The Most Important Lesson I Learned This Year

by | Dec 23, 2015 | Asset Management, Investor Behavior

An exchange I had with Ben Carlson on Twitter last week sets the table to share the most important investing lesson I learned in 2015:

Buy and hold investing is no good, according to the trend followers. Technical analysis is voodoo, according to the fundamentalists. Tactical investing is insane, according to the 60/40 allocators. Value doesn’t work, according to the momentum investors. Active investing is dead, according to the passive gang.

You could flip all of these statements around and it wouldn’t change my lesson for 2015: all of these strategies work in their own way. None of them are always right, and none of them are always wrong. The sooner we can accept this, the better off we will be.

Like Ben tweeted, there are skeptics of virtually every strategy, AND that’s a good thing. It’s justifiable to be an investment strategy sketpic because seemingly everywhere you look there’s another pundit proclaiming their approach as the best. I think one of the most dangerous mindsets a person can have is believing it’s their way or the highway when it comes to investing. If you think you’ve found the one and only investment strategy that works, you’re fooling yourself.

I’m not saying to not have faith in whatever your strategy might be, but I am saying to not ignore the possibility that other proven ways to make money exist. It’s easy to forget that when you ask somebody what the “best” investment strategy is, their response will usually just be their favorite. This tells you more about them than it does about the strategy’s strength. We all have a tendency to hang out in our own personal echo chambers too often.

One of my favorite lines from the Star Wars saga comes from Episode III. Before the original trilogy purists kill me, let me explain how it mirrors my most important lesson for 2015. Anakin Skywalker says to Obi Wan Kenobi, “If you’re not with me, then you’re my enemy.” To which Obi Wan replies, “Only a Sith deals in absolutes.” 

I’ve always found this line to be funny because Obi Wan tells Anakin that only Siths deal in absolutes…by making an absolute statement. I’m not sure of George Lucas’ intent, but I think it goes to show that even the Jedi were hypocritical sometimes (despite being the good guys).

I think many people have the same conception about investing. Others might not be open-minded enough, but that doesn’t apply to me! We’re all guilty of this in some way, shape, or form. Despite my lesson for 2015 being the concept that there are many successful investment strategies out there, I still find myself dismissing evidence that contradicts my beliefs pretty readily. Confirmation bias is tough, and this is something I’m working to fix.

What I’m taking away from 2015 is this: while you may have an investment strategy that works well, it’s not the only one. Stay humble, for one day your strategy will be out of favor.

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