Hello friends,
Welcome to the 2nd edition of The Rational Investor Newsletter. Every business day, we share a timeless bit of wisdom from a legendary investor, followed by a little commentary to help Main Street become better investors!
Onto today's quote...[emphasis is mine]
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"'We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.'
...
Simply put, what the pension fund's record tells me is that, in equities, if you can avoid the losers (and losing years), the winners will take care of themselves. I believe most strongly that this holds true in my group's opportunistic niches as well -- that the best foundation for above-average long term performance is an absence of disasters. It is for this reason that a quest for consistency and protection, not single-year greatness, is a common thread underlying all our investment products."
I couldn't agree more with Marks here, but I view this quote from the perspective of the index investor. In fact, I consider Marks's argument here to be incredible support and evidence for why indexing works, because, by making the decision to own indexes, we guarantee that we will never be in the bottom percentiles of performance.
And by default, we also virtually guarantee that we'll end up in the top 10% over time.
Thus, the willingness to forgo the possibility of greatness in any individual year will inevitably--thanks to the avoidance of costs and comparatively poor return years--lead to decades of greatness over time.
It's why the return of the S&P index over 30 years is in the top 10% (most likely the top 2% or so) of all investor returns.
And all you had to do to earn that same return was to own it in perpetuity.
It's counterintuitive that earning average returns year in and year out can produce well above-average returns over decades, but this is the way that the world works. And we should be thankful for that.
Until next time, invest rationally.
-Ashby
P.S. If you'd prefer this in podcast form (with me riffing a bit more on this topic), you can listen to via The Rational Investor Podcast.
