INVESTMENT ADVISOR: People Are Investing Without Really Knowing How To Do It

Amir Avitzur

Photo: Image courtesy of Amir Avitzur

Ask the average American worker what’s going on with his 401(K) this quarter, and chances are he won’t know where to begin. That’s a big problem, according to Amir Avitzur, author of Why Do We Sell Low and Buy High?, because it shows how distanced we’ve become from our safety nets at a time when we truly need them. 

The issue is rooted in the way we learn about investing, something that should begin when we’re young, but typically doesn’t. 

“As young people we learn about the importance of money and savings. However, we receive very few lessons about the basics of investments,” Avitzur told Business Insider. “Most people will know about mortgages and credit cards and how to use coupons to save money, but will have a more difficult time in reading annual reports or financial statements of companies that they directly or indirectly invest in. These investment decisions might significantly influence their long term financial future.” 

Even worse, we’re being handed mutual funds and ETFs through employer-provided retirement plans without learning the basics

“People don’t even consider the mutual fund philosophies, and what stocks they hold,” Avitzur said. “People that start a job are being automatically allocated to a 401(K) and similar plans. There are very few places that provide a constructed training and teaching to explain the fundamental of these decade long decisions. I would like to see the providers of these plans not only allocate the employee money automatically, but also provide the employee knowledge about the fundamentals of investing in mutual funds and even basic accounting training.” 

Beyond sheer ignorance, there’s the issue of following the wrong advice when we do pay attention. 

“A lot of people that I have interviewed admitted that some of their investment decisions were purely made based on a 5 minute conversation with a friend, or a two minute mention of a stock on a TV show,” said Avitzur, a troubling thought given how little Americans have been saving these days. “TV can be great for entertainment, but it is not necessarily the best tool to base your long-term investment decisions on.”

So where is the best place to start if you’re clueless? “The people who have the same mindset as you. Read their writing. If you’re interested in business, learn about business. If you’re interested in real estate, learn about that.” 

And don’t be afraid to read business annual reports and other timely filings to “get the real fundamentals,” Avitzur added. You can also read about competitors, and speak to people from the industry. 

His book picks: The Accounting Game: Basic Accounting Fresh From the Lemonade Stand by Darrell Mullis and Judith Orloff and How to Read a Financial Report: Wringing Vital Signs Out of the Numbers by John Tracy. 

UPDATE: We have updated some of the quotes in this post to more clearly reflect what Mr. Avitzur now says he was trying to say during our original interview. 

DON’T MISS: 18 napkin sketches that will teach you everything you need to know about money > 

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