LateNightHacking Louis Journal

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What in the name of Heck is going on? People keep sending me money! Not that that's a bad thing, but I don't know why they are doing it, and if it was done by mistake, they'll probably want it back. I received two checks in the mail today from companies, and I don't know why they sent me the checks. Which means not free money, but more work, since now I have to pour over my records and call them up to reconcile these accounts.

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OK, I've just got back from another go-round of writing large checks and doing The Right Thing For You Financial Future^TM and discussing it with my wife. I think a rant on the topic is long overdue.

First of all, none of the things I am going to say in this rant are (completely) true. If you quote me on any of this, I will bludgeon you. However, if you want to understand where I'm coming from, then read on and tread lightly.

<Rant>

I don't trust compound interest! Sure, I understand the theory. But I've never seen practice match up with theory. I've had three car loans, two school loans, two home loans. I've done the calculations very carefully. The numbers on the bills never NEVER match up. They're always crappy and random. Oh, sure, they're vaguely reasonable, if by 8% you mean 8.7%, 8.3%, 7.9% as the whim strikes you.

I don't trust the stock market. 7% my ass! 10% my ass! I've never seen those returns. It's either boom or bust. It's random. It's either 20% and people are hyperventilating, or its -5% and people are demanding the government do something to protect their 401Ks (that, and the billboards about suing your broker spring up like dandylions). And you can't tell me that it's imperitive I act now and also tell me that I should be in this for the long term and ignore these present fluctuations. You can't have it both ways! You are full of crap!

And you are going to use the stock market hocus pocus to drive your compound interest hocus pocus? Sure, that gives me a lot of confidence. OK, so you've powerfully amplified your input noise. I've yet to see any signal. Just bait and switch.

And here's another thing. Compound interest produces a large amplification effect. Fine. No one seems to disagree that small changes in your initial conditions (your assumptions) have large effects on your results. Fine. Then why is it preferrable to have large error margins in your initial estimates? Why is it better to wave your hands and get whatever numbers you want than to actually come up with accurate data? Excuse me for not being happy that the reason is that the final results are so unpredicatble that it doesn't matter what your initial estimates and any further effort in being accurate is a waste of time. You can't get more accurate than picking numbers out of the air, so why bother?

And another thing. You can conjur up examples showing that what you do today completely overshadows what you do in the future. You know, something like investing money for years 1-5 produces the same return as investing money in years 5-35. That scares the bejesus out of me. You wonder why I don't trust compound interest?? It seems that it is very important to get the right answer right now, or else you have screwed yourself indefinitely. And then the hand waving and "you gotta have a long term out look" stuff is trotted out next. Are you fricking crazy? Which is it - is it important to get it right NOW or not? So far I see scare tactics and bait-and-switch. Sure, it's pretty effective salesmanship but it doesn't exactly incur trust, confidence, or sleeping well at night.

Don't wave your piles of big numbers at me. I don't trust them. They are meaningless. It is well within my mental accumen to make up random numbers all on my own, thank you. Show me your assumptions and show me your formulas, and MAYBE I'll believe you. Look! Act now and save 4%! Oooo, I'm impressed. Only if everything goes according to you plan for the next thirty years.

I work in the financial industry. I know what I crock it is. Oh yes, no doubt it is possible to make a lot of money. It is also possible to lose a lot of money, and it happens only slightly less frequently, in my experience. The only people who care about accurate accounting are the government, and that's only so they can get their cut.

Yes, I'd hide my money under the bed, except for the minor problem that it's even worse that the market. You can take a guaranteed loss, or you can join in the chaos. Oh, there's no doubt that if you put your money in the market, over the long run USUALLY you will make money. It's people claiming this is a good thing that makes me pissy.

As I said, I work in this industry. I've heard a lot of the theory. People prefer to ignore the fact that the voodoo factor is as significant if not more significant than the rational factor. And the voodoo factor makes me quesy, makes me want to throw up my hands in disgust. The best I can do is aim for apathy and try to keep my records straight.

The financial industry is like a zombie - It can't die because it's not alive. It can't break because it never worked in the first place. It doesn't matter how badly people lose money, because everyone knows there is somebody who is making money and they want to be that person.

</Rant>

Of course, this is not to say I don't have my own problems. I think it would be perfectly reasonable for someone to rant at me about not investing allocated monies in a timely manner, or not keeping records that were comprehensible to normal people. And it would also be fair to interpret my ranting as envy for people who are facile with such numbers. :)