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How to Lose Money

I recently read an article with this title written by Harry Markowitz, the 1990 Nobel Laureate and the father of modern portfolio theory. I was amused and wanted to share his primary points. According to Dr. Markowitz, there are many ways to lose money, of course, but with tongue firmly in cheek, here are four really efficient ways to do so related to investing.

  1. Invest in the hottest stocks in the hottest sector: Buy auto stocks when the car is the latest new invention; purchase tech stocks when they are the “in” thing; invest in mortgage-based derivatives when all the “smart” money is doing the same.
  2. Under no circumstances should you read Charles Mackay’s book “Extraordinary Popular Delusions and the Madness of Crowds”. Instead, just try your utmost to keep up with the thundering herd.
  3. If you are too cautious to follow the preceding advice, here is some rock-solid, very sensible, traditional advice: Put all your money in some big, trusted company — like the one you work for, the one that already pays your salary — like Eastern Airlines, Penn Central, Enron or Washington Mutual.
  4. Last, but not least, find a financial advisor who will “take care of your money for you“. To be sure to lose money and perfect your plan for poverty, do not work with an advisor who provides consultative, comprehensive, fee-only service. Instead, find an advisor who provides the added service of holding your money for you rather than having you keep it with a large, nationally-recognized custodian that periodically sends, directly to you, reports of how your account is doing.

Of course, if you don’t want to lose money investing, do the opposite of these suggestions. Thank you Dr. Markowitz. As always, sage advice.