Detecting Bull$hit Is A Financial Superpower
Detecting Bull$hit Is A Financial Superpower
How Likely Are You To Fall For Financial Bull$hit?
If you’re even remotely interested in personal finance, Google’s algorithm has almost certainly served up countless ads for scammy investing courses on YouTube.
You know the ones I am talking about. The ads where a 30-something dude is holding his iPhone in selfy mode, walking through a luxury mansion and promising that if you give him 60-seconds of your time, he’ll teach you how to get rich trading stocks.
YouTube doesn’t let you skip the ad for 7-seconds, but honestly, it only takes me 1 second for my bullshit detector to light up like a Christmas tree.
But more than a few people must be falling for these scams. If they weren’t, why would the scammers continue pouring money into these ads?
Clearly, a lot of people need to fine-tune their bullshit detector.
Financial Bullshit is everywhere
A 2022 study written by Kienzler Et al. titled “Individual differences in susceptibility to financial bullshit” examined how someone’s ability to detect financial bullshit impacts their financial well-being. 1
The researchers define financial bullshit as “seemingly impressive verbal, financial assertions that are presented as true and meaningful but are actually meaningless”.
People making big claims about how to make easy money without a shred of credible evidence to back up those claims. It’s a tale as old as money, but the internet has increased the ease with which a charlatan can reach millions of people with their bullshit financial claims. If you spend any amount of time on the internet, you are guaranteed to be exposed to financial bullshit.
However, it’s important to understand that financial bullshit is not exclusively an online phenomenon. Plenty of bullshiters in the financial services industry will make big claims and use confusing jargon to convince you to invest in their expensive, underperforming mutual fund or buy their questionable financial product.
To quote Kienzler Et al.
“Pseudo-profound bullshit, in the form of empty talk, lingo and jargon, is commonly experienced by consumers when seeking out financial products and services.”
Measuring financial bullshit
Kienzler Et al. surveyed 1,058 people to measure each respondents:
Likeliness to believe financial bullshit
Financial well-being
Money management habits
Financial knowledge
To measure someone’s likeliness to believe financial bullshit, respondents were given a list of actually profound quotes about money & finances from historical figures like Milton Friedman and Benjamin Franklin and randomly generated bullshit statements. Respondents measured each quote on a scale of 1-6, with 1 being the lowest score and not at all meaningful and 6 being the highest score and incredibly meaningful.
Here’s an example from the study of an actually profound statement from a financial expert.
“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor.” — Robert Shiller
Here’s an example of a random bullshit statement.
“Freedom and space transform the abstract meaning of money.”
To measure financial well-being, respondents were asked if they agree with a number of statements that speak to financial anxiety and security, such as “After making a decision, I am anxious whether I was right or wrong”.
To measure money management habits, respondents were asked various questions about the state of their finances, like whether they had a maxed-out credit card and how often they pay bills on time.
Finally, to measure financial knowledge, respondents were asked whether various statements were true or false. Examples included “When you buy a bond, you are lending a company money” or “Diversification means combining different investment types into a portfolio to reduce risks and increase returns”.
Who is most likely to fall for financial bullshit?
Kienzler Et al. found that 86% of respondents scored above zero on the financial bullshit scale—meaning they could, to some degree, spot financial bullshit when they see it.
Who was more likely to fall for financial bullshit?
Younger people
Men
People with a high income
Those who scored lower on cognitive reflection and financial knowledge.
Overconfident people
So, if you are a 20-something male making a six-figure income with a massive ego, be careful because you are a prime target for financial bullshit artists.
The link between falling for bullshit and financial well-being
One of the important findings from the paper was that falling for financial bullshit did not mean someone was any more likely to feel anxious about their finances—Ignorance is bliss.
Those who were more likely to believe financial bullshit were less able to assess the claims made about various financial products or services. This makes them vulnerable to the bullshit artists within the financial services industry.
My book, The Rational Investor, serves as a guide to avoiding investment bullshit.
In part 1 of the book, I present the evidence in support of a rational investment portfolio of index funds that is diversified between stocks and bonds and different geographic locations.
In part 2, I examine the various bullshit arguments that people will make in an attempt to get you to invest in assets other than index funds. I cover topics ranging from stocking picking to Cryptocurrencies and everything in between.
In part 3, I review common and recurring investment narratives that bullshiters will use to tempt you to try and time the market. I present the evidence that shows why the rational investor sticks to their plan no matter how scary the narrative of the day happens to be.
Investing is not as complicated as most people think. The real difficulty is tuning out the bullshit over the 40-60 years you are likely to have money invested.
If the rational investor sounds like the kind of investing education you’ve been looking for, you can sign up for a free 7-day trial to the paid version of Making of a Millionaire here. That’s plenty of time to binge-read the book and decide if you want to stick around for paid-only posts and perks.
Kienzler, M., Västfjäll, D., & Tinghög, G. (2022). Individual differences in susceptibility to financial bullshit. Journal of Behavioral and Experimental Finance, 100655. https://doi.org/10.1016/j.jbef.2022.100655