In an uncertain world, does any timeless investment wisdom exist that can guide one forward?
Conversations with clients this week triggered consideration of a few pearls picked up over the years that are well-worth re-consideration.
Wisdom from Peter Bernstein. The late Peter Bernstein was a financial historian, prolific author, and the head of his own investment advisory firm established in 1973. He asks whether history really tells us anything about what lies ahead. All of us are mesmerized by the long run averages in a broad sense. The Ibbotson charts depicting growth in the major investment averages as an ever-rising mountain make it appear great investment returns are inevitable. However, the long run averages and their visual representations obscure another reality—that each period’s returns are influenced by preceding events; there is no “normal.” There are only our statistical representations of what is normal. “There is no predestined rate of return. There is only an expected return that may not be realized…the long-run is an impenetrable mystery.” Financial Times (tiered subscription model).
Wisdom from Howard Marks. Oaktree Capital Management’s Howard Marks reminds us that success in investing is not a function of what you buy; it’s a function of what you pay. An asset of high quality can be overpriced and be a bad investment; an asset of low quality can be bought cheaply and be a good investment. An important question about a portfolio is not if it made money when the market went up, but if it would have stayed intact if the market went down. He believes we are in a low-growth period. The 1950s until the financial crisis was America’s great environment for growth—the best of times. After the trauma of the financial crisis, it will take time for the country to achieve a comparable level of confidence as the previous era.
Wisdom from Charles Ellis. Charles Ellis, author of Winning the Loser’s Game, points out that most investors who try to beat the market fail. What really matters most is figuring out the investment program that is best suited for you…take the time to “know thyself” financially. What investors should really care about: “Don’t lose. Don’t make mistakes. They cost too much.”
His classic article “Winning the Loser’s Game” is found here:
An interview with Jason Zweig is found here:
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J. Mark Nickell & Co.
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