The views presented here do not necessarily represent those of Advisor Perspectives.
When it comes to investing, I’ve learned that common sense isn’t all that common. In fact, I’ve seen brilliant people lose millions of dollars on investments without using one ounce of common sense. They have acted purely on emotion.
Here are a few examples as well as some simple ways of deploying logic when faced with statements meant to make you react in an emotional way:
1. Bitcoin price will grow by 30% a year for the next 20 years. This forecast came from someone who has made a fortune for himself and others with bitcoin — Michael Saylor is the CEO of Micro Strategy, now called Strategy Incorporated. He recently said bitcoin will grow at 30% per year for the next 20 years. He has grown his company’s stock by 3,250% over the past five years to a value of over $110 billion. If Saylor is right, one bitcoin worth $108,127 as of July 7, 2025 will be worth more than $20.5 million in two decades. Why not? A decade ago, it traded at just over $266, which equates to just over an 82% annual growth rate. Saylor is actually predicting a much slower growth rate over the next two decades than the last decade.
As smart and compelling as Saylor and his logic sound, it has about a zero percent probability of happening. Today, the value of all outstanding bitcoin is about $2.15 trillion. That’s a big number. And it makes bitcoin more valuable than all but five U.S. companies — Nvidia, Microsoft, Apple, Amazon, and Alphabet. But if you take something that valuable and grow it at 30% annually for 20 years, it becomes worth $408.6 trillion. That’s roughly 6.4 times the size of the U.S. stock market and 3.3 times the size of the global stock market.
Even if stocks returned 10% annually (8% growth and 2% dividend yield), bitcoin would be worth more than the U.S. stock market and nearly as much as the global stock market. Since the stock market represents the future cash flows of global capitalism, Saylor is essentially predicting that one crypto coin (out of thousands) will be worth as much as global capitalism. Impossible? Maybe not, but I’d bet my future on winning the lottery before I’d bet on 30% annualized growth for the next two decades.
2. Here’s an investment in nonpublic securities that has quarterly liquidity. The pitch goes something like this: For the past several decades, only the top 0.1% of investors had access to private equity investments. Now new funds such as interval funds democratize this investment class and give you quarterly liquidity that even the super-rich don’t have. Ditch those index funds and invest like the wealthy.
Common sense would dictate that an illiquid investment (whether it be private equity, real estate, reinsurance, or others) within an investment wrapper claiming to be liquid just isn’t. The underlying illiquid holding must be sold. That quarterly redemption almost certainly has some language that allows the issuer to “gate” redemptions, meaning they can limit how much you can get back, or even reduce it to zero. So it’s completely liquid when it’s doing well and you don’t want your money back, but it becomes illiquid just when you want to get out.
3. Our strategy allows you to make money in any market. This is a statement I hear especially when stocks are down. By using options, futures, or other noncorrelated strategies, it absolutely is possible to make money in any market.
Though the above is 100% true, it’s also completely misleading. Starting with options and futures, it’s important to understand that, in the aggregate, not a penny has ever been made, before costs. In essence, it’s really not that different than betting on a football game through a sports app. It’s completely uncorrelated with the stock market but not a very good investment strategy. In fact, you will likely lose money in any market.
Other uncorrelated strategies encompass a wide range of investments such as relying on events like litigation funding, drug trial funding, appraisal rights, insurance, or life settlements. Indeed, investing in assets uncorrelated with stocks is the holy grail of investing. While these aren’t zero-sum games and can actually work, fees are typically very high for institutional investors with billions of dollars and outrageously high for individual investors with far less to invest.
It’s true that a portfolio with a mix of uncorrelated assets tends to be more stable and less susceptible to market fluctuations. Unfortunately, the uncorrelated assets must also have a reasonable expected return to fit into a portfolio. My search for this holy grail of investing continues, as I have yet to find uncorrelated assets with attractive returns.
4. Our trading platform simply tells you what to buy and when to sell so you can beat the market. The lure is to know what stock to buy now and when to sell it. Their proprietary software will tell you which stocks and ETFs to trade using advanced charting tools. They might say they run technical analysis, backtesting, and proprietary studies. All of this for only $99 a month, including their free online trading academy.
As much as I’d love this path to riches, I’ve never had anyone explain to me why they wouldn’t be selling their model to pensions and other institutional investors for billions of dollars. After all, the data would be tracked and could easily be benchmarked against the market. This is very different than someone like Jim Cramer on CNBC’s Mad Money, where on TV, he points to his winners and others point to his losers but there is no database to see how he actually performed.
5. Before we take your money, we just need you to sign the signature page of the disclosure document. The signature page of the 120-page disclosure document generally reads something like this.
- I acknowledge that I/we have received, read, and fully understand the accompanying Investment Disclosure Document.
- I acknowledge and agree to the terms, risks, fees, and other disclosures outlined in the document, including the risk of loss of principal and that past performance is not indicative of future results.
- I understand that no guarantees are made regarding investment performance, and I accept full responsibility for investment decisions made in accordance with the terms described.
- I have had the opportunity to ask questions and receive answers about the information presented.
You might even feel good that they are honest enough to show you this investment isn’t a sure thing, though the sales presentation may have looked irresistible. I’ve actually never met anyone who read the thick document before they signed it. I can assure any client that the document was written by attorneys — and sometimes actuaries — to protect the company, not the investor.
Conclusion
I’ve always wondered why common sense is actually so rare when it comes to investing. Bitcoin will not be as valuable as the global stock market in two decades. Illiquid investments are illiquid, no matter what securities wrapper they are in. Thousands of strategies are uncorrelated to the stock market — including gambling half of my net worth in Las Vegas — but the lack of correlation alone doesn’t make them good strategies.
If someone could actually consistently beat the market, would they really be paying to advertise to sell subscriptions at low prices? The thicker the disclosure document, the more “gotchas” for the investor. Simplicity is nearly always superior.
These and many other strategies fail the common-sense test. They are presented in such a way that they prey on our greed and get us to act before the logical side of our brain kicks in. Remind clients that when something looks too good to be true, it typically is. Reverse-engineer the investment to determine what’s in it for others and why someone might be selling it to you or your clients.
Allan Roth is the founder of Wealth Logic, LLC, a Colorado-based fee-only registered investment advisory firm. He has been working in the investment world of corporate finance for over 25 years. Allan has served as corporate finance officer of two multibillion-dollar companies and has consulted with many others while at McKinsey & Company.
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The views presented here do not necessarily represent those of Advisor Perspectives.
