We want to be rich and we want to be thin, so it’s not surprising that two of the world’s most successful industries are those that cater to those two aspirations.
But take a closer look and you’ll find that the diet and investment industries have far more in common than you might have thought.
Both have scant regard for the evidence
The overwhelming evidence is that the best way to lose weight is to eat healthily, consume fewer calories and exercise more; and that the optimal investment strategy is to buy and hold a low-cost and highly diversified portfolio. The evidence has been known for decades. That the diet and investment industries remain so powerful is testament to their ability to hide it, or distract us from it with spurious evidence of their own.
Both prey on people’s gullibility
Of course people want to believe there’s a pill that will help them shed the pounds, or that a daily cup of herbal tea will magically allow them to enjoy their favourite foods and still drop a dress size. Children want to believe in Santa Claus, and everyone who buys a lottery ticket wants to believe that one day they might just win the jackpot. Gullibility is a common human frailty that pushers of diet and investment fads use to their advantage.
Both focus on the short term
Another human weakness on which sales and marketing teams capitalise is our impatience. They know we want quick results, so they make us think we can lose that tummy in time for a wedding or holiday in six weeks’ time. They give examples of people who really did make an overnight killing on penny stocks. But it takes time to become obese, and time to return to a healthy weight. Building wealth takes far, far longer still.
Both exploit the media’s need for news
Despite the image that many people have of them, journalists don’t set out to mislead. They do though have a job to do, pages and programmes to fill, and they are, ultimately, in the news business. There are only so many times you can remind readers or viewers of the benefits of reducing their sugar and fat consumption, or tell them they’d be better off using index funds. Why invite some professor onto your show to explain Efficient Market Hypothesis when you can have a celebrity pundit reveal the latest must-buy stocks? And what better way to sell a newspaper than with a caption like “Miracle obesity cure — details inside” emblazoned across the front page?
Both advertise prodigiously
As well as public relations, both the diet and investment industries spend heavily on advertising. They know how seductive a clever campaign can be. They also know just where and when to advertise and precisely which buttons to press. Crucially, they’ve mastered the art of appearing to offer more than they really do, while ensuring that any claims they make fall just within the relevant regulations.
Most of their products don’t work
Again and again we hear of new diet products, yet almost invariably they fail to deliver. Some may work for a while, but the benefits don’t persist, and you’re back to square one before you know it. Investment products are no different. The whole point of buying an actively managed fund, for example, is to achieve market-beating returns, but the evidence shows that, net of costs, the majority of active funds extract value from the investment process rather than add it.
Neither particularly minds if you fail
The biggest beneficiary when diet products don’t work is the diet industry. Dieters fail repeatedly but keep coming back for more. It’s a similar story with investing. When, inevitably, a particular funds stops producing the returns that first attracted them to it, investors pick another one, and no one’s happier when we churn our portfolios than brokers and other third parties for whom it means more fees. The fund houses aren’t too bothered either because their income is largely determined by the total amount of assets under management rather than any outperformance; and of course, the lower your returns in the past, the more you’ll need to invest to compensate.
Both are awesomely profitable
Finally, we’re back where we’re started, with perhaps the most glaring similarity between these two industries — namely their size and profitability. That’s right. Despite their manifest failings we continue to reward them royally with our custom.
The fact is that we can achieve the results we’re looking for largely without these industries. There are simple solutions to losing weight and to ensuring that each of us has enough money to last us until the end of our lives.
Note I said simple, not easy. Both require patience, single-mindedness and self-discipline. But both solutions will work as long as you stick to the plan — and you’ll save yourself a fortune in the process.