One Thing.....
Jan 18, 2025You see at this time of year is all those pundits or investors telling or showing you how they beat the market. The humble brag perhaps via someone else who mentions them on social media or in a mainstream article. Everyone loves a winner......
Unfortunately, one swallow does not a summers make. Apologies to Shakespeare.
But systematic investing works over time, not every time. It is also just simple statistics.
Nassim Taleb recites a story in one of his books - if there are 100,000 fund managers then one is sure to beat the market in any given year. That is how randomness works.
For example, Bruce Berkowitz was voted fund manager of the decade in 2010 after his stellar performance over the previous decade. Unfortunately, this did not mean Bruce was going to spend the next decade also maintaining his stellar performance. In fact, he took some very large investments with a high degree of confidence and then lost leading to a very low performance over the next decade. One day headline news, the next day's fish and chip wrapper.....
Whether you beat the market in one year will contribute very little to your long-term returns. What will contribute is having an understanding that we all get lucky at some stage, so it is important not to get too confident that there's untapped genius inside you.
I have found that most investors who outperform in the short term become very overconfident as the media falls over themselves to interview the winners. And the incentive for the winners is a large inflow of funds which leads to higher fees and more money.
The second point is having a systematic approach will see you ahead over the long term. The beginning of the year is simply an arbitrary point chosen by the industry because it suits them. And also, investors can see how they performed over the year. But in the scheme of thing, one year doesn't matter that much.
So spend time developing your process and formalising it.
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