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By: Sam Instone

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July 17th, 2018

A true piece of investing wisdom

Financial Education | Investment

Recently I received a pearl of wisdom in my inbox.

It was from Dan Solin, author of the Smartest series of investing books. 

It was an observation.

One which has major ramifications for investors.

"Nobody knows how to outfox the market, because that requires outfoxing virtually all other investors."

Vanguard founder, John C. Bogle said that.

If you want to meet your retirement goals, you have 3 options.

1. Know what you don’t know 

Barry Ritholtz, CIO of Ritholtz Wealth Management LLC, explains the significance of acknowledging what we don’t know

He quotes a respected, sophisticated investor who states,

"I don’t know how the market will perform next year. I don’t know if stocks will be higher or lower in five years. Indeed, even though the probabilities favour a positive outcome, I don’t know if stocks will be higher in 10 years." 

This isn’t a matter of learning.

They are, in fact, unknowable. 

While there is a lot of noise and opinion in investing, no one can predict the unpredictable.

AES Investment code

The trick is to accept this.

It’s reality.

Your approach to investing should change significantly.

2. Redirect your efforts 

Sometimes, patterns simply don’t exist.

Yet investors waste enormous amounts of time trying to find them.

Picking stock “winners’. 

Identifying the next “hot” active managed fund manager. 

These activities are not just counter-productive. 

They are a huge waste of time.

The massive, multi-trillion dollar inflows into index funds and passively managed funds, and outflows from actively managed funds reflect this reality. 

Investors – it seems – are starting to understand what they don’t know. 

3. Learn how to achieve superior returns

Here’s the secret Wall Street really doesn’t want you to know.

Wall Street

When you stop engaging in useless predictions and other discredited activities such as market timing, and simply capture the immensely powerful market returns (which are yours for the taking), you achieve superior returns. 

Financial journalist Larry Swedroe noted that, when you invest in index funds, you’re also virtually certain to outperform the vast majority of active investors trying to beat the market.

Here’s what you need to know.

By giving up the slim possibility of finding the magic ‘perfect’ investment and accepting the efficiency within equity markets, you increase the odds of meeting your retirement goals.

That’s investing wisdom.

Thank you, Dan!

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About Sam Instone

Sam Instone, Director at AES International, is passionate about positive change and ensuring international investors get better results.

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