Why Investing is like Dieting

And how you can’t afford to wait to get your investment waistline in shape.

By: Cole Conkling

Investing is like dieting. Yes, dieting. I realized this an appropriate metaphor shortly after joining the investment industry after almost a decade practicing law. During and after the switch, I did what any self-respecting lawyer would do and researched all things investing. I read every authoritative source I could; attended lectures at Rice University twice a week—sitting in the back as the noticeably older guy nobody knew (my partner, Dr. Julio Cacho, was the professor so it wasn’t completely weird); read client letters from some of the giants in the field (see, e.g., Buffet, W.; Dalio, R.; Marks, H.); and consumed all manner of blogs, websites, and YouTube videos. I wanted to drink from the fountain of investment knowledge. I bought lots of leather-bound books—I kid, they were mostly paperback. I did this, because, to me prior, the investment world was an enigma. Lots of terms of art I didn’t really know or understand. Complicated . . . a little too complicated. 

My deep dive revealed something surprising (and later disturbing): Most of the investment industry acts in opposition to the objective data because to do otherwise would forgo massive profits. What’s more, even if the paid investment professionals know the evidence—or interestingly, even if their own clients do too—nobody really thinks it applies to them. “This time is different.” “The market is too hot, I’ll wait to buy the dip.” “This stock is massively undervalued.” “This stock is absurdly expensive.” On and on.

I quickly saw that we basically know how to make clients money over sufficient time periods. Thought leaders following the research were all saying the same thing. The evidence (peer-reviewed) has been, and is, clear; it’s not even new—the evidence has been theorized, tested, and published for the world to see for over fifty years now (since at least the early 1950’s). This is not opinion; it’s as close to objective fact as you can get in finance (which, unlike, say physics, is not a “hard” science. Human behavior is involved, after all.). Yet very few were following what I was plainly seeing. And the entire industry, it seemed, was, and is, hell bent on disregarding the evidence.

So, let’s take dieting. If you want to lose weight, it’s relatively simple: Burn more calories than you consume. All else equal, if you follow this formula, you’ll lose weight. Yet, as we all very well know, doing this day in and day out is anything but easy. Life, and more especially our behavior, gets in the way. This behavioral problem is of course well known and regularly exploited by the dieting industry, which is keen to provide all sorts of products and services promising an easy fix. So you get the endless fads. The gurus. The charlatans there to serve you up an easy way out. Do this craze diet. Take this pill. Buy my kale-watermelon-chia seed-detox-shake-system for only twenty-seven easy payments of $19.99! Who needs discipline when you can lose those pounds by that weekend pool party? All charge cards accepted.

We’re our own worst enemy. We know what we should do, but we don’t do it. Consequently, there are a thousand different dieting books, trends, and gimmicks that we just can’t seem to get enough of. Maybe this new chia seed shake system will let me eat those cookies, keep all my horrible habits, and still fit into those jeans I’ve been avoiding. Take my money! Deep down though I think we all know if you burn more calories than you consume you’ll lose weight. The concept is easy. It’s the behavior that’s the problem. And boy do companies love to profit off our bad behavior. 

So it is with investing. We know, based on rigorous academic research what works over the long term. Yet, just like dieting, there are thousands of books, blogs, and “strategies” on investing—most of them offering a new get-rich-quick scheme. But oh would we be so lucky if it was just books being hawked! No, the more disturbing reality is that it’s an entire industry, set up like a sea monster with hundreds of ever-growing, uncontrollable tentacles designed to cash in on our innately poor behavior and biases at the expense of our financial well being. It’s asset managers creating whatever funds they think can be sold to meet a current fad; it’s cable news shows and magazines constantly bombarding viewers with tales of greed, followed by fear; it’s unscrupulous brokers and advisors earning commissions on products they sell you, no matter if they’re appropriate or not; and, yes, it’s all the “experts” making forecasts that never pan out (“My 2020 outlook obviously didn’t account for Covid.”). For the most part, the entire investment industry is designed to get you to do things (i.e., buy and sell), and to do them regularly. Because it’s not about earning you sufficient long-term returns, but rather raking in as much profit as possible.

There’s a better way. It doesn’t happen overnight. Yes, it’s comparatively “boring.” But it works; however, it takes planning, discipline and time—when you start makes a big difference. As we know, the longer you wait to get your physical health in order, the harder it is to right the ship. You get older, slowly put on weight, and before you know it you’re in a deep hole. Same with investing: If you delay too long doing what we know works, the less chance you’ll have of achieving your financial goals. Don’t delay, the clock is ticking.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. The views expressed in this commentary are subject to change based on market and other conditions.