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No one (but a few, much-disparaged market participants, e.g, Peter Schiff, Kyle Bass) wants to disbelieve the government's inflation numbers, because the consequences would be so horrific for their planning. And when all of the readjustments done to the CPI since 1990 are backed in (as John Williams does at Shadow Stats), the numbers are still meaningless. What matters to each household is its own spending patterns and its own increasing/decreasing costs. But any household that tracks its expenses on a YOY basis can tell you to the basis point what its actually-experienced inflation-rate is, and it can project the future worth of its present dollars. Using that figure, it can then estimate whether an investment is worth undertaking.

I fully agree with Dalbar's well-documented finding that the "average investor" (equity or fixed-income) is a total idiot. Everyone can have a bad day in markets, or a bad week, month, quarter, or year. But it takes genuine stupidity to lose money every year for 20 years, which is exactly what the average investor has done. They've brought more money (aka, purchasing-power) to markets than they've take away from them, except in the rare years of raging bull markets when even dart-throwing still out-performed them.

The upside, of course, of having dumb investors is they become food for the hawks and wolves. So Wall Street encourages the mice and rabbits to ignore the impact of taxes and inflation on their investing. The financial world needs both prey and predators. It's just a matter of choosing which role one wants to play.

Anyone who isn't consistently pulling more money out of markets on an after-taxes, after-inflation basis than they bring to them is just a 'hobbyist' who is "paying to play". They certainly aren't 'investors' in any meaningful sense of the term. They might call themselves 'investors', and they might go through some of the motions. But they're just fooling themselves if they think they have a sound plan unless, of course, their intention really is to lose money, which isn't as ridiculous as it sounds.

“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” (Ed Seykota)

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