Why Even Smart Lawyers Suck at Investing (And How to Not Suck) (Ep. 141)

Written By Adedayo Adekunle

Are you a law firm owner who finds investing confusing or even frustrating, despite your success in the courtroom or the boardroom? You're not alone, many high-achieving attorneys struggle with building wealth through investments. On this week's episode of The Lawyer Millionaire Podcast, host Darren Wurz uncovers the real reasons even the smartest lawyers "suck" at investing and offers straightforward strategies to help you break free from poor financial outcomes.

Why Does Investing Trip Up Even the Smartest Attorneys?

It's easy to think that intelligence and education guarantee financial success. However, as Darren Wurz shares the real challenge lies in our psychology and instincts inherited from generations past. Our brains are wired to search for patterns even when none exist which often leads to poor investment choices.

The Pattern-Seeking Trap

Remember the infamous “face” on Mars that turned out to be nothing but rocks and shadows? Human nature drives us to find order and patterns in everything. This tendency, called apophenia or patternicity, plays out just as strongly in the financial world as anywhere else.

Lawyers and other professionals are especially prone to looking for investing “systems”: chart patterns, hot stock tips, or timing the market. Whether it’s technical analysis, fundamental analysis, or relying on a single fund manager’s lucky streak, this strategy rarely works in the long run.

Common Biases Sabotaging Your Portfolio

  1. Confirmation Bias: We seek out evidence that supports what we already believe and ignore the rest. This clouds judgment and leads to missed opportunities.

  2. Overconfidence: Law firm owners are often used to being experts and making key decisions. This can blind us to the randomness of the markets and the role luck plays in investment success.

[Real-life cautionary tale:]
A 70-year-old law firm owner in New York can't retire, despite decades of hard work. Her husband, a retired financial advisor, tried and failed repeatedly to beat the market, leaving them struggling. This story is proof that market “genius” rarely pays off rather sound strategies do.

The Data Doesn’t Lie

Investing based on past patterns or a lucky fund manager's track record is a gamble. If you analyze mutual fund performances industry-wide, their success fits a random bell curve not skill or special insight. Most managers fail to consistently beat the market. Survivorship bias (ignoring failed funds) makes it look like beating the market is more common than it really is.

Take the infamous “Super Bowl Indicator” which claims the stock market rises if an NFC team wins, and falls if an AFC team wins. It’s a perfect example of irrelevant patterns that don’t drive real investment results.

What Actually Works for Law Firm Owners?

If you’re serious about building real wealth without sacrificing years to trial-and-error investing, here’s how to make smart decisions:

  • Ditch actively managed, high-fee funds: These rarely outperform and erode your returns with hidden costs.

  • Choose low-cost index funds: Index funds give you the full benefit of the market’s growth—simply and reliably.

  • Be skeptical of market timing: If an advisor brags about beating the market, consider it a red flag.

  • Focus on broad, proven strategies: Don’t chase anecdotes of lucky success. Trust strategies that work over time.

Resources:

 

Connect with Darren Wurz:

Transcript:

Darren Wurz [00:00:00]:

Even smart lawyers can suck at investing. Today we're uncovering the psychological and ancestral reasons why. In 1976, NASA's Viking orbiter photographed what looked like a giant human face on the surface of Mars. People speculated about alien civilizations and ancient monuments, but later, high resolution images revealed alien. It was just a rocky mesa with shadows falling at the right angles. You know, as human beings, our brains are wired to look for patterns where none exists. And this leads to things like images of the Virgin Mary appearing in unusual places, hot streaks in gambling that some people believe in astrology, and even conspiracy thinking. There's a term for this tendency, apophenia or patternicity, if I'm saying that correctly.

Darren Wurz [00:01:02]:

And our tendency, our proclivity to look for and find patterns where none may exist can make us terrible investors and bad business leaders sometimes. Today we're talking about what works and what doesn't work in investing so that you can be a smarter, wealthier investor. And this is part two of our business miniseries where we're taking some clues and looking at some themes from the current book that we're reading in our masterclass series, A Random Walk Down Wall street by Burton Malkiel. And if you haven't yet joined our community in our masterclass sessions, you're more than welcome to. We would love to have you just go down in the show notes, find the link and sign up and we'll see you there. So, as we discussed in our last episode, efforts of technical analysis and fundamental analysis to determine which stocks are best to buy don't work. In our last episode, we broke down the two ways that investors have historically tried to determine what stocks to buy, when to buy them, or when to buy or get out of the market. And those are technical analysis, looking for patterns, and fundamental analysis, which is trying to calculate the intrinsic value of companies.

Darren Wurz [00:02:26]:

Neither of them work. Now, why does this matter again? Well, your proclivity to see patterns where none exists can make you a bad investor and even a bad business leader. But also, it's not just about that. Poor investment returns can really have a heartbreaking effect on your life. And friend, I don't want that to be you. So I'm bringing you this from the bottom of my heart because I see it all the time. I see it tragically all the time. I was speaking with a law firm owner in New York recently who is 70 years old and she's working her butt off.

Darren Wurz [00:03:07]:

She has clients who depend on her very, very strongly and she's very, very busy. She would like to not Be so busy. She'd love to retire, but the problem is she can't. And she can't retire because she hasn't built up assets to be able to retire. And her business has no value because it's literally just her. So she's going to have to just keep working. Now, there is another party in this story who could be contributing. Her husband is a retired financial advisor and worked in New York City with many wealthy clients.

Darren Wurz [00:03:50]:

You know, has, has been an advisor for many, many years. And you would think that a financial advisor, having worked in a very big city where there's a lot of money, a lot of wealth, should have been able to accrue a sizable portfolio over his lifetime. The problem is he's broke. I kid you not. This is a real story. So why is he broke? Well, as we were talking with this particular law firm owner, we come to find out that her husband has been trying to time the market and trying to play the market and play the stock picking game. And has had, in her words, several blow ups. And you know what? When I heard that, my heart sank.

Darren Wurz [00:04:38]:

And I felt, I felt it, I felt it in my chest. I felt it in my stomach like a rock. Because that is the worst outcome of all that we want to avoid. You see, I can afford to not be the world's best investor. I don't need to go out there and try to be a stock picking genius. But what I can't afford, friend, and what you can't afford, my friend, is to be a bad investor. Which means because the outcome is not acceptable, it's an unacceptable outcome. It's an acceptable outcome for me not to be a billionaire.

Darren Wurz [00:05:19]:

I accept that. Maybe I'll be a billionaire, that'd be nice. But it's not an acceptable outcome for me to retire or get to retirement age and be broke. And it happens more often than you would like to think. So why are we this way? Why do we try to beat the market by picking stocks or timing the market? Trying to miss the next big downturn or capitalize on the next bull market run? Well, our brains are wired this way, my friend. It's part of your DNA. It's part of the way you are designed. Your brain is designed to seek order.

Darren Wurz [00:06:00]:

Our brains seek order and dislike randomness. We are always trying to organize things and put things in buckets called schema. If you know anything about psychology, maybe you've heard of the term schema before. I'm not too much of an expert on it. So I won't dive into it too deeply. But basically, our brain wants to structure information, and so we have this innate desire to find order and organization. It's also an ancestral survival instinct. Right? Think about it.

Darren Wurz [00:06:36]:

Our ancestors, the cave people or whatever, out there trying to survive and trying to avoid predators, right? Looking for patterns could be very, very useful in that kind of environment, right? Out in the wild. Well, there's even. It gets even worse. We have certain biases as human beings that we're prone to, and probably these are all related, but two big ones that can really mess us up when it comes to investing. One is confirmation bias. Confirmation bias means that we seek information that confirms what we already believe. This is why we have such political divide in our country, why people can believe such completely different things looking at the same evidence. Evidence, because you come to that evidence with your own set of preconceived notions.

Darren Wurz [00:07:31]:

And we innately look for evidence that confirms our suspicions. We are not objective people, objective beings. We are not. The second bias is overconfidence bias. Ooh. And this is a big one for smart people like you and me, us professionals, right? Who've gone to university, gone to graduate school or law school, and we think we're smarter than everybody else. And so this is a huge stumbling block for us because we think we can pick stocks better than other people sometimes. Overconfidence bias, you know, false patterns exist all around us.

Darren Wurz [00:08:18]:

One infamous example is called the hot hand fallacy. Maybe you've heard of this in basketball, right? When a basketball player has made several shots in a row, they're considered to have the hot hand. And you want to keep them in. Keep them in, because the hot hand, they're going to continue. They're going to keep making baskets over and over and over again. Well, scientifically, this has been proven false. The hot hand thing is a myth. It's a fallacy.

Darren Wurz [00:08:50]:

Why do we believe it still? Here's why. When we see somebody make several shots in a row and they're on fire, right? We remember those moments more often than not, when someone makes one shot, they're going to miss the next one, right? You know, or it's going to, you know, whatever their normal skill level is, they're going to make shots at that pace or that rate, right? The hot hand fallacy doesn't exist. Why we believe it exists is because we remember those instances where we saw it, right? That's called anecdotal evidence. And that is not a way to build a case. If you're a trial attorney, that one example doesn't prove your case. What does prove your case is a broad study and actual data. Okay? Coming from a scientific background, I am a former biology nerd, right? Okay. So the hot hand fallacy does not exist, if anything.

Darren Wurz [00:09:55]:

Actually, what we actually see is someone who misses a shot is more likely to make the next shot interesting. Let's bring it to the stock market. Let me give you one. There are so many ways you could determine if the stock market is going to go up this year. And here's one. It's called the super bowl indicator. All right? You want to make a lot of money in the stock market next year, watch the Super Bowl. If an NFC team wins, the stock market will go up next year.

Darren Wurz [00:10:21]:

If an AFC team wins, the stock market will go down next year. That's called the super bowl indicator. And it's actually historically has coincided pretty well. The problem is who wins the super bowl and what happens to the stock market are completely unrelated events. And so we cannot use is a false indicator. Don't use the super bowl indicator to time the market. Okay? It just so happens that if we look at the data going back, generally when an NFC team wins, the stock market goes up and when an AFC team wins, the stock market goes down. Now, there's so, so many problems with this, right? Teams have switched conferences, so many reasons why you could poke holes in this.

Darren Wurz [00:11:13]:

The two things are completely unrelated, so don't use it. But that's an example. So correlation is not causation, as they say. Now, we talked last time about technical analysis, and I want to dive a little bit more into this. Technical analysis is looking at patterns, looking at charts to determine what's going to happen in the market. Now, at its face value, it's like, yeah, that seems like astrology, right? But if you actually study it, they make a good argument. The argument is all that is known and knowable about a stock is reflected in the current price and in the price action. And the price action, the historical price action was happening in.

Darren Wurz [00:11:54]:

The chart reveals how investors are reacting and how investors are behaving. And so we can extrapolate that and we can look for certain patterns that might mean something is happening with investors. So that can give us a clue about what's happening next. Sounds decent, right? But as we found, it's not useful. And there's a great example why. Okay, here's why. Here's the biggest reason why patterns can be produced by randomness. One of my favorite books of all time is the one we're reading, but also Fooled by randomness by Nassim Talib.

Darren Wurz [00:12:43]:

Very similar concept. And he goes into. I don't think it's that one. I might be wrong. There's an. There might be another book I'm thinking of, but there's a book that talks about fractals and how fractals are a geometric phenomenon that is produced by randomness. And so the point is, forgive me for my lack of memory here, but the point is that patterns can be produced by randomness. Geometric shapes can be produced by random motion, by randomness.

Darren Wurz [00:13:24]:

Here's a great example. In the book A Random Walk Down Wall street, there's a penny flipping experiment that the author describes. Take a penny, flip it. Each time it flips, heads or tails, right? If it's heads, you're going to. You're going to chart it. You're going to chart a line going up one, okay? It goes up one. One notch or one. Whatever, one dollar, okay? If it's tails, it's going to go down a dollar.

Darren Wurz [00:13:53]:

Now, statistically Speaking, there's a 50, 50 chance. If we get heads or tails, 50% of the time it should be heads. 50% of the time it should be tails. Anyone who has flipped coins will tell you sometimes you get multiple heads in a row. Heads, heads, heads, heads, heads. Oh, my goodness. Or tails. Tails, Tails, tails, tails.

Darren Wurz [00:14:13]:

Now, if you actually flip a coin and chart it each time, you will get what looks like a stock price chart and you'll get patterns. And so the point is, patterns can be produced by random chance. And so if we're going back to correlation is not causation, patterns should not be used to help us figure out what's going to happen next because the two things could be completely unrelated. I want to say that again, the patterns happening in the stock market could be completely, and are arguably completely unrelated from what is actually happening or could happen. Now you say, Darren. Well, I, you know, this sounds all good theoretically, but, you know, there are some funds that have beat the market. There are some fund managers who have managed to. To beat the market.

Darren Wurz [00:15:24]:

And yes, there are. But let's remember what we talked about at the beginning of this episode as it relates to anecdotal evidence. We don't want to look at the singular instances of beating the market. Those are going to happen by random chance. Okay? What we want to look at is the broad pattern. Is it statistically significant to actively manage a fund? And statistically it's insignificant. So there are a number of funds that do beat the market, but the number of Funds that do beat the market compared with the number that do not is consistent with what we would expect from random chance. If you are to chart the, you know, if you were to create a graph of mutual funds and their performance, whether they had beat the market and by how much, you would end up with a bell curve distribution.

Darren Wurz [00:16:26]:

Now, as you may recall from your high school math classes, bell curve distribution is what we expect from an event that is random. Right? There is going to be a majority of events of outcomes that are in the middle. There are going to be some outliers that are way, way, way up high and some outliers that are way, way, way, way down. So the funds that do beat the market are what? Outliers? That's right, they're outliers. By the rules and laws of random chance, we would expect statistically that a certain number of mutual funds and fund managers will outperform the market. Now the trick is determining which those are going to be. And that is virtually impossible. The other thing that comes into play is survivorship bias because funds that don't perform well, well, they just get killed off or they get merged into other funds that are doing well.

Darren Wurz [00:17:31]:

And so it's not a really good reliable data exercise to go back and look at historical fund performance because you would actually have to go and find the funds that no longer exist and look at those as well. So we call that survivorship bias. Looking at the funds that exist today, you see some funds have been around long, long, long time. Look, they look like they've done pretty decently well. Random chance we would expect. So the truth is what happens in markets is consistent with what we would expect statistically from random chance. Now that being said, the madness of the crowd can definitely take effect. And you can have large upswings or large downswings in the market, but it's impossible to know A, if this is a large upswing or a large downswing, if it's too much or too little, and B, it's impossible to know when the crowd will actually shift.

Darren Wurz [00:18:39]:

I want to tell you a great story. Maybe you've read the book or seen the movie the Big Short. You know, Michael Burry was the famous investor who shorted the market in 2008 and made, made a killing. He, well, he, he bet against the mortgage backed securities that were so popular in the early 2000s and he won big. But before he won big, he almost lost, he almost lost everything because it took a long, long, long time for the market to finally turn. And so for a Long time. Many clients were not convinced that he was correct. And this is what we discussed when we talked about fundamental analysis.

Darren Wurz [00:19:27]:

Fundamental analysis. You could determine the intrinsic value of a stock. Arguably, that's not really knowable, but let's say you could. Even if you could, there's no, there's, there's no guarantee that the stock will actually converge upon intrinsic value. So Michael Burry wasn't guaranteed to be correct. He could have been horribly, horribly wrong. The market reacted severely and he got a very, very large payout. And I would argue he got very, very lucky.

Darren Wurz [00:20:08]:

What should you do with this information? Well, here are two things you can do with this right now. Look through your portfolio and get rid of any funds that are A actively managed or B, have high funds. Opt for low cost index funds so that you can get the lion's share of the stock market's generous returns. The second thing you can do is if your advisor is telling you they actively trade and they can quote, beat the market or you're thinking about working with someone who's saying this time to go elsewhere. Here's a few takeaways for us, a few lessons we can learn from all of this. Number one, don't confuse luck with skill. Don't be so concerned with singular stories of greatness either, but rather look for broad patterns and what is generally true over time. You know, as a business owner, it can be easy to get swayed by one person on social media and what they have done to be extremely successful.

Darren Wurz [00:21:21]:

That's not how to be successful in business. To be successful in business, follow the broad principles of success. What worked for one individual person may not work so well for you. And don't confuse luck with skill because luck plays a huge role in the fantastic success of those singular stories of greatness. The second big takeaway is in investing. Don't extrapolate the past into the future. It can be very easy to do. Well, usually when this happens, that happens.

Darren Wurz [00:22:01]:

Don't let yourself go down that road. And lastly, if someone tells you they can day trade or pick stocks or time the market, don't believe them. I know your friend bought Nvidia and made a lot of money, right? And you're thinking, oh, I should have bought Nvidia 10 years ago. Well, guess what? If you own the S&P 500, you've owned it all along. And that's the best thing. That's the great thing about index funds. You own everything. I own 51%, whatever the quote is.

Darren Wurz [00:22:36]:

Anyway, I'm off topic. You know we're very passionate about this at the Lawyer Millionaire because we see a lot of mistakes happening. A lot. You know, Jim and I, we review law firm owners investment portfolios all the time. And we have seen some very, very sophisticated investors working with big name firms. I won't name them, maybe I should. Who are being really taken advantage of. They're in high fee funds, they're paying commissions, they have a huge whopping portfolio.

Darren Wurz [00:23:09]:

So maybe they're just not paying attention. But all of that adds up and all of that can really detract from the growth of your wealth. We want to see law firm owners like you succeed and grow the wealth that you need to support yourself and your family. We serve as a one stop shop for law firm owners, kind of like a family office to help you with all of your financial planning, investments, tax and business advisory needs. Want to learn more about all that we offer? Book some time with me using the link in the show notes. And if you haven't signed up for our next masterclass live event, make sure that you do so you'll find the link in the show notes. And remember my friend, the ultimate form of wealth is freedom. I'm your host, Darren Wirtz.

Darren Wurz [00:24:03]:

Thanks for joining me. I'll see you next time.

Adedayo Adekunle
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The Stock Market Myths Most Lawyers Fall For (Ep. 140)