FREE NEWSLETTER
THE INVESTMENT WORLD is full of storytellers. And while these folks might be entertaining, they generally aren’t very helpful. There’s one category of stories, however, that I do think is useful: They’re what I might call investment fables. They’re apocryphal stories that likely aren’t real. But they’re helpful nonetheless because each carries a useful lesson. Here are some of the more popular ones.
Consumer choice. In 1999, Richard Mille and a partner launched a company to make wristwatches. By 2001, the company was ready to begin taking orders for its first model, the RM 001. They knew they wanted to target a high-end market, so they chose the Financial Times for their first advertisement. According to legend, however, a graphic designer at the newspaper made a mistake. Instead of including the watch’s intended price of $13,500, an extra zero was added, making the price $135,000.
At first, the company was furious at the newspaper for the mistake. But then the phone started to ring. The sky-high price turned out to be attractive to a certain class of buyers, and the initial run of the 001 quickly sold out. Today, Richard Mille sells several models priced in the hundreds of thousands, and some limited editions carry price tags north of $1 million.
For its part, the company denies this story, maintaining that $135,000 was always the price it intended. But whether this story is true or not, it illustrates a concept in personal finance known as the Veblen effect. This occurs when the traditional shape of a demand curve gets turned upside down. Instead of consumers buying less of something as its price rises, when it comes to Veblen goods, consumers want to buy more as the price increases. Hermes handbags and Ferrari sportscars are other examples.
What should we make of the Veblen effect? To answer this question, it’s worth examining its origins. Thorstein Veblen was a sociologist and economist. Perhaps owing to his background as the sixth of 12 children growing up in modest, rural surroundings, Veblen became broadly critical of capitalism. In his 1899 book, The Theory of the Leisure Class, he coined the term “conspicuous consumption.” And while Veblen didn’t explicitly see himself as a socialist, he leaned in that direction. He would have been bitterly critical of something like a Richard Mille watch.
In making spending decisions, though, I wouldn’t worry too much about value judgments like this. The reality is that each of us is different, and we each value different things. That’s why I prefer to stick to the numbers. The most important thing, in my view, is simply to have a framework for your household finances, to ensure that your overall spending level is in line with your long-term plan. Other people’s subjective judgments, in my opinion, shouldn’t factor in.
Investment gains. When it comes to investing, what’s the best strategy? According to lore, Fidelity Investments once looked into this question by examining the performance of all of the accounts on its platform. What did they find? The accounts that had done the best were those that had been abandoned due to the death of the owner, with the result that the investments hadn’t changed for years.
There’s no evidence that this story is true, but it’s repeated frequently because it aligns with real data. In studies going back more than 25 years, research has shown that frequent trading is generally associated with worse investment results. This is true for both individual and professional investors.
To be sure, some active managers have delivered impressive results. In the past, this has included the likes of Warren Buffett and James Simons. More recently, a 24-year-old named Leopold Aschenbrenner has delivered returns of more than 1,000% in the two years since he founded a hedge fund to bet on AI stocks. But cases like this are the exceptions that prove the rule. For most investors, most of the time, the data tell us that it’s better to trade less rather than more.
Market tops. On a related note, there’s a tale about Joseph Kennedy—President Kennedy’s father. He was an active investor in the 1920s, but he said he realized it was time to sell when the fellow giving him a shoeshine one day started offering stock tips.
What’s interesting about this story is that Kennedy did actually sell his stocks and even took a short position early in 1929, earning him a fortune when the market dropped. The shoeshine aspect of this story likely isn’t true. But it’s a favorite because it carries a useful message.
Veteran investor Jeremy Grantham has often talked about the market signals he pays attention to. In addition to P/E ratios and other quantitative measures, he’s noted that he looks for “signs of craziness”—things like the GameStop mania in 2021. When the stock market begins to look more like a casino—and when we see YouTube influencers making stock calls from their gaming chairs—Grantham gets nervous.
Intuitively, this does make sense, but it may not be very useful. Consider how the market has performed in recent years. After Grantham urged caution in 2021, the market did drop in 2022. But then it rose in 2023, 2024, 2025 and in the first half of 2026. So an investor who sold in 2021 would have missed out on significant gains.
The bottom line: Just as the number of world-class stock-pickers is limited, so too is the number of tactical traders who have profited in the way Joe Kennedy did by getting out at just the right moment.
Market forecasts. What’s a better way to think about the stock market? According to another Wall Street tale, J.P. Morgan was once asked what he thought the market would do over the coming year. His reply: “It will fluctuate.”
There’s no evidence that Morgan ever actually said this, but in this case too, the story is popular because it sounds right. And in my view, this is exactly the right way to think about the stock market. At the end of the day, the only thing we can know for sure about the stock market is that it will either go up, go down or stay about the same. If we can structure our portfolios so we won’t be too negatively affected whichever way it goes, that, in my opinion, is the road to success.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
The Joe Kennedy story really resonates with me. For a few years, I worked in the growing Sacramento area, and spent one of every three weeks there. I rented an apartment for cost and comfort advantages, and had a phone line. In 2007 and early 2008, I would fly in on a Sunday evening and prepare for work the next day. Over that period, I started to accumulate more and more phone messages waiting for me. At first there were five or six, but they grew to twenty or more each returning Sunday night. And all of them were invitations to me, an anonymous renter, to take out a low cost mortgage to buy a house, promising me I could qualify for a great deal, no questions asked. I had no interest in buying anything in California, but I also knew from these messages that there was trouble ahead, and I didn’t need to wait long to see the crash. In the late summer and early fall, the subprime markets imploded, and the damage spread.
Thanks Adam for another thoughtful article. Keep them coming.
Even if you read or hear something that tips you off that the market is overdue for a downturn or a crash, you still won’t know when to get back in.
Correct! You have to time the market correctly twice.
Simple, straightforward with a dose of humor. Thanks, Adam. I’m glad that I’m no longer custodian of my grandchild’s Schwab account. He spends a lot of time trading with a different company, so I have no idea whether he’s gaining or losing.
Your summary of Mr. Grantham’s analysis is exactly what I needed this morning. Last night I watched a lovely interview with Mr. Grantham in a long-form podcast with Steven Bartlett.
Mr. Grantham is a fascinating person. Thoughtful, accomplished, and worried about our collective future. His well-articulated fears about market bubbles (esp for those of us who lived through earlier ones) are logical…but…
I suppose it all depends on your time-horizon and your appetite for risk.
Either way, your perspective was a refreshing counterpoint to an excellent interview.
Mark Higgins writes in his 2024 book Investing in U.S. Financial History about Joseph Kennedy and the stock tip story about the shoeshine boy and in a footnote describes the tale as a “urban legend”.
As Mr. Higgins writes in his book that Mr. Kennedy was a banker who had made a fortune before the stock market crash by participating in “pool operations” in the 1920’s which was one of the market manipulations that was subsequently banned by the SEC Act of 1934. President Roosevelt nominated Kennedy to be the first chairman of the SEC which Kennedy became and the SEC was later able to eliminate many of the Wall Street abuses that previously existed.
I am enjoying reading Mr. Higgins book. It is almost 600 pages and I am about half way through.
Finished it. Was struck by his remark that before 1929, the way to make money in the market was to cheat. After the acts of 1933 and 1934, this was much more difficult (which I guess laid the way for Graham’s Intelligent Investor).
This might be an example of a “Veblen curve” product that I will buy: I have seen on social media numerous videos of huge brawls on Carnival Cruise ships. This is almost certainly because Carnival is one of the cheapest, maybe THE cheapest cruise line available. I will never go on a Carnival Cruise because of this. I gladly pay for one of the most expensive cruise lines—Viking. A number of months ago, the WSJ had an article on the success of Viking. The article was mostly a list of things that Viking does NOT have on it’s ships, starting with kids. The people who cruise with Viking are civilized, learned, and cultured. Plus everything about their tours are perfect: the ships, food, drinks, service, and the off-ship excursions. I’m willing to pay more in order to enjoy a vacation with people like that.
Here’s an interesting note re:Viking. On a Viking Amsterdam tulip cruise last year about 2/3 of the pax (including my wife and I) became incapacitatingly sick for one to two days…not all on the same days. Most stayed in their rooms close to toilet facilities. When the cruise ended, we were among the last to depart in late afternoon and we watched as new passengers boarded throughout the day. What stuck us was the fact that there was hardly time enough for each of the guest rooms to be thoroughly sanitized between people departing and new pax arriving! It was our last Viking cruise.
Great observation. Thanks for passing along.
While not specifically banning single travelers, Viking clearly prefers couples, as evidenced by the single supplement being nearly the same as the cost for a second person, i.e., the single pays as though they were eating for two. And no suites accommodating three, as I discovered when I was thinking about traveling on Viking with a compatible couple of similar means.
Adam, another thought provoking article on investing and human behavior. All of these “tales” seem quite feasible and speak to the way we view investment wisdom. In the case of the Veblen effect, wouldn’t a luxury product need a reputation of the “value” it conveys before being pursued and coveted by consumers?
I agree that the road to success is structuring our portfolios to weather the fluctuations over time and asset class allocations. The difficulty comes in human nature to be patient and disciplined to follow that good advice.