This post is a sister post to my previous post of “The correlation between fund size and return on investment.
Common causes
Generally speaking, for long-term investors who have been investing for decades, it is impossible for their investment portfolio to have only three or five stocks. Once the number of stocks in the investment portfolio increases, there will be many factors to consider when exchanging or adjusting stocks.
The funds in the investment portfolio have become very large, and the investors themselves are no longer young, so they almost all adopt a more prudent and conservative investment plan and do not take risks to ensure that they will not lose money due to excessive investment risks. When investors are no longer young, if they lose their previously accumulated funds, their chances of recovery are lower.
When the funds in an investment portfolio are too large, there will be many factors or restrictions to consider when changing investment targets or moving large sums of funds; this is something that retail investors with small funds cannot understand.
Decades of investment experience have told him that truly good targets are actually very rare.
With a long-term investment mindset, you won’t act rashly. Generally speaking, people believe that stocks that will skyrocket in value tend to have extremely high risks, and the chances of them being able to sustain for the long term are low.
Based on risk considerations, even if a small amount of funds is invested in promising small-cap stocks, lottery-like stocks, and skyrocketing stocks, it will not have a significant impact on the overall rate of return on investment.
Premise of this article
- The funds in the investment portfolio fund size must be really huge enough. There should be only a very small number of “rare people” who meet this requirement. However, this is a prerequsite for this article.
- Except for very few years, such as the once-in-a-decade crash, the portfolio has indeed been rising steadily every year.
- This is most important for long-term investors, those with a minimum investment period of three decads or more.
Why did the famous investor disappear later?
If you have a good memory, investors, have you ever thought about this: Why are most of the so-called investment celebrities who were once so glorious, had amazing investment returns, and were all over major print and electronic media, disappearing later? The reasons are nothing more than the following:
- Quit while you’re exceptional, Peter Lynch is the most famous representative.
- There are two typical and well-known examples of the shattering of performance myths: the Baupost Fund, founded by value investment guru Seth Klarman, achieved an annualized return of about 20% in the first 26 years, with outstanding performance; The average annual return since 2014 has been only about 4%, significantly lagging behind its peers. Another great example is Bill Miller, who simply retired for similar reasons.
- Ordinary people, including most investors themselves, those reported, or most internet celebrities, financial experts, and scholars, have no idea how to define a good investment return rate, and ignore the importance of annualized return rate and long-term compound interest. The audience and the media will only be brainwashed by wrong ideas and follow the crowd, without knowing how many years the person being reported has invested. What is the return on investment over a lifetime? How many assets do you have? Are the assets investments or income from employment? What is the annualized rate of return? How many once-in-a-decade stock market crashes have you experienced?
- If the investment portfolio has an extremely poor return in just one year and fails to fully recover the following year, most cases will find it difficult to recover or may even never recover.
- The law of large numbers, as time goes by, the rate of return on investment continues to decline, and the subsequent rate of return on investment reverts to the mean. The better result is that the rate of return on investment gradually becomes dull and not worth mentioning. The worse result is that the rate of return on investment is repeatedly lower. In terms of market performance.
- In order to continuously pursue better performance, people begin to take risks, such as large-scale short selling, trading derivatives, and using a large amount of leverage. For most people, these financial operations are doomed to end in failure. The better outcome is to lose all previously accumulated funds, while extreme cases may lead to bankruptcy, and some people may even be reported on the social pages of the media for breaking the law and taking risks.
Exceptional IRR over a full investment career are rare
But I still respect the type of Seth Klarman and Bill Miller mentioned in the previous paragraph for the following reasons:
- Because it is not easy to maintain mythical performance throughout your career, this type of performance is already very difficult.
- Because they have “decades” of outstanding performance proving they are still excellent. From this we can see how rare and difficult it is for Buffett to achieve an annualized return of nearly 20% throughout his career.
- Please pay special attention to the fact that the size of their investment portfolio is in the tens or hundreds of billions of U.S. dollars, and I have repeatedly emphasized that this is the annualized return over a “complete investment career”!
Personal experience
Why is Buffett great? Because he has been able to avoid major mistakes throughout his investment career, stick to his investment principles, invest for the long term, believe in long-term compound interest, and steadily increase his investment portfolio. From 1965 to 2023, a period of 59 years, Buffett’s portfolio had an annualized return of 19.8%. By comparison, the S&P 500 had a compound annual return of 10.2% during the same period.
It is rare to find someone who can accumulate wealth and deliver an impressive annualized rate of return throughout his entire investment career. However, if there is one, his accumulated funds and annualized rate of return will be Extremely amazing!
Improving ROI is not easy
Investors of the level described in this article have large portfolios and good returns, and if they remain in the market for decades, there is no reason why their annualized returns over the past few decades would not be good. Investors of this level all have their own investment style, which is generally unlikely to change – and I personally don’t think it’s necessary to change.
This is why Buffett made the following remarks.
Buffett once said in 2019 annual shareholder letter:
“Prices are sky-high for businesses possessing decent long-term prospects,” he wrote, adding that this “disappointing reality” will likely mean that Berkshire will add to its pile of cash.
“We continue, nevertheless, to hope for an elephant-sized acquisition,” Buffett said.
Closing words
Is the more funds the better return rate? Buffett said: “I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
Investing is a marathon, not a 100-meter sprint.

Related articles
- “The larger the portfolio, the lower the return on investment will possibly be over decads“
- “The correlation between fund size and return on investment“
- “Checklist to see if your return on investment is good or not?“
- “Why Buffett deserves further study?“
- “The disadvantages of retail investors“
- “The advantages of retail investors“
- “The career annualized return on investment of top investment masters“
- ““One Up on Wall Street”, Peter Lynch’s great book for investing newbie“
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