Apart from value, confidence may well be the most important factor for the production of the best rate of investment progress; without confidence in his ability to produce good results, an investor will seldom be able to produce them -- and never in direct proportion to the efforts expended.
Arthur Jones, the exercise science genius, wrote the above quote regarding the importance of confidence in one's fitness routine, but we altered the underlined words to highlight its role in one's investment routine. We do so to call attention to an almost unbelievable phenomenon: the disparity between the results of money managers and their clients. Over 20 years, including the greatest bull market of all time, the S&P 500 progressed at a 9% annual clip, after inflation, but mutual fund owners made nothing.
Sacré bleu!
Unfortunately, human nature leads investors to flock into recently outperforming funds and abandon laggards, ignoring the enduring financial reality of reversion to the mean. Perhaps Bob Dylan was addressing this in The Times They Are A-Changin' when he sang:
The line it is drawn, the curse it is cast
The slow one now will later be fast
As the present now will later be past
The order is rapidly fadin'
And the first one now will later be last
For the times they are a changin'
In Dylanesque terms, the superfunds of the last several years are destined to fade rapidly. This explains how investors, facing a crisis of confidence, can do so poorly while funds they trade do alright on the whole.
At GIM, we have unshakable confidence because our methods are based upon in-depth historical research -- not fads, fashions, hope, or hype. The GIM Bulletin is designed to help you develop a similar sense of self-assurance.
(Bob Dylan...closet portfolio manager?)
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1. Arthur Jones
4. Sacré bleu
