Key to Investing: Avoid Stupidity
Outstanding investment results don’t require a genius level intellect.
Investing is mostly about temperament and patience. Can you stay disciplined and keep your head when others are losing theirs?
It also doesn’t require greatness or tightrope-level risk-taking. You don’t have to do anything miraculous. Simply committing to quality assets for the long-term works like magic. No heroics needed.
Think of investing like ping pong.1
Unless you’re playing a ping pong nerd, the easiest path to victory among casual players (99% of people) doesn't lie in serving aces, or spectacular forehands. Instead, winners consistently return the ball and let their opponent blow it.
Consistent solid performance is a more reliable path to success than flashes of greatness.
Thankfully, elite outcomes in investing don’t require a miracle or exceptional talent year in and year out. It just requires consistently solid performance.
Not too hot, not too cold.
David VanBenschoten, was the head of the General Mills pension fund. Dave told me that, in his 14 years in the job, the fund’s equity return had never ranked above the 27th percentile of the pension fund universe or below the 47th percentile.
And where did those solidly second-quartile annual returns place the fund for the 14 years overall? Fourth percentile!
- Howard Marks, Oaktree Capital
Some can pull off sporadic greatness, but it’s always hit or miss. Take your friend that loves telling you about his long-shot venture capital investments “I can probably get you in if you can wire funds today.”
No thank you!
Instead, you can do laughably simple things and still outperform almost everyone.
Sort of like this Gen X Olympic shooter (2024 Silver Medalist):
Anyways, I’ve tried to internalize this principle, in part because I first learned it from the late Charlie Munger:
"It is remarkable how much long-term advantage Berkshire Hathaway has gotten by trying to be consistently not stupid, instead of trying to be highly intelligent." - Charlie
Simple enough, but this is a damn HARD lesson to learn, because it took a little brilliance and hard work to acquire the money in the first place.
It’s logical to think you’d need that same intellect and effort to multiply it.
Yet growing wealth requires a lot less skill. You only need elementary school math and laziness (don’t sell early) to 20x that wealth via your investments over long time horizons.
Therefore, the question isn't "How can I get smarter?" but rather "How can I be less dumb?”
Because the most damaging word in finance is ‘FOMO’: the fear of missing out. When you see others achieving sudden wealth in high risk investments FOMO kicks in and it’s surprisingly easy to lose all reason and good judgement. This emotional response feels strategic, but it’s just a useless form of anxiety or fear of falling behind.
Lean Into Your Ignorance
You might think the jury is still out, but I’d like to think I’m not an idiot.
Yet, when considering a new investment, I try to assume I’m the ding-dong in the room. I’m the sucker at the table. This is effective at keeping me and our investors out of sexy investments I’m not equipped to evaluate and stay invested in our durable, quality assets. I don’t want to interrupt our compounding.
Sometimes, to drive this feeling home, I’ll ask what would my Golden Retriever ‘Lucky’ do. She’s a good girl; but she’s not the brightest bulb.
Lucky’s great, but she sure isn’t smart enough to be fooled by complexity. She keeps it REAL simple. If it’s not in her wheelhouse (food, nap, ball) she ain’t “buying it”.
Channel your own Lucky when it comes to investing.
Portfolio Construction: aka Ding-Dong Insurance
If that doesn’t work, adding uncorrelated return streams is another line of defense against…..yourself.
I (and most of Evergreen’s investors) have a diverse portfolio that includes a basket of equities, a healthy serving of income focused investments, some private market funds and a few other uncorrelated assets.
This is the endowment investment approach (built for the long-term), which might seem contrary to the ENTIRE ARGUMENT I’ve literally just made, but hear me out.
The vast majority of my investments are based on dead-simple / advantaged business models I understand clearly. Those are the rules.
As counter examples: I can’t own Snowflake as I don’t know what the hell a “data lake” is. I can’t make Biotech or Pharma private equity investments as I don’t have a snowball’s chance at valuing patent pipelines or FDA approvals. I also don’t love binary type of bets.
These businesses - while great for humanity - are beyond my intelligence.
If Lucky doesn’t “get it”; Lucky doesn’t “buy it”.
But I want a lot more (diversification and higher returns) from my family’s investments than just an ETF can provide.
Because while I'm comfortable with volatility, adding diverse private investments allows me to focus on future vs. current values and ignore daily market drama.
This approach helps foster a long term view that treats market “corrections” (which is a nice way of saying: losing a lot of money quickly) as opportunities vs. problems.
An endowment style portfolio may or may not be suited for you, but either way - to avoid FOMO - I think it’s critical to focus on your personal financial goals rather than others' apparent successes.
And remember, remarkable things come from diligently and consistently avoiding stupidity.
Best,
Brad Johnson
The information discussed herein is for informational purposes only, and is not intended to provide, and should not be relied on, for investment, tax, legal or accounting advice. The contents of this presentation are not provided regarding your specific investment objectives, financial situation, tax exposure or particular needs. Past performance as well as any projection or forecast used or discussed in this presentation are not indicative of future or likely performance of any investment product. To the extent provided, target returns are presented in order to help prospective investors understand the applicable investment strategy in comparison to other investment strategies. Targeted investment characteristics and return profiles are for informational purposes only, are not indicative of future results, and are not guarantees.
Credit: Simon’s Ramo’s book, “Extraordinary Tennis Ordinary Players”