The Difficult Path to Investment Success
"[To be a superior investor,] this is the bottom line: not whether you dare to be different or to be wrong, but whether you dare to look wrong." - Howard Marks, Oaktree Capital Management
The toughest qualification for being a successful investor is the ability to stick with a strategy even when it's not working. Even when the strategy is making you look foolish. Even when there was much money to be made by following a different strategy.
One consequence of following an evidence-based investment strategy is that your portfolio does not look like a traditional portfolio. Your level of diversification is much higher. Unlike your friends, you may not even own a single stock -- only disciplined, diversified funds. Your level of trading? Very likely much lower.
The expected result from this deviation is superior performance over time. Why else would we choose this strategy in the first place? However, to be able to earn this superior performance, returns would have to be different over any given month or year. Different, which can mean either higher or lower. And when that difference is lower, investing can be quite unenjoyable.
Let's focus on diversification as an example. Most US investors primarily hold US stocks in their long-term portfolio. More sophisticated investors tend to accept the rationale for diversification and end up with far more diversified portfolios. To explore these two approaches, let's compare the historical performance of US stocks vs the performance of ...
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