Do MBAs know anything about investing? Not many!

If you offered free hamburgers to anyone with an MBA, you'd run out of them very quickly at Big Company. You'd think that no one stopped after a BA or BS. Amazing how many smart students we have here.

Recently at the water cooler, I asked a very smart and capable friend, with an MBA (in finance?) how she managed her 401k. She told me she switches investments all the time, each year. I said, oh, do you have an asset allocation strategy - are you rebalancing. What's that? I just switch between the funds that are doing well (classic example of hot money chasing past performance).

"oh," I asked, "and how does your approach work?"
"Quite well, I've been making 14% every year."

Now I wouldn't be suprised if she did make 14% this year - the S&P 500 made over 15%. Not bad for active management. But priori years? 2002? Somehow I strongly doubt she made more than a few percent back then. Most people lie or exagerate about their investment experience. Then again, I know what her investment options are and it would have been very unlkely for her to do as well as she claims. Sometimes we project the current year through the past or we ignore losses.

Most interestingly, she knows nothing about Modern Portfolio Theory, investment allocation strategies or diversification You'd think if you paid from $40k - $130k for an MBA, you'd learn how to invest money. Just amazing!