I recently done heard a new werd. Actually, I’m not 100% sure it’s a real word, but here it is: “Midwit”.
A midwit is someone who has average or above average intelligence but acts like they are of genius-level intelligence when they’re not. So… they’re not really a nitwit, but they’re also not a for-real genius.
In the financial industry, there are plenty of midwits. Not every financial planner, insurance agent, and accountant is a midwit of course, but there are a lot of them. There’s a good reason for this. The institution of “higher learning” is — well — an institution. There’s a certain sense in which today’s universities choke off creative thought and divergent thinking in favor of convergent thinking and conformity to dogmatic rules.
You’re not really allowed to question authority or the establishment (not in any sort of serious manner anyway). After all, if you could, what would be the point of your professor in the classroom?
Financial planners are trained by The American College and a few other institutions of “higher learning” to give you hard and fast answers about what you should do with your money. These answers flow from a strict 6-step process designed specifically to corral clients into a particular way of doing things. The focus isn’t on teaching clients how to think and make better decisions using a defined decision-making process. Nor is it to assess how much risk they can afford to take in their lives. Nor is it about developing good budgeting and savings habits. It’s about shoehorning people into the establishment’s worldview of what financial planning ought to be.
And, dissenters are not allowed to practice “financial planning.”
The financial planning industry grew out of the ethics and authoritarian culture of the 1940s and 1950s — very “father knows best” type of ‘tude. This is where the “old guard” got it from. The average age of a financial planner is over 50. Within 10 years, about 1/3rd of all financial planners are expected to retire. These folks were born in the late 1960s or mid 1970s. Their parents were born in the 1950s. There’s a certain type of culture these folks grew up with. Again, there are always exceptions to this, but generally what you find among older financial planners are very conservative, very authoritarian, rule-following, advice-givers. And, the younger financial planners — impressionable 20 and 30-somethings — are learning from this generation and also from today’s intellectually bankrupt “educational” institutions.
Because of all this, quite a lot of financial planners aren’t taught how to think when they go to school, if they went to school. They’re taught how to follow the rules and (at least to some extent) respect Authoritah™. They’re taught how to give marching orders to clients (albeit in the friendliest way possible to ensure compliance), construct and present pretty-looking graphs and charts, and do what the manual (or algorithm) sayz. They must plan out your future through Monte Carlo analysis, financial planning templates, and prescriptive recommendations.
They are, after all, planners. Schemers.
They’re trained to have an answer to every question and some of them are even under the delusion they can predict the future using historical stock market data. Because of this delusion, some of them also develop a smug God complex. But not all financial planners use historical stock market data (though most do).
Some planners use current market data to predict future stock market growth. They hypothesize that because corporate earnings are good, for example, that future market returns will also be good.
There’s a bit of a sleight of hand here, tho. For example, the recent stock market rally has been driven in large part by share buybacks. This is when corporations buy back shares of their own stock. But if you look at corporate earnings (according to some sources), everything looks okey dokey. As long as the money is rolling in, and corporations are spending it on something, and as long as share prices are rising, you’re told to ignore the news and keep buying equity shares.
Lance Roberts, in “The Myth Of Stocks For The Long Run”, explains the insanity of this most recent share buyback-fueled stock market:
“The biggest beneficiary of buybacks are the executives whose compensation is heavily tied to stock options. The losers are the long terms shareholders. Not only must the debt and interest expense, frequently incurred to conduct buybacks, be paid for with future earnings, but the buyback, in many cases, took precedence over investment in the company’s future. The long-term implications for the company and the economy are troubling.”
Translation: today’s stock market rally is at the expense of future returns because future corporate earnings will either not materialize (because corporations used their cash to buy their own stock instead of dumping it into research and development) or they will be used to repay debt (used to buy back the shares).
When corporations invest in R&D, future earnings should look good, which should translate into good earnings and good stock prices and dividend growth. When corporations futz around with their cash flow and push money into buying back shares of their own company, it means they don’t know what to do with the cash they have… which is… uh… not good. Most of the large companies in America have been doing these share buybacks so it’s not an isolated case. basically, if you’re invested in the S&P500 or the DOW, you’re riding on share buyback programs.
Anywho, what does it mean for you?
Probably nothing if you don’t own stocks.
If you do?
Mayhaps you should protect yourself. Or not. It’s up to you.
Either way, if you follow the midwits’ advice about today’s economy and how to invest your money, instead of thinking for yourself, then prepare to reap the whirlwind.