Despite the formidable reputation and skills of investing professionals, retail investors enjoy real advantages over many other market participants.
We can accept as a given that information, skill, and technological advantages favor professional investors over many time frames. However, there is no need for us, at the same time, to undervalue the significant advantages that we retail investors have over professional investors.
To use an analogy from Texas Hold ‘Em poker, retail investors have a permanent late position at the table, steadily gathering vital information about the overall market, and leaving us able to enjoy successful outcomes with the widest range of starting hands.
From a poker point of view, it’s like we are permanently sitting “On the Button” with deep stacks and a large bankroll in a micro stakes game where the majority of the other participants are mostly in a hurry to make money.
We’re not in any hurry.
For a patient, disciplined poker player, this is a recipe to steadily make small winnings.
That is essentially what Jack Bogle advised all of us to do as investors. While there are no guarantees, our Boglehead approach is a pretty solid strategy, and, we think, the best one available. Patience and discipline are key; it’s critical that we feel absolutely no pressure to make quick profits.
However, there’s one piece of received wisdom that I’ve read, that I would modify slightly.
We are not necessarily “dumber” or “less informed” or “less skilled” than professional investors. We are just in a very different position from them. In fact, many times, simply by virtue of our steady, small, diversified investments and long-term perspective, we are capable of taking actions that are effectively much “smarter” than a professional market participant.
Given this inherent positional strength, long term strategies like robust diversification, consistent rebalancing, an informed use of fixed income, and maintaining an appropriate AA in each investing phase are crucial tools that augment the Boglehead approach and promise to build the strongest possible portfolio outcomes over the long term.
In general, so long as we take this long view, I also think we should trust our insights and the powerful advantage we gain when we view our portfolio with a long term perspective. Where any of us diverge slightly from Boglehead orthodoxy, we should focus on long term diversification strategies that complement a core Boglehead approach and are positioned to take advantage of a long term investing horizon.
To conclude my poker analogy, it's only when we give up our positional advantage (patient, long term) and focus on short term gains that we become much more vulnerable to exploitation by the formidable advantages of professional investors, not to mention the predation of short term speculators.
We can accept as a given that information, skill, and technological advantages favor professional investors over many time frames. However, there is no need for us, at the same time, to undervalue the significant advantages that we retail investors have over professional investors.
- Individually, we make regular, small-sized investments
- We steadily invest in the market at our AA whether the market is up, down, or sideways
- We invest with multi-decade horizons
- We can easily purchase the least expensive investments, including investments only available to investors like us (ex. US Savings Bonds)
- We do not need to make a return above fees as professional investors do
- We tend to seek the market return over time, and accept that our eventual return will be whatever the market gives us after we pay our overall expense ratio
- Investments that yield the overall market return (ie. low cost index funds) are readily available to us, and at a lower cost than ever
To use an analogy from Texas Hold ‘Em poker, retail investors have a permanent late position at the table, steadily gathering vital information about the overall market, and leaving us able to enjoy successful outcomes with the widest range of starting hands.
From a poker point of view, it’s like we are permanently sitting “On the Button” with deep stacks and a large bankroll in a micro stakes game where the majority of the other participants are mostly in a hurry to make money.
We’re not in any hurry.
For a patient, disciplined poker player, this is a recipe to steadily make small winnings.
That is essentially what Jack Bogle advised all of us to do as investors. While there are no guarantees, our Boglehead approach is a pretty solid strategy, and, we think, the best one available. Patience and discipline are key; it’s critical that we feel absolutely no pressure to make quick profits.
However, there’s one piece of received wisdom that I’ve read, that I would modify slightly.
We are not necessarily “dumber” or “less informed” or “less skilled” than professional investors. We are just in a very different position from them. In fact, many times, simply by virtue of our steady, small, diversified investments and long-term perspective, we are capable of taking actions that are effectively much “smarter” than a professional market participant.
Given this inherent positional strength, long term strategies like robust diversification, consistent rebalancing, an informed use of fixed income, and maintaining an appropriate AA in each investing phase are crucial tools that augment the Boglehead approach and promise to build the strongest possible portfolio outcomes over the long term.
In general, so long as we take this long view, I also think we should trust our insights and the powerful advantage we gain when we view our portfolio with a long term perspective. Where any of us diverge slightly from Boglehead orthodoxy, we should focus on long term diversification strategies that complement a core Boglehead approach and are positioned to take advantage of a long term investing horizon.
To conclude my poker analogy, it's only when we give up our positional advantage (patient, long term) and focus on short term gains that we become much more vulnerable to exploitation by the formidable advantages of professional investors, not to mention the predation of short term speculators.
Statistics: Posted by SantaClaraSurfer — Sat May 25, 2024 4:31 pm — Replies 2 — Views 252