When we meet new people and Papa ERN explains what he does and where he works (asset management for a large financial institution), people often want to chat about investing and show off their own investing prowess, here some actual quotes:

I made lots of money with a short silver ETF

I put a lot of money in oil ETFs

I use a VIX ETF to protect against the downside

Papa ERN has heard it all and would usually respond that at work he’s discouraged from actively trading in personal accounts and thus resorts to investing in index funds exclusively. Papa ERN is trying to enjoy a happy hour or cocktail party, and so he doesn’t want to get into arguments or talk people out of bad investment decisions. Most of the recent so-called financial innovations only make the issuers rich, not the retail investor. Of course, occasionally one could win and win big, just like in the casino, but over time the house wins.

Financial innovations play with the same emotions as all the other gimmicks, whether it’s cars that exude the feeling of a race car, downhill skis that make you go down the slopes like a gold medalist or designer clothes that make you look like a Hollywood celebrity. By trading this ETF or switching to that platform, or studying this chart pattern, ostensibly, you too can become a trader. Or at least feel like one. Intriguingly, the same people who now laugh about their parents and grandparents falling for the Marlboro Man many decades ago, now get suckered into an equally damaging scheme targeting their financial health. Here are some of the worst ideas: Continue reading “Never, ever invest in this” →