Obscurity in investing: the bad, the good.

May 27, 2025

Journalist David Brooks wrote this last year:

The bottom line is that if you give somebody a standardized test when they are 13 or 18, you will learn something important about them, but not necessarily whether they will flourish in life, nor necessarily whether they will contribute usefully to society’s greater good. Intelligence is not the same as effectiveness. The cognitive psychologist Keith E. Stanovich coined the term dysrationalia in part to describe the phenomenon of smart people making dumb or irrational decisions. Being smart doesn’t mean that you’re willing to try on alternative viewpoints, or that you’re comfortable with uncertainty, or that you can recognize your own mistakes. It doesn’t mean you have insight into your own biases. In fact, one thing that high-IQ people might genuinely be better at than other people is convincing themselves that their own false views are true.

This is a significant problem in the investment world. Many of the decision-makers in investing checked all those high-IQ boxes, are stamped with fancy degrees, and have had continuous signal bestowed upon them that their insights carry extra weight. This becomes dangerous because the market is a playing field that does not care about those things - it puts no value on who the investor is. In that regard it is truly democratic. A good investor must always be careful to invert the question and argue the other side of the trade.

It's probably fair to say that people who are considered classically intelligent are good at creating complex systems. This reflects in investing because one of the most profitable things firms can do is obscure the fee structure for clients, and there are many ways to accomplish this (scroll down here to see our list). After a short period of self-justification, the fee-obscurers high-five and some people fist bump and then there is that awkward post-Covid-era confusion about whether you are high-fiving or fist bumping, but regardless everyone thinks about how much cash flow they created for the firm, and then some people probably even take the afternoon off, thinking "Today was a biggie, I can accomplish no more."

This is obviously bad because these fee complexities are difficult for the investor to unwind, and they prey on people's time. The fact is that almost everyone who is not paid to create these structures has trouble seeing through them. My father-in-law used to joke that we all need to "eschew obfuscation."

We are hired by people to see through these things, and there are times when we struggle. So don't feel bad.

Here's the conundrum, and I think about this a lot. The obscurity above is bad. But is all obscurity in investing so evil? Day-trading apps hide how they make money, and that isn't going to win them any ethics prizes, but the information on investing is almost real-time in your hand. It's much clearer than illiquid investments that do not trade in a market. But maybe in a lot of cases obscurity brings a lack of knowledge, and an implicit friction to get that knowledge, that has value. In other words, it's better not to always know what is going on.

Over time I have come to see this as a big value-add area for One Day In July. As a client it's better not to track what is happening at every moment, because it helps you to psychologically weather storms and euphorias. This will likely increase your financial returns at the same time as it decreases your blood pressure. You want some friction if you go to buy or sell based on emotion. If you are one of our clients, you know your advisor is going to want to talk about this buying high or selling low, and maybe that's enough to say "Okay, you know, forget it. Let's stay with the plan and I'm going back to work on my garden, where my tulips came up in colors that don't match last fall's packaging."

Ideally, you want clear information on certain things, like fees and prices and potential conflicts of interest. But if the market gets too clear and friction-free, you might get yourself into trouble.

Dan Cunningham

1. The David Brooks quote was in The Atlantic, December 2024.
2. Matt Levine at Bloomberg and Cliff Asness at AQR have written about investment obscurity here and here.