Charles Ellis and his “Winning the Loser’s Game”

In 1975, Charles Ellis published an article called “The Loser’s Game” in the Financial Analysts Magazine, in which he said: “Investment management is The business (which appears to be a profession but is not) is based on a simple and fundamental belief that professional money managers can beat the market. This premise appears to be wrong.“

Reasons to recommend this book

“Winning the Loser’s Game” is written by Charles Ellis. The most famous book by Charles D. Ellis, this book is also a must-read investment classic that I often recommend to everyone for the following reasons:

• Charles Ellis is the godfather of investment and financial management in the United States. He has decades of practical experience in guiding large funds and Ivy League school funds.
• The most important thing is that he is not just a talker on paper. In his investment career, he has actually operated and guided large-scale school-owned funds to achieve impressive long-term investment performance and is convincing.
• In addiiton to John Bogle, the funder of Vanguard Group, Charles Ellis is probably the representative figure in the financial industry who advocates that all investors should give up the investment method of self-selecting stocks, stop trying to beat the market, and invest in index funds instead.

Charles Ellis Quotes and Statistics

Charles Ellis’s Quotes

The following is Charles. Important quotes from Charles Ellis include the following:

• “The biggest mistake investors make is to want to beat the market. Retail investors can never beat the market.” Charles Ellis believes that the biggest mistake investors make is trying to beat the market. But here’s the thing: the odds of beating the market are too low. For most investors, especially institutional investors, beating the market is impossible.
• Charles Ellis described some of human nature when investing: “Whether investors can control their own temperament determines your final investment performance.”, “If you want to make investing your lifelong career, the first thing to do is What must be done is to “know yourself”!
• “Investors who win don’t compete with others, but with themselves.”
• “Your investment time frame is much longer than your life span.”
• “Separate the timing and methods of your investments, and your investments will not be unaware of your expectations or intentions.”
• “If something is too good to be true, and you think it’s really different this time, it means that something is too good to be true, so don’t believe it.”

Charles Ellis’s Statistics

• Charles Ellis found in his research that in 1900, none of the top ten companies in the United States was in the top ten 50 years later. Not only that, only three companies barely survived.
• The Dow Jones Index was at 1,000 points during the 14-year periods in 1968 and 1982, and at 875 points at the end of 1964 and 1981. In other words, during those 17 long years, although corporate profits increased significantly, the stock market made no progress. The reason is that inflation has increased interest rates from 4% to 15%, which has significantly reduced the price-to-earnings ratio.

Four possibilities to beating the market

But the author specifically points out: No matter which of the following methods is used, it is an impossible task for ordinary investors. Because of actual long-term historical data and statistical regression effects, it is impossible to have an investment method that is continuously effective and profitable in the long term.

Swing trading

No one can predict the market. The stock market’s biggest rises usually occur only in a few days a year and are impossible to predict.

Select a specific stock or category

Stock analysts are engaged in this kind of work, and facts have proven that most of them cannot do it.

Timely changes in asset allocation or investment strategies

Forecasting the economy, interest rates, popular industries, and future technological trends; dreams can be hit in one sentence; but in fact, no one can summarize formulas or general market principles in hundreds of years of stock market history.

A superior long-term investment concept or philosophy

The stock market is unpredictable. As long as someone comes up with a short-term effective method, generally speaking, it will be imitated by others, and it will become invalid soon after, because the stock market is a manifestation of the behavior of all participants.

Why can’t investors beat the market?

Investing is a loser’s game

Bill. Miller’s stock fund beat the S&P 500 Index for 15 consecutive years, setting a record of annualized returns of 16.5% (the S&P 500 Index was 11.5%); but the annualized returns from 2006 to 2008 became negative 23.7% (the S&P 500 Index was 11.5%). S&P 500 Index is negative 8.4%)!

Summarizing his 18-year career annualized return was 8.4%, while the S&P 500 index was 7.9%. But most investors invest money later in their careers, so most investors lose money!

The point is not stock picking

The point is that investors should understand their investment goals, asset allocation and time, not stock selection; but most investors don’t think so.

Investors don’t understand themselves

George Goodman said: “If you don’t know yourself, finding yourself in the stock market will be very expensive.”

Regarding the importance and decisiveness of investment, the correct ranking concepts should be: (1). Investors themselves (2). Market (3). Investment managers. Rather than what most people think: (1) investment managers (2) market (3) investors themselves; this is the reverse order.

Long-term investment

Advantages of long-term investing

The many benefits of long-term investing are as follows:

• Generally, investors can use regular fixed amounts to eliminate the risk of rising or falling interest rates.
• If you decide to invest for a long period of time, you are insuring yourself because you can eliminate the risk of unpredictable market fluctuations.
• Long-term investors can almost avoid the possibility of serious investment losses.

Time is priceless

Investors only discovered Charles when they were very old and had run out of time. Ellis was right, but it was too late. By this time, the mutual fund industry has already made enough of your custodial fees and handling fees, and then gives you poor long-term returns, often worse than the performance of the market’s ETFs, but it is too late.

Long-term annualized investment returns matters

Just like my previous post “Investors should care annualized rate of return (IRR), calculate with free IRR Calculator“. Don’t just see influencers or managers described in the media bragging about amazing ROI. Just like my other post “A investor can be sustained or not? how to verify?” According to the content of “Three Review Criteria”, the investment period must be more than ten years, the assets of the investment portfolio must be large enough, and the long-term annualized rate of return (IRR) must be much higher than the market; only when these three conditions are met can there be reference research. Otherwise, just read it as a novel or essay competition, and it is not worth your time.

Don’t fall into recency bias

Charles Ellis specifically quotes a thought-provoking statement from Graham in “Security Analysis”: “Long-term investors should avoid learning too much from the adverse situations in recent experience.” This is consistent with Buffett. What is emphasized again and again is the same, “Investors should not keep looking in the rearview mirror, but should look at the windshield ahead.”

Invest strategically

Write down your own strategy

“Investors always prefer to sell out their holdings at a huge loss when the stock market plummets and buy assets such as bonds with poor returns but safe investment, so that they miss the biggest rise when the bottom rebounds. On the contrary, they always lose money when the market is close to When the top is the most optimistic, buy at the highest price.”

The reason is that investors follow the trend, and everyone needs to formulate an investment strategy that suits them, and it must be documented. The important thing is to implement it steadfastly for a long time and not to be swayed by any factors.

Portfolio Management

Choose an asset management strategy that suits your investment portfolio, implement it in a principled manner, and then review it regularly. The second is to regularly calculate the performance of your investment portfolio, and when the market becomes more pessimistic, you need to face it more honestly.

As for the numbers that need to be reviewed regularly, please see the explanation in my previous post: “What information should investors document?“.

Only by working hard to implement these two points can you easily discover the mistakes you have made, review your mistakes, correct them, and make progress.

Long and short term fund

In a nutshell, funds invested for more than ten years should be placed in stocks; funds invested for less than two or three years should be placed in cash or money market funds.

Inflation and compound interest

Retirement is more expensive than you think. Most people ignore the amazing power of interest rates and inflation, plus compound interest. The multiplication of these factors will cause your assets to shrink much faster than you think.

For senior or FIRE(Financial Independence Retire Early)

Charles Ellis emphasized: “The real question is whether the hedge funds you invest in can continue to produce such good performance year after year.”

Buffett’s famous quote: “The first principle of investing is not to lose money, and the second principle is not to forget the first principle.”

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