Do you consider yourself an active investor who picks stocks and times the market?
๐๐ฐ๐๐ถ๐๐ฒ ๐๐ป๐๐ฒ๐๐๐ถ๐ป๐ด ๐ถ๐ ๐ฎ ๐๐ฒ๐ฟ๐ฟ๐ถ๐ฏ๐น๐ฒ ๐ต๐ผ๐ฏ๐ฏ๐ โ ๐ฝ๐น๐ฎ๐ ๐๐ต๐ฒ ๐ด๐๐ถ๐๐ฎ๐ฟ ๐ถ๐ป๐๐๐ฒ๐ฎ๐ฑ.
Because there is this little challenge:
Stocks (or any investment) are valued by taking a number from today and
multiplying it by a story about tomorrow!
The numbers are easy to find โ take revenue or earnings or dividends. You can then make a reasonable prediction of how those numbers might grow in the future.
Easy enough.
But then you must multiply those figures by a story โ a story about optimism, or pessimism, or how angry investors are with politicians, or how smart they feel, or how persuasive their advisor has been.
Thatโs the multiple on how much investors are willing to pay for the numbers.
And that multiple is impossible to know because itโs a reflection of peopleโs moods at a moment in time.
How could anyone know what kind of mood a bunch of strangers will be in a year from now?
I donโt know what kind of mood Iโll be in tonight.
Half the battle is just staying in the game over the long haul by avoiding crippling mistakes from trying to be too smart.
โ
Successful investing isnโt just about ego or beating an arbitrary benchmark, itโs about maximizing return and considering opportunity costs.
โ
Successful investing is a simple activity, which an entire industry strives to make complicated to justify its existence.
โ
Successful investing takes time. Think 10+ years. There are no shortcuts when it comes to making money in the markets.
โ
Successful investing is generally boring.
I simply buy and hold broad-based index funds (stocks, bonds, REITs) and keep enough cash on the side to finance my life and stuff that happens in life (I donโt want to have to sell my ETFs in a hurry).
Be content with average returns.
Wall Street canโt hurt me if I donโt trade, and the more I trade, the more it can hurt me.
I concentrate on my edge.
The passive vs active investing debate isnโt much of an argument.
On one side is a mountain of evidence in favor of passive investing.
While on the active investing side is a mountain of marketing money attempting to keep a very profitable show on the road.
I stopped active investing (‘finding the needle in the haystack’) years ago.
Now I buy all the haystacks in several barns and still don’t play the guitar. ๐ฏ๐
If you feel a burning desire to share your thoughts, then the place to do that is in the comments section below. ๐