Introduction

Your basic human is not a great investor. Successful investing requires extreme patience; we humans are impatient. Rewarding investing requires nerves of steel—or else perfect forgetfulness; we humans are frightened, nervous animals. Making money by investing requires singleness of purpose; we humans are scattered and distracted, pulled in all directions at once. The great investors carefully think through their moves, guided by eons of experience; we real-life human being investors are rash, impulsive gamblers.

Great investors are not swayed by fads and fancies. The ones with two feet and receding hair are wills-o’-the-wisp, blown all about by what is happening at the moment.

The ones who make money over their lifetimes are steadfast of purpose, well informed, listen to wise guidance, reject counsels of impatience and despair. The real-life investor gobbles up misinformation, listens to fools and knaves, and gyrates wildly in his actions, almost always against his own best interest.

I know all of this. I have seen it in my own life on many an occasion. I have seen it in the lives of men and women I know, even supersmart men and women. They make extraordinary mistakes that cost them real money.

Educations are imperiled. Retirements are jeopardized or lost. All of that comes from making poor investment decisions.

Investors do not do the wrong thing because they want to lose money. They do the wrong thing because they are, well, human. And humans are simply constructed of fear and greed and confusion, while great investors are made up of sterner stuff.

Investing involves making money, or trying to do so. There are billions, trillions of words out there written about how to invest wisely. There are far more than I know about. Among those I do know about, I highly recommend anything by my pal Phil DeMuth, or by Warren Buffett, or by John Bogle, the founder of Vanguard, the world standard in low-cost index investing, a simply great way to invest. John Bogle on Investing is as good a book as there is on the subject. If you had to read only one book, this would probably be your choice.

There are so many hopelessly confused books about investing out there it would be impossible to know where to begin listing them, and why bother?

Unfortunately, investing also involves people throwing around their money and putting it in a place where other people can take it away from them. This is a bit like the comment often credited to P. T. Barnum: “There’s a sucker born every minute—and two to take him.”

Very unfortunately, those two are often lawyers, but even more often, they are in the world of investments. The variety of ways and means by which people can relieve other people of their money is breathtakingly infinite. Newsletters. Conferences. Software. Expensive kinds of investment guidance, sometimes called hedge funds, other times called other names.

Often these schemes are run by men who genuinely want to help the investor and truly do. It is far from true that everyone who handles your money is a thief, and I have the great pleasure of working frequently with men and women who do a great job protecting their clients.

But there are more than enough people out there who, through all kinds of motives, but mostly out of all-too-human self-interest, will not have much hesitation in deciding between their interest and yours.

My late father, Herbert Stein, an extremely smart man and a world famous economist, devised what he called Milken’s Law, which, he believed, often explained investment options presented to the public by promoters. It went as follows: The constant ME is always greater than the variable U.

It is sad but it’s true.

Over the last many years, your humble servant, moi, has written and published many books seeking to help investors make sound decisions. I have given so many speeches about it that it scares me. I always preach the basics. But listeners often do not care to hear the basics. They want frills and fads and they usually are wrong to point themselves in that direction. Men and women make terrible mistakes, often because someone they trusted told them to do so.

So I guess making affirmative suggestions to investors has not worked very well, or at least not perfectly.

Now I am going to try a slightly different approach. I am going to suggest ways to ruin your investment portfolio. That’s right: I am suggesting ways to ruin your portfolio. Possibly, if you see that you are doing some of these things, you will step back and think about whether you really want to make such efforts at self-destruction. Or maybe you won’t. I know that I rarely learn from experience until I have been hit over the head a million times. Maybe the approach of this book will be more helpful than that.

Long ago, when I was a speechwriter for Mr. Richard Nixon and observed his speeches, I learned a great lesson: When a speaker starts a speech, the main thing the audience wants is for him to finish.

Possibly the same is true for books about how to ruin your portfolio, so let me start right away so you can finish right away.