Winning is the American Way. We are all taught to always look for a competitive advantage over our opponent to increase the odds of winning. I had a friend growing up who was more competitive than me and felt he had to win at any cost- whether basketball in the driveway, wiffle ball in the backyard, or tether ball on his porch. Every time I went to his house he was always trying to find an angle that would lead him to his next big victory. He spent so much time looking for a unique strategy that he missed simple opportunities that could lead to victories.
The big question when it comes to investing is can you try so hard to win that it can cause you to lose?
We typically see three types of investors that want to win when it comes to investing.
The first group consists of most individual investors and financial journalists who believe there is a way to buy the right investment at the right time. That it should be somewhat intuitive that certain market movements are obvious. Maybe these events do happen, but no one knows when and to what degree. This is nothing more than a guess and guessing is not a good way to win.
The next group recognizes no one can time the market, but if they invest lots of dollars into research and computer programs it will uncover underpriced securities and allow them to win by picking the “hot” stocks. However, evidence shows there is no correlation between intelligence, dollars spent on research, or hard work that correspond to winning in investments.
The last group of investors recognizes it is difficult to pick individual securities, but they do believe that someone can spot trends in broad market movements and add value by buying when that part of the market is underpriced and selling when the market is fairly valued again. These trends are measurable, but no one knows when these swings will happen and you could miss a lot while waiting.
These winning paths can be fraught with danger. Why not define winning as the ability to do what you want to do when you want to do it? Measuring success and winning then becomes personal and measurable.
Winning is part of our culture. Winning is fun. Winning feels good. However, the reality is too many times the quest for the win can lead to unnecessary risk. The academic community and empirical evidence has shown the best way to invest is to capture the full dimensions of market returns that have historically provided better long term success and do so with the lowest possible cost.
Don’t be like my competitive friend and miss the simple approach that lies in front of you while pursuing a complicated game plan that can lead you away from your personal and financial goals.