Good morning.

I recently joked online that I've always wanted one of those T-shirts saying I'M WITH STUPID, but with the hand pointing at my own face.

Evidently that wasn't an original idea:

I don't know about you, but the stupidest things I've ever done as an investor were those I did when I was feeling smarter than everybody else.

One stands out above all: Decades ago, I didn't max out my 401(k) contributions.

Why not? you ask.

That's the same question my boss asked me back then, and I can still hear my idiotic answer as if I said it only today:

"I can invest the money better than they can," I told him. ("They" were the managers of the funds in our 401(k).)

My boss raised one eyebrow, shrugged, then went back to what he was doing.

Even 15 seconds of thought would have been enough to convince me I couldn't possibly be right:

• The money I put into the 401(k) was generously matched by my employer; any money I invested on my own wasn't.
• The money I put into the 401(k) was pretax; any money I invested on my own was after tax.
• I would have had to outperform the market by more than 50% outside my 401(k) just to overcome those handicaps.

But I didn't put 15 seconds of thought into it. Instead, I just put my ego into it. My gut told me, "I'm a good investor! I can do better!"

About 15 years ago, I estimated what the stupidity of thinking I was smarter than everybody else had cost me in retirement savings. It was already well in excess of $250,000 then.

To be honest, I don't want to update the math; the more precise the number, the more it will hurt to dwell on it, but I'm sure it would come out to considerably more than $1 million today.

I console myself by recalling that Warren Buffett admits making several multi-billion-dollar mistakes.

All this is a reminder: It isn't investments that make or lose money, it's investors. And risk isn't in what you own or how markets fluctuate; risk is simply thinking you know more than you do.

As I once wrote:

Times like these, when U.S. stocks are hitting record highs, are an ideal moment to keep in mind that we haven't suddenly become smarter just because our account balances have gone up.

The next time you see or hear someone bragging about getting rich quick, remember: Anybody can blow hot air, and getting rich quick isn't even that hard. Staying rich is the hard part.

How did index funds grow from an idea that was almost universally mocked in the 1970s to a dominant force in today's markets? That story has been told before, including in Peter L. Bernstein's classic book Capital Ideas and several works by the late Vanguard founder Jack Bogle, but a new book wraps it up in a neat package.

Trillions, by Robin Wigglesworth of the Financial Times, covers the advent of index investing with sweep and detail. Here's how he describes the co-founders of BlackRock Inc., Larry Fink and Ralph Schlosstein, dickering over the initial ownership:

On a chilly day in February 1988, Fink and Schlosstein went for a walk up Park Avenue to discuss the particulars of their new venture over lunch. Before they even reached the restaurant they had come to an agreement. "You know, we haven't talked about the economics between the two of us. What were you thinking?" Fink asked Schlosstein. The Lehman banker suggested a 60-40 split, with 60% ownership going to Fink. "I was thinking two-thirds, one-third," Fink countered. Schlosstein then suggested five-eighths and three-eighths, to which Fink agreed. It took minutes and was the last time the two founders ever discussed the subject.

Trillions is entertaining and thorough. Fans of indexing, as well as many of its critics, should enjoy it.

In his last market letter, fund manager Bill Miller of Miller Value Partners writes:

That reminds me of something the baseball player and accidental philosopher Mickey Rivers said:

Ain’t no sense worrying about things you got no control over, ‘cause if you got no control over them, ain’t no sense worrying. And ain’t no sense worrying about things you got control over, ‘cause if you got control over them, ain’t no sense worrying.

Forty-five years ago this week, The Wall Street Journal ran this item:

A mere 184 years after its founding, the NYSE finally had allowed a woman to work on its trading floor.

Note how Ms. Jarcho diplomatically told the Journal that "most of" the razzing was mild. Decades later, she told the New York Post:

“There was relentless harassment,” said Jarcho, who quit in 1980. “Guys would leave condoms with mayonnaise on them in my drawer. They’d spit on my Tab can and send me dildos through the pneumatic tubes [that were used for shipping order slips]. There were constant references to my body. It never ended.” 

That, unfortunately, was nothing new.

In his 1875 book Bulls and Bears of New York, Matthew Hale Smith described what happened back in 1870, when Victoria Woodhull and Tennessee Claflin opened the first women-owned brokerage firm:

On coming into the street, the lady brokers created a great sensation. All day long crowds were around the doors. Men flattened their noses against the plate glass, peeping in, and every imagined excuse was invented by parties who wanted to walk inside and look at the sights.

Some 2,000 traders mobbed the sidewalk, and it took 100 policemen to maintain order, journalist Myra MacPherson later wrote.

The accompanying illustration in Smith's book insinuates -- falsely -- that "the lady brokers" were selling something other than stocks and bonds:

Wall Street has always loved when markets change, because that brings volume and volatility, which in turn means commissions and fees.

But Wall Street has always hated when Wall Street changes.

Here are some of the best things I found over the past week outside The Wall Street Journal:

• Six ways Warren Buffett says "no" (Medium)
• Online valuation lessons from Michael Mauboussin
• A tool to calculate your personal inflation rate (Morningstar)
• Hyperinflation? Nope! (Pragmatic Capitalism blog)
• Pope Francis asks capitalism to "slow the locomotive down"
• Workaholics, meet "time millionaires" (The Guardian)
• The Irish roots of Halloween (National Geographic)

Here are some of the best things I found recently in The Wall Street Journal:

• How higher inflation hikes your taxes, by Rich Rubin
• Hedge funds are doing venture capital, says Juliet Chung
• The housing boom is far from over, by Justin Lahart
• The outsiders who created the Covid vaccines, by Greg Zuckerman
• Studying retirement doesn't prepare you for it, says contributor David Ekerdt
• Deal-making firm bans the word "deal," by Miriam Gottfried
• Baseball is best on the radio, Vin Scully tells Jared Diamond

Have you ever made an investing mistake you could have avoided with a few seconds of clear thinking? What was it, and what did you learn from it?

To share your thoughts, just hit reply to this email. Answers may be lightly edited for space or clarity. Please include your name and city, thanks!

In our Oct. 19 newsletter, I asked:

Are you going to buy an ETF that specializes in bitcoin or other cryptocurrency? Why or why not?

Roughly half of readers said they will or already have; the rest said no. Here's a mix of responses.

I didn't wait for a crypto ETF, in April I started buying BTC and in September started buying ETH. I'm 69, retired and have no interest in longing for the good old days while my purchasing power is being inflated away. I currently have 15% of my investments in BTC and ETH. The world is changing, my friends, and you either embrace the change or fall by the wayside.
—Darrel Wells, Phoenix

I am not in any way involved in bitcoin or its ilk. With one fell swoop, it could all be wiped clean. I have enough “pretend” stuff to not wish for more.
—Carolyn Wilson, Pine Island, Fla.

It doesn’t make sense to participate in the crypto ecosystem via an instrument that's embedded in the framework being bet against. I choose to buy crypto assets from exchanges and build my own “ETF” via direct ownership.
—Kai Stewart, Boston

Uh, NO! For sure I don't understand bitcoin "valuation" and I barely understand an EFT [sic]. Buying a combo of the two? Not on your life.
—Bob Alder, Denver

Today, I bought 25 shares of BITO. Watching the rise and fall of bitcoin over the past months made me interested, so now I have a small piece of the pie.
—Peter J. Edgette, Hampton, Va.

It looks more like beanie babies or mortgage backed securities from 2005 to me. It's a hard pass.
—Dan Gregor, Pickerington, Ohio

My column last weekend, "Why Your Adviser Might Start Talking Up Bitcoin," pointed out that financial advisers have several incentives to start recommending cryptocurrency.

Many advisers still report that neither they nor their clients have much interest in crypto, as this survey from a few days ago by the website Advisor Perspectives shows:

As you can see, almost three-quarters of these financial advisers say fewer than 25% of their clients have asked about investing in crypto, and one-tenth say none of their clients have.

"My sense is that very few advisors recommend bitcoin for clients," says Advisor Perspectives Chief Executive Robert Huebscher. I think that will change, although not overnight.

...whereas I see myself more like this...
 

For stock investors, the choice isn't whether to participate or not, either all in or all out. It's how to weigh other people's enthusiasm and how to calibrate your own.

In 2008-09, and again in early 2020, I encouraged readers to stay invested in stocks — and, if they had the cash and courage, to buy more as values opened up.

You shouldn't get out of the stock market just because it rises. You should, however, weigh your own emotions more often and more carefully.

As markets rise, so does the risk that you will get infected with other people's euphoria. Over the years, I've seen countless long-term investors get a sudden itch to get rich quick. The results are almost always tragic.

So I will continue to try being what I call "inversely emotional": more enthusiastic as stocks go down, and less as they go up.

I'm sorry to tell you, though, that stocks don't become less risky in the long run.

As I wrote in late 2009:

     Over decades, stocks have tended to go up at a fairly steady average annual rate of 9% to 10%. If "risk" is the chance of deviating from that average, then that kind of risk has indeed declined over very long periods.
     But the risk of investing in stocks isn't the chance that your rate of return might vary from an average; it is the possibility that stocks might wipe you out. That risk never goes away, no matter how long you hang on.
     The belief that extending your holding period can eliminate the risk of stocks is simply bogus. Time might be your ally. But it also might turn out to be your enemy. While a longer horizon gives you more opportunities to recover from crashes, it also gives you more opportunities to experience them.
     Look at the long-term average annual rate of return on stocks since 1926, when good data begin. From the market peak in 2007 to its trough this March, that long-term annual return fell only a smidgen, from 10.4% to 9.3%. But if you had $1 million in U.S. stocks on Sept. 30, 2007, you had only $498,300 left by March 1, 2009. If losing more than 50% of your money in a year-and-a-half isn't risk, what is?

Stocks are always risky, no matter how long you hold them. That's precisely why managing your emotions is so important.

As for bonds, I'm not sure why you believe that "the longer you hold bonds the more risky they become." That depends on what happens with inflation and interest rates, among other factors. As recently as 2011, bonds had earned higher returns than stocks over the prior 30 years, with much lower risk.

Be well and invest well,

Jason

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BRAIN, n.  An apparatus with which we think that we think.
—Ambrose Bierce