A huge number of books, blogs, and web sites have been written to supply investment advice to the common people.
Almost all of these books recommend strategies that, up to that point, have been successful. Strangely, very few of them recommend strategies that have lead to catastrophic financial failure, even if the strategies behind these investments are conceptually sound.
- A reasonable sounding theory: “Energy will always be required in the modern economy. Thus, it isn’t a bad idea to have some money tied up in this reliable sector.”
Yet these never follow up with:
- “So we would have recommended someone in 2001 to buy stock in Enron.”
Or in ~2001:
- “A new segment of computing is clearly in small wireless devices: perhaps a fusion of the cell phone and notebook computer: some sort of ‘smart’ phone.”
Yet these, too, never follow up with:
- “So a savvy investor would choose the company at the cutting-edge of this market: Palm, Inc.”
The problem with this style of financial advice is that almost all of the examples are just survivorship bias: they cherry-pick the successes (“Apple computer, it was so obviously going to be a success!”) and ignore all of the companies that didn’t survive (“Wang Laboratories: it’s been around since 1951, it definitely has the expertise to be the next big thing in computing!”).
This is similar to writing an investment guide about betting on a roulette table: if a spin comes up red, you might expect dozens of financial bloggers and “influencer” analysts to write long treatises explaining why, in this particular situation, clearly it was time for “red” to shine.
In order to balance out these examples of sensible-sounding-yet-unsupported financial advice, we need a blog that offers superficially reasonable advice that, when tested with real data, always resulted in disaster. The real world is full of useful examples
- The pitch: Early 2000s: “CPUs are crucial to modern products, but they’re held back by legacy engineering requirements. A new line of re-engineered chips (by a major company) that can make a clean break with the past will unlock vast computing potential!
- The reality: the Intel “Itanium” chip never catches on, and is a financial flop.
- The pitch: Mid-2010s: “Microsoft is a huge tech company that can integrate their OS with a new phone ecosystem, for the ultimate in synergy. If they entered the mobile phone market, they’d be almost guaranteed to succeed (Figure 1).”
- The reality: the Windows Phone mobile OS never manages to crack the market, which remains split between iOS and Android.
Crucially, both of these products failed on their own merits, and weren’t squeezed out by some “evil” competitor or by some kind of internal malfeasance.
Market projections are also a popular way of showing that some random new technology (e.g. the personal jetpack, the Segway, some specific cryptocurrency, etc…) is going to get adopted.
The formula is: 1) combine things that have ALREADY succeeded with the new thing that you HOPE will succeed, and then 2) plot them on the same graph (Figure 2).
It’s a bit surprising that this book / blog doesn’t already exist!
PROS: Would be easy to find examples in history: just search for all the stocks that became worthless, and then do some research on the circumstances on each eventually-worthless company.
CONS: It might be hard to monetize this concept: normally, financial advice can attempt to persuade you that it’s worth your time (and money), because you’ll be financially better off according to some bewildering charts. But if the advice entirely showcases failures, people might be more hesitant to pay for a subscription.