Investing is a game of chance

Yes, you read correctly, Investing is a game of chance.

Table of Contents

Most investors can’t beat the market

Investors don’t believe the fact

Why investors and advisors should avoid trying to time or beat the market? Charles Ellis think: The biggest mistake investors make is trying to beat the market. But the problem is: the probability of beating the market is too low. It is impossible for most investors, especially institutional investors, to beat the market.

“Figuring It Out: Sixty Years of Answering Investors’ Most Important Questions” (Wiley, Aug. 9) covers a wide range of issues about which Ellis has provided his expert insight over the past six decades. (It includes a 20-page chapter on stock buybacks.)

A leading proponent of indexing, he is baffled, if not confounded, that so many investors “honestly believe that what they should be doing is beating the market,” he says.

How are mutual funds performing?

In Section 4-3 of the book “The Rules of 10 Baggers“, pages 143-154, I mentioned the following in the discussion article on “Reason 2” of “Investment Strategy” “Active investment should be over-dispersed, it is better to invest directly in the market” content.

A consistent long-term study by several well-known financial institutions:

Consistent long-term research by many institutions, including Bank of America (ticker: BAC), indicates that only 25% of equity fund managers outperform the broader market.
According to the statistics of Morningstar Direct under Morningstar (ticker: MORN) in 2021, the performance of active US stock funds lagged the market by more than 85%.
The latest report from S&P Dow Jones Indices (ticker: SPGI) shows that more than 79% of active mutual fund managers will perform worse than the S&P 500 and Dow in 2021.
The S&P Indices Versus Active (SPIVA) scorecard, which tracks the performance of active funds, with year 2023’s data showing that 79% of fund managers will underperform U.S. stocks in 2022, up from 42% a decade ago.

John Bogle has done a lot of research himself, and also cited research from a large number of authoritative institutions and people. For example, he cited research by David Swensen, chief investment officer of the Yale University Foundation: Among the many funds like ants, only about 4% of them have outperformed after taxes and fees over the past two decades. The return rate of the market is only 0.6% higher than that of the market on average; 96% of funds underperform the market, and they lose miserably: they underperform by an average of 4.8% per year. Everyone knows that fund managers and brokerage firms have made fortunes, but few have heard of fund investors who have made fortunes.

Place big bets for high odds

There is a 60% chance of stock investing success in the long run

Peter Lynch is one of the most brilliant investors of our time. He once said: “If you are good in this industry, your ideas will be correct only 6 times out of 10.”

Bets big when you have high confidence

George Soros Quotes. I’m only rich because I know when I’m wrong. It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong. It is much easier to put existing resources to better use, than to develop resources where they do not exist.

Charlie Munger would say “You should remember that good ideas are rare—when the odds are greatly in your favor, bet heavily.”

The idea that “a few things affect the main result” applies not only to the companies in your portfolio, but also to your personal behavior as an investor, which is an important influence.

Possibility vs. Risk

Charlie Munger, the Vice Chairman of Berkshire Hathaway and a long-time business partner of Warren Buffett, has spoken on the topic of gambling and investing. Buffett has said that “investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.

Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” Munger believes that investing is a rational and disciplined process, and that it’s important to have a long-term perspective and to avoid impulsive decisions. He also warned about the dangers of speculation and gambling, stating that “speculation is most dangerous when it looks easiest.”

In summary, investing in stocks is a more calculated and research-based approach to growing wealth, while gambling is a high-risk and uncertain way of trying to make a quick profit. Both Charlie Munger and Warren Buffett advocate for a long-term approach and avoiding impulsive decisions when it comes to investing.

Conclusion

Why is Buffett so successful in investing? There are many reasons. But he himself has repeatedly stated that temperament is the biggest key to his success. He has the ability to resist the opinions of the majority and be able to stand alone. His partner Munger admitted that most of Berkshire’s wealth was the result of a few big deals, especially when the market was bad. Buffett’s wealth is not just because he is a good investor, but because he has been a good investor since he was a child.