company does, DO NOT BUY IT. If an offering doc comes
with a 157 page set of disclosures, unless you understand all the risks it
contains, stay far far away.
The problem is that everything comes with a 157-page set of disclosures,
these days. How
fat was that Blackstone prospectus, again? Any stock, any bond, is likely
to come with an enormous amount of documentation, most of which 99.9% of the
investors in that security will never read. Index funds and mutual funds have
fat disclosures too, but more to the point they also own lots of securities
with even fatter disclosures of their own, so you obviously can’t go there.
Even opening a savings account, these days, involves signing various pages of
small print which nobody reads.
So I have one question for Mr Ritholtz: Can you give a single example
of an investment which the average American really understands, and therefore
is qualified to buy?