The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own.
Monday, January 12, 2015
The Danger of One Year Performance Numbers
“Investment wisdom begins with the realization that long-term returns are the only ones that matter.” – William Bernstein
Now that 2014 is in the books, I’m starting to see the usual flood of annual performance reviews to show what worked and what didn’t. I’ll save you some time – U.S. large cap stocks and long-term U.S. treasury bonds were the place to be and outperformed just about everything else to some degree.
As you read these pieces you get the sense that the authors are shaming you for not being invested exclusively in only the best performing assets. This myopic view of a single annual period completely misses the point of long-term investing and it’s the reason most people fail when implementing a portfolio strategy.
Assuming you have a legitimate investment plan in place, you should never feel ashamed that your portfolio doesn’t keep up year-in and year-out with the best performing strategies. It’s madness to think that way. It can only lead to stress and future pain from chasing the wrong types of investments.
Everyone preaches risk management right up to the point that annual performance figures are updated. That’s when the insanity of the performance chase and second guessing begins. Every single year long-term investment strategies “die” or “fail to work.” And every single year gullible investors fall into the trap of assuming they’ll be able to pick and choose the best performing asset classes.
The best long-term investment strategies will never be the best performers in any given year. They only show their true colors over much longer periods.
As Rick Ferri once said, “Asset allocation is for patient people.”