Why Stock Picking and Market Timing Are the Enemies of the American Dream: Mark Matson

Financial advisors are acutely aware of the difference between investing and gambling. Yet most are gambling with their clients’ money.

So argues Mark Matson, founder and CEO of Matson Money, in an interview with ThinkAdvisor.

He wants financial advisors to invest, as he does, using Nobel Prize winners’ academic principles, which don’t lean on economic and political prognostications.

Advisors “have to stop believing in fantasy,” he maintains. That means, Matson says: “Eliminate completely all stock picking, market timing and track-record investing.”

Matson, whose asset management and advisor coaching firm has $10.31 billion in assets under management and coaches more than 500 advisors nationally, expounds upon this in his book, “Experiencing the American Dream: How to Invest Your Time, Energy, and Money to Create an Extraordinary Life.”

In the interview, Matson contends that the financial services industry is “broken.” He cites forecasters, gurus and large institutions, like Vanguard, Fidelity and BlackRock, who “prey on investors’ fears and are illusionists” that promote viewing investments through what he calls a prediction syndrome screen.

In his book, he villifies “any company that pretends they have brilliant people who can pick the best stocks in advance and pass on all the extra profits to you. They are all part of the same rotten system and embedded in every facet of the industry.”

The remedy, he says on his website, is “captur[ing] market returns by utilizing asset class or structured funds and broad diversification.”

Here are excerpts from our conversation:

THINKADVISOR: You use an academic principles approach to investing that’s aligned with what you call the American Dream. Please explain.

MARK MATSON: If you find a purpose for your money that’s greater than money itself, it will give you the impetus to want to stop speculating and trying to predict the future.

What’s your academic principles approach?

It’s based on [Nobel laureate] Eugene Fama’s research that markets are highly efficient, which means that all knowable and predictable information is already priced into the stock price.

Likewise, unknowable information [includes] people’s instincts, emotions, biases and life plans.

So, since markets are highly efficient, you should eliminate completely all stock picking, market timing and track-record investing.

What screen do the vast majority of advisors and clients use to make investment decisions?

The investor prediction syndrome screen. It’s based on an assumption that you can predict what’s going to happen with the economy or with politics or with both.

It’s based on the [belief] that you can get in and out of the markets at the right time or that advisors can help you get the better stock or find the best managers.

You write that “prognosticators, gurus, Vanguard, Fidelity, BlackRock … prey on investors’ fear and are illusionists” who use the prediction syndrome screen. You call that “destructive behavior.” What’s destroyed?

Investors’ money, their portfolios, their dreams. With a Vanguard account, for instance, you can go online, put together a bunch of Vanguard funds, hit one button and destroy your portfolio. The same thing with BlackRock.

Fidelity does bait-and-switch with their index funds. People get sucked into that and don’t realize they’re gambling with their money. 

They’ve had great dreams for their families, but then they watch their portfolios get gutted and destroyed.

Is that why you say the financial services industry is “broken”?

Yes. Big [Wall Street] companies study how the human mind works and use it against people to get their money. They study emotions and have full-time psychiatrists that study human behavior. 

They know about familiarity bias, hindsight bias, herding bias. 

The companies put out products to seduce people into buying them. They just want to keep them buying and selling. I call them Wall Street bullies.

In your view, what’s in most investors’ portfolios?

We analyze thousands of portfolios every year. We find what we call “Frankenstein Portfolios.” They might have a couple of ETFs, a couple of index funds. But [other than] that it’s just absolute garbage.

Some people have crypto and bitcoin. Nobody should own that garbage. You’re not building an asset: There’s no company, no guarantee. It’s highly volatile.