That proves that luck outperforms managed investing, but that’s not the same as proving that investing is all luck.
I subscribe to a fairly strong (but not total) belief in efficient markets and as a consequence of the positive skew of returns I think the vast majority are likely to underperform the market with a concentrated portfolio and that skill would have a relatively small impact on that.
That said, I do still believe the popular examples of successful investors (Lynch, Buffett) did outperform due to skill, however I don’t think that is an argument either for their teachings or an expectation of skilled investors to achieve material (risk-adjusted) outperformance in future, at least not for big, liquid assets.
The reality is the absolute level of skill was so much lower during their careers so luck played a smaller role. If you compared the skill of the market in the 80s to now in terms of any number of metrics (available information, information latency, compute power, analyst #hours, analyst skill level, #participants, trading friction, liquidity) I think you’d find orders of magnitude in difference which left more gaps for skilled managers to outperform.
There is also another factor of long-term vs short-term investing. The market may be optimised for short term gains, but easier to make long-term gains due to the irrationality of some of the short-term movements.
Does that make sense? No idea, but just a thought .
I reflected on this for a while, going all in on a non-public company, the decision boiled down to my own behaviour.
I sell too soon, I always do. I once traded £2,000 into a company and sold at £4,000 because it was a huge return and I got nervous (I had a strong feeling it would continue to grow but got nervous) if I had held just a bit longer I would have made £20,000.
If Freetrade was public I would have sold at the £1 raise, yes I’d have a nice sum but I would have been far from my target, I almost sold out at the £3.77 raise!
There are of course other factors why I chose Freetrade as my all-in stock, but my behaviour was a big part.
I understand that. As far as investing goes, having the conviction to hold the shares when you feel compelled to sell, or having the conviction to sell and get out despite being in the red, were some of the most challenging parts to learn. It took a while for me to learn not to trade with emotions
So far it looks like your investment has been vindicated so congratulations on that
“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”
- Lefevre / Jesse Livermore
If we’re talking about finance books in this thread, Reminiscences of a Stock Operator is the only truly essential read. Despite the era it dates from
Thanks, I like this snippet