This Investor Is Probably Better Than You (2024)

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Sure we all know of Warren Buffet, the “Oracle of Omaha” and perhaps others such as Benjamin Graham, George Soros, or, someone every index investor should owe a deep debt of gratitude to, Jack Bogle (who founded the Vanguard Investing Group).

True these investors are definitely far superior to the average investor dipping his or her toes in the market.

But that is not the investor I was talking about in the title of this post.

No this investor will most likely not have a recognizable name in the media.

There are no Investment Firms or Banks bearing his or her name.

But there are numerous research studies that have shown that this investor consistently beats the average Joe investor.

Is there some inside information this particular investor has that is not available to the general public?

Does this investor spend all his or her day perusing financial blogs, absorbing financial news from all sources of media to be armed with the appropriate knowledge necessary to beat the average investor?

The answer to both is a resounding no.

The only criteria that sets this investor apart from the average investor is this: He or she is dead.

That’s right.

The odds are that there are numerous deceased individuals who have investment accounts that have returns surpassing those individuals who frequently trade.

Why is that?

It is not that these investors happened to pick the right stocks at the right time and let it ride.

Fidelity did a study reviewing how various portfolios performed and found that the best ones were owned by individuals that were deceased and the second best group were by individuals who actually forgot that they had an account.

Now I am not suggesting that to boost your investment returns you should promptly die.

But an important take-home point would be to have the mentality of the dead or individuals who forgot they had accounts.

You have to recognize and then fight the ingrained responses a typical investor has:

1. The Fear of Missing Out (FOMO):
   • This can be a huge detriment to your overall investment performance.
   • When you have “financial gurus” screaming at you on your TV and the internet and financial outlets providing examples of individuals rapidly increasing their wealth (the recent Bitcoin rage is a wonderful example), there is a basic instinct to buy in as well, otherwise you may be left behind.
   • By the time the information disseminates to you it is likely too late.
     • The prices have already been driven high and you are setting yourself up for buying high and, further down the road, selling low.
     • This is the opposite of the good investor mantra (Buy Low, Sell High).
   • I am definitely not immune to this phenomena and a good example of that is the office lottery pool.
     • I do not typically go out and buy lottery tickets or scratch-offs (even though sometimes I am tempted after watching shows like “How Lottery Changed My Life” or “My Lottery Home”)
     • However whenever the office pool for a lottery comes in I will definitely “buy a share”
       • It is not the thought of winning that drives this contribution.
         • Rather, it is the thought of not contributing and by some stroke of luck my co-workers win.
         • That scenario would probably eat away at me more than anything else because I would second guess that decision for the remainder of my life.
2. The Fear of Being Stuck Holding the Bag:
   • When there is a downturn in the market and stock prices are plummeting, there is an intense desire to “cut bait” and not be subject to further losses.
     • By selling an asset, an investor essentially “locks in” that loss converting it from a paper loss to a true loss.
   • This typical investor behavior can be self-fulfilling prophecy as people start dumping shares, driving the prices down further, and sometimes below true market valuation.
   • It takes nerves of steel to hold, and even more to buy, a rapidly declining asset. But this is indeed how the real money is made.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”-Warren Buffet

• There is still a risk of “Catching A Falling Knife” implying putting in good money after bad can be detrimental.
  • However with broad market index funds this scenario is negligible as throughout history the markets have always recovered and progressed in an upward trend.

So if you can resist these basic urges much like the deceased or forgetful investor, typically your patience will reward you.

Superpower Take-Home Points:

1. Investor behavior is typically detrimental to a portfolio explaining why often the best performing investors are deceased or forgetful.
2. Recognizing harmful investor behaviors and shunning external/media influences can help counteract these harmful tendencies.

Note:

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Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.