Doing well as an investor isn’t hard. In fact, too often investors make it far harder than it needs to be.
Simple beats complex. Less is more.
To achieve great results, extraordinary feats are not required. Investors commonly try to make the investing process an Olympic gymnastics event, where points are earned for style.
Simone Biles is one of the most decorated U.S. gymnasts of all time. She performs moves that no one else in the world can. Biles created the Yurchenko Double Pike, a skill that requires twisting, twirling, and nailing a blind landing. It’s so difficult and dangerous that no other athlete is even attempting to perform the move in competition.
That’s what makes Biles special.
But investing is not like that. You don’t have to be Simone Biles to win. There are no points awarded for style or degree of difficulty. You don’t have to do incredible things to get incredible results.
Warren Buffett, an investing Olympian in his own right if there ever was one, once told shareholders at an annual meeting, “We look for one foot bars to step over rather than seven-foot or eight-foot bars to try and set some Olympic record. And it’s very nice because you get paid just as well for [clearing] the one-foot bars.”
A new piece of research tells a similar story.
Hendrik Bessembinder is a professor at Arizona State University. He authored research that tracked the performance of every common stock traded on the New York and American stock exchanges since 1929.
Bessembinder’s data unearthed a startling fact: Four out of every seven stocks failed to beat the returns of a simple and safe Treasury bill during their lives as publicly traded instruments.
Stocks should earn higher returns than Treasury bills because investors take far more risk owning stocks – after all, companies can go bankrupt, leaving owners with nothing. But nearly 60% of the publicly traded stocks since 1929 couldn’t deliver on that score.
Bessembinder just released a follow-up study to his initial research. And he discovered yet another important fact: The biggest winners in the stock market – those with the highest long-term returns – weren’t flashy tech companies. They were generally “blue chip” names like Boeing, IBM, Coca-Cola, Exxon Mobil, and Deere & Co.
Financial news loves to talk about today’s market darlings, like Nvidia, Tesla, Google, and Amazon. To be clear, those are amazing companies that have produced eye-popping recent performance. But they don’t come close to the cumulative returns generated by these blue chip companies that have been around for decades.
As it turns out, just surviving and achieving consistent success over a long period of time leads to the greatest returns for companies.
It’s the same for investors.
You don’t have to do incredible things as an investor to earn incredible returns. You don’t have to time the market by getting in and out at the right times. You don’t have to actively trade individual stocks to hold only the winners and never the losers. You don’t have to try and beat the market.
Those actions are like trying to earn style points. But, again, investing isn’t an Olympic sport. You don’t get rewarded for degrees of difficulty.
It’s much easier than that, fortunately. Just hold good investments over long periods of time and go on living your life. Don’t fret about the incessant ticks up and down in your portfolio value.
In investing, doing nothing usually beats doing something.
That may feel wrong – and the financial media would have you believe otherwise – but experience and research prove it’s true.
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