Morgan Housel of Collab Fund stated:
“There are three legal investment strategies: Be smarter than others, be luckier than others, be more patient than others. That’s the whole list.”
He’s probably right, isn’t he? I can’t think of any others. So, let’s take that for granted.
You’ll note he doesn’t assign chances of success, or that they will be successful at all, what interests me is how each of the three might be attractive and relevant to us individually and in combination.
“Smarter”
If smart means intelligence then we need to be careful to park our egos at the door.
There are hundreds of thousands of PhDs and the like, with immensely smart computer systems, poring over epic volumes of data looking for an edge. We’re not going to match that, and we don’t need to for a successful outcome.
However, “smart” people are also prone to believing in their own smartness, to hubris. The skills and intellect required to be more successful than most is a double-edged sword.
Read the story of Long-Term Capital Management and you will be convinced that being overly smart is not necessarily a great asset.
And bear in mind that we only really see the winners and rarely remember the losers. For every “smart” success – Musk, Bezos, Gates, Buffett there are thousands of very smart people that failed.
Being “smarter” than others is no guarantee of success.
However, being smart enough to know what does and does not work well for you is.
“Luckier”
Where do you start with luckier? It already sounds like we’re stood in a casino or a Ladbroke’s. Some people mistake “luck” for “smart”, they find themselves in the right conversation at the right time, they receive a windfall at an opportune moment.
When we think about it (and if we’re honest) all our successes owe a great deal to luck in one way or another. We rarely recognise this, yet we are happy to write off our mistakes as bad luck, but not our successes as good luck.
What you can be sure of is that, despite how things might feel, you are amongst the luckiest people to ever inhabit this planet. You live in a prosperous, democratic and free country, you have food and shelter and above average health and wealth – most people on this planet would swap places with you in a heartbeat.
I think that’s enough luck to build on without hoping to get lucky with your investments.
“Patience”
Patience is universally available, and easily done. If you have colleagues / family / children / pets / a football team, you know what patience requires and what it does not. Usually, it requires sitting still why the storm blows through, other times it might require us to leave the room and go for a walk. It never requires us to get worked up and agitated and make unprompted, unthinking changes.
Patience is not a skill, not in the way computer programming or penalty taking is, it is a condition, a choice, something available to us all the time and everywhere.
And the really good news is that it applies to and works well on all aspects of your life, your financial plan and investment strategy too.
With a little bit of common sense and a whole heap of patience anything and everything can and will be better.
Our work at TCFP is not to be smarter or luckier than others it is simply to be more patient.
We know this is a winning strategy, a strategy that will earn you inflation beating returns over time, because it is writ large in the historic investment returns, SEE HERE.
The average, impatient investor who thought he was smarter and luckier than everyone else consistently does worse than the patient investor who does not (60/40).