Meir Statman: My advice to young people on risk

Posted by TEBI on August 12, 2022

Meir Statman: My advice to young people on risk





Cryptocurrencies crashed spectacularly earlier this year, but prices are slowly creeping up again. And, according to the Financial Times, “big-name asset managers are stampeding into digital assets (and) finding new ways to monetise investor interest.” BlackRock, Charles Schwab and the UK fund managers Schroders and Abrdn, are, according to the FT, all “betting big” on a crypto revival.

Clearly, you’re far better off buying into crypto, and indeed individual stocks, now than you were at the end of last year. But is it really worth the risk?

That’s a question I put to behavioural finance expert Meir Statman, Professor of Finance at Santa Clara University, the other day, and I thought I would share his views on the subject here.

“People buy cryptocurrencies or pile into a particular stock,” Professor Statman told me, “because they aspire to be rich. I’m not talking about becoming billionaires. I’m talking about just being able to switch from a boring job, being able to support a family and so on. So I really empathise with them. 


The biggest risk he took

“I always go back to the kind of risks that I took that were not in the investment field. (My biggest risk) was in quitting a secure job and coming to the United States (from Israel) to pursue a PhD. What if I didn’t finish myPhD? What if I didn’t get a job afterwards? 

“So the question is not about whether you’re going to take risks. You are. The question is, what kind of risk are you going to take?

“I say to the people who buy cryptocurrencies that the way to get ahead in life is not by being lucky — and cryptocurrency is a lottery ticket — it is by education and enterprise. When you make it by education or enterprise, you will have more than money: you will also have a vocation. You’ll also have something that you look forward to doing in life.

“Young people will listen (to what I’ve said) and they’ll say, Well, that’s very nice. You’re an old man now, and it all turned out well for you.”


When you’re young is the time to take risks

But Professor Statman cautions against exaggerating the risks that young traders are taking, particularly as most of them are investing relatively small sums of money.

“When you are young, that’s the time to take risks. Most of your wealth as a young person is in what we call human capital — it’s in your future earnings. If you want to play with some of the money you have now, fine. You know, the damage is going to be relatively little.

“We don’t have to make young people think like old people. We have to remember that we used to be young, and we took some risks that other people would have found reckless. But many of those risks turned out to be very useful for us.”


You can listen to my interview with Meir Statman in full in the latest episode of the TEBI Podcast:




Here are some other recent posts you may have missed:

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Price efficiency unaffected by growth of indexing — new study

The role of concentration in fund performance

How defensive factor indices mitigate short-term declines



If you’re new to investing, TEBI founder Robin Powell and fellow financial blogger Ben Carlson have written a book that you really ought to read. It’s called Invest Your Way to Financial Freedom, and it’s published by Harriman House.

Primarily written for a UK audience, the book has no hidden sales agenda and is based on peer-reviewed academic evidence. It explains, in simple terms, how young investors can develop good habits, save a fortune in unnecessary fees, and achieve financial freedom many years earlier than they otherwise would.

You can either buy the book direct from the publisher or via Amazon:

For those in the UK, 

Buy the paperback via Amazon here

Buy an audio version on Audible here

For those outside the UK,

Buy the Kindle version via Amazon here


Picture: Helena Lopes via Unsplash


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