Investing That Just Gets Better
Have you seen the award-winning magician Jay Alexander? After each amazing trick, he looks at you with a gleam in his eye and says, “and it just gets better!” Imagine how you would feel about your financial security if your approach to investing “just gets better!” That’s how I feel when I report the performance of the mutual funds employing investing 3.0.
Knowing What Performance to Measure
Many investors measure investment performance by the balances of their investment accounts. If their balances go up, the performance is good. If their balances go down, the performance is bad. As the words “good” and “bad” suggest, these are feelings. Scientific tests have found that changes in investment balances can trigger these feelings.
If you are like other investors, you have been conditioned to consider the reasons your account balances have gone up or down and you want to know if they have gone up or down as much as they should.
Unfortunately, the reasoning promoted by Wall Street is little more than an elaborate illusion. Similar to a magician asking you to pick the hand holding a hidden object, they want you to try to guess which pundit or investment fad will beat the market. As illustrated in the attached article, “Déjà Vu All Over Again”, the illusion involves recycling investment fads to get you to think the way to outperform market returns is by outguessing market prices, such as stock picking or market timing. They go so far as to get their audience to believe the gold standard for measuring this skill is beating an index. At first glance, this makes sense. After all, only small percentage of mutual funds have survived and outperformed their corresponding indexes.
Although hedge funds, stock brokers and others disparage mutual fund managers to claim better results, independent research has found that their performance is comparable to mutual funds.
Even when you pick from those who beat the market, the fraction that continue to do so is less than what you’d get purely by chance. This leads academics to report that investment success is not tied to the ability to outguess market prices and what Wall Street promotes as skill are examples of good luck.
Because of this illusion, investors have become discouraged, numb to the noise, unable to distinguish between the subtle differences, and fearful of repeating past mistakes. Too many keep trying to outguess market prices because they are mesmerized by Wall Street’s illusion.
It Just Gets Better
However, after looking through the smoke and mirrors and realizing that they are trying to distract you, you are no longer susceptible to the illusions of Wall Street. Now picture the gleam in Jay Alexander’s eyes as you repeat after me: “It just gets better!”
By accepting market prices as fair and concentrating on capturing market premiums, investors using Investing 3.0 mutual funds beat their corresponding equity indexes far more often than those who try to outguess market prices (1.0) or indexers (2.0). And those using Investing 3.0 mutual funds saw percentage of funds beating the corresponding indexes increase over time.
Measure Market Forces and How Effectively We Capture Them
Stepping away from efforts to outguess market prices helps us see how investment markets have taken shape over the last century. We can measure the forces shaping the markets and concentrate our efforts on harnessing those forces to effectively capture market returns. And, with a gleam in your eyes, repeat after me: “It just gets better!”
If you have questions about how to measure the performance of your investment portfolio, contact me to discuss how I can provide a complimentary review.
Lastly if you know others who could benefit from this message, please share it with them and let them know that I’m available for a free consultation.