Are The Rich Smarter?

Written by John Osbon on January 13, 2014

If you had more money to invest, would you get better investment results?  It’s tempting to think so, and you might be intrigued about the research on exactly that question.  3 top professors did the study, and here’s what they found.smartvenn

Steady there, Eddie…

Let’s jump to the study’s conclusion.  No, the rich are not smarter investors.  They make the same mistakes less wealthy investors do. They chase fads, sell in a panic, buy at top, hold too much cash, and invest as if the past is always the same as the future.
They do get some things right, namely, diversification and rebalancing.  They also seem to invest for the long term, lowering their tax rates in the process.
Despite the lure of ‘private’ investments, ‘special’ access, and ‘exclusive’ offerings they take less advantage of them than one might think.  These investments often do not pan out as advertised, hurting investment results.

Billionaire telepathy?
There is some short term evidence that the ultra-wealthy do achieve better results than average.  Perhaps, but personally, I discount the idea because of ‘survivorship bias’ reporting.  Yes, the ‘average’ billionaire was up big time in 2013, but Brazil’s wealthiest man for example, Eike Batista, also lost $34 billion in 2013, a 99% decline.  You decide.

Protect yourself
If more money is not the turbine driving investment success, then what is?  Avoiding bad habits is a big investment plus.  Behavioral finance studies show that investors routinely self-inflict damage through overconfidence (“I’m a success, I can manage money, too!”), illusion (“I know exactly what is going to happen in the future!”),  and selective memory (“I’ve never lost any money!”) to name a few avoidable traits.  Practicing good habits – diversification, rebalancing, cost control and tax efficiency are big pluses, and that’s exactly how Osbon Capital is organized.

Give us a call at 617-217-2772 – we’d love to hear what’s on your mind

 


  • This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
  • “Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
  • Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
  • Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
  • This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
  • While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
  • Adviser does not endorse the statements, services or performance of any third-party vendor.
  • Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.