Most families today are trapped in the delusions of grandeur that accompany successful investors. We hear about them all the time, especially with news working around the clock. We hear about Buffett and Munger, Dalio, and other professionals. We hear about Grandpa Carl who “was always so good with money. He would faithfully check the Wall Street Journal every morning. What a good investor he was!”
There are two dangers to watch out for here. First, these investors cannot demonstrate their returns. The professionals could only demonstrate real client experience over a lifetime if they report GIPS returns. Almost no portfolio managers conduct GIPS accounting: they have no idea what real returns their investors have received. Grandpa Carl, even though we love him dearly, likely cannot demonstrate his total and annualized portfolio returns. Neither can you if you are like most people. We respect and learn from Grandpa’s discipline, but we cannot know whether he was a truly effective money manager. Second, beating the market is only a sign of what happened in the past, not an indicator of what will happen in the future. It helps no one to announce who beat the market over the last ten years. Out of tens of thousands of managers, THIS one beat the market. What a Lucky Winner! Where were you ten years ago? Tell me who will certainly beat the market over the next decade.
No human knows the future. That is why we have three rules for investing. Own Equities, Diversify Globally, and Rebalance. Maintain discipline to these tenets of prudent investing, ignore the Wall Street hype and greed, and lead the people you love to abundance. If you want to win in this game, your next step is to find a good coach. “How to find a good coach” is the blog post coming next!
Investment Coach | Advisor at Cornerstone Wealth Partners