Investing Myths demystified

At least twice before in the 12 months I’ve extolled the virtues of simplicity with regards to investing. Back in November 2009, I made a reference to the proven remarkable results that a simple investing formula threw out. A more recent write up also substantiated this theme by revealing some of the common behavioural pitfalls that plague most investors and the simple, (here’s that word again), ways to overcome them.

For you see, contrary to common belief, obtaining market-beating results year after year is not directly related to the typical traits, qualities or behaviours you’d come to expect . Don’t believe me?. Here are some revealing thoughts that may help you see it my way.

Myth # 1 – It takes a Harvard MBA to make it in this business

It is a know fact that that the asset management industry is for the most part crowded with hyper competitive Alpha-males fresh out of the top US MBA schools. However, it is also equally well known that on average, that same “asset management” industry is a return diminishing machine largely as a result of its herd-like investing mentality.

More compellingly, it’s surprisingly common to find true investment greats amongst those with limited education, non MBA-wielding types such as Walter Schloss whom despite not finishing college has run a successful investment partnership for over 50 years. Or how about Dr. Michael Burry, who was profiled in Michael Lewis’s recent book, “The Big Short” after delivering exceptional returns by calling the sub-prime bubble years before the professionals, despite operating without any formal business qualifications.

Myth # 2 – Professional experience is a must

If that were the case, why is it that most soundly financed, long established funds fail to meet market averages on a multi-year basis?. After all, these institutions are staffed by experienced professionals with years of professional know-how under their belts. Unsurprisingly, many notable investors like Warren Buffett or more recently Monish Pabrai were able to deliver uncommon results right form the start of their professional careers and in both cases without the benefits of time in the industry.

Quite often, relying on external experts is actually detrimental to results. A recent Forbes article, aptly titled “Tap your Inner Buffet” profiles a couple from California, which some 9 years after firing their full-service broker (who had contributed handsomely to their negative returns up until then) managed to turn the tide and deliver a positive 30% annual performance.

Myth # 3 – It takes major resources to succeed

Ask anyone about the images conjured when they think of investing and they probably, and quite rightly, picture a football field sized trading floor crammed with Bloomberg terminals, numerous simultaneous phone conversations and a generally manic atmosphere.To a degree, this is quite true, but in the same vein as with myth # 1, it is not necessarily conducive to investment results.

These days, a mid-sized desk, and a regular PC with an Internet connection is all that suffices to compete head to head with the “professionals”. Quite simply the most important resource is not material in kind. It is TIME. Time spent diligently reading freely available company filings as well as financial press is proportionally related to investment returns.

At the end of the day this is all good news for those of us that are not willing to part with a large part of our savings by way of advisor’s fees. Having said that, there clearly is no substitute for focus, and passion in the craft.