Political ideology and investing

[ALawPoker]

A few years ago when I started playing poker and earning money, I decided do some reading and put some thought into the stock market. I already knew the basics of how investing worked, because my Dad would talk to me about it here and there growing up. But my personality is one where when I get into something, I really want to get into it. If I was playing Candy Land, I'd try to find some inefficiency to get some sort of edge. And with money involved, even moreso. So I was really looking to learn a lot of [censored] and get into it.

I (relatively quickly, and sort of disappointedly) came to the conclusion that index funds are the best possible investment to make, and everything else is basically silly. Or at least, index funds are so close to as good as you can do that anything else isn't worth the time or energy, even if maybe you could beat them by a tiny bit. Now, I see nothing wrong with taking a gamble here or there when you just feel like it, or sensing some opportunity and going with it. But as a general strategy, anything other than a diversified set of index funds just seems patently useless to me.

If you're not too familiar with investing, an index fund is basically a mutual fund that mirrors a market "index." So if McDonald's makes up 10% of the Dow Jones, and I invest $1000 in a Dow Jones index fund, I'll basically have $100 invested in McDonald's, as long as the fund "manager" knows how to add and stuff. So they're managed passively and not actively. (And because of that you pay much lower maintenance fees than a mutual fund to boot.) In other words, you're investing in a market and not in a person's ability to beat a market.

It's something like 5-10% (I think it's more like 5) of all mutual fund managers who actually are able to beat the indexes (and at that I wonder how many are anything other than a lucky statistical outlier). Don't quote me on the exact numbers, but the point is that most people (even trained professionals) can not beat the index. And that, as well as just thinking about how the market actually "worked," was really all I needed to know to decide that index funds were the most equitable move. And that any money put into something other than an index was probably a -EV move.

I didn't decide this based on any sort of philosophical trust of the free market. I just decided this because I wanted to make the most money possible, and this seemed like the best way. But it eventually dawned on me that the way people analyze investment strategy is probably similar to the way people form their political conclusions.

I sort of think of the people whose general investment strategy is to pick and choose individual stocks (or who would trust a mutual fund more than an index fund) in the same way I think about politicians (and voters) who think they can fix problems by interfering with the market. People see an idea and think it's a good one, but don't seem to fully realize that their idea is shared by a lot of people and already contributes to the price of the stock. It just seems absurd to me to think you can beat the market with anything short of inside information. But people think that way. And they're probably the same people who assume hands on political solutions work too.

I'm basically a libertarian. I mean, I'm nothing. I really could not care less if other people agree with me politically or whatnot. But I can't help but conclude that the libertarian arguments pretty well explain the way things actually are. That's just the way I think.

I'm sure I'll be accused of making a biased pro-libertarian thread, even though I'm really just discussing the market in a way that seems truthful to me (and then we can go on a hijack and debate the semantical philosophy of property rights or something). But I'm curious, what's your political persuasion and what's your general approach to investing?

Are you a libertarian who agrees with me? A libertarian who disagrees? A socialist who agrees??

To any libertarians/ACers who invest money, if your investments aren't index fund heavy, then I think you just don't know what an index fund is, and you should consider them. If you know what they are and disagree with me though, I'd be curious to hear why.