Conflict of interest is a weird thing. It’s hard to detect and assess. Even when we can see a conflict of interest, it’s difficult to know what the conflict actually means.
When I used to be in the “anti-gold camp” (meaning, when I believed that gold should not be part of investment portfolios), I noticed that everyone that praised gold was also selling investment gold. That’s a clear conflict of interest. But just because someone sells gold, it doesn’t mean they have ulterior motives, right? On the contrary, someone who genuinely likes gold will of course sell it on their platform. (“Shocker! Milk seller thinks that milk is a good food!”)
On the other side of the marketplace we have asset managers boasting their “skin in the game.” Imagine you are asked to fly into enemy territory as a passenger on a fighter plane. The fighter pilot assures you, “I am flying right with you. I would genuinely try to keep us both alive.” The pilot isn’t lying. But taking that flight is a foolish move for most civilians. That the pilot takes the same risk as the passenger is irrelevant.
That means, making sound investment decisions boils down to knowing what you are doing. Investors need to understand the assets they invest in and decide for themselves whether they want to invest in an asset or not, how much they want to invest, etc. Fiduciary advisors can (and do) help, but the investor is the ultimate decision maker.
Academic research can potentially help, but acting based on academic research is also mired in complexity. Who funded the study? What are the researchers’ preconceived biases? Was this a “research” fabricated to prove a point, or was this done with genuine intellectual curiosity? How sound are the data and the methodologies used by the researchers? Most people cannot evaluate these. Even the conclusions of such research studies are beyond many ordinary people’s comprehension. As a result, ordinary people rely on someone else to simplify the study’s conclusion, and we are back to the same problem that we started with.
Thinking about all these reminds me of the phrase, “Water, water everywhere, but not a drop to drink.” An abundance of information is available to us, and yet, it is so hard to make sound investment decisions.
Photo by Pok Rie |