Luck vs. Skill – Buchan’s Blog August 2018

Luck versus skill. I talk about this a great deal as it relates to investing, but today I want to write quickly about my life, how incredibly lucky I am to be where I am today and three of my most important mentors/influencers that helped get me here.

It was 2006, I was 32 years old, working at as an Equities Trader in downtown Manhattan. While I could say I was moderately successful in my first decade in the “real world,” I was also very much a lost soul, knowing my current career was on its path to being obsolete (with advances in computerized high frequency trading) but, more importantly, realizing that what I was doing with my life was in no shape personally fulfilling.

Belief Drives Behavior – Buchan’s Blog July 2018

Belief drives behavior. The stronger your belief system, the less likely you are to stray from your desired behavior. The converse is also true – the weaker the belief system, the more likely one is to stray from his/her preferred behavior. This is the primary reason why “normal” investors struggle so much, as highlighted by the annual Dalbar study that shows that the stock market has returned 10% per year over the past 20 years while the individual stock investor has returned less than 4% over the same time frame. If your investing belief system is not strong enough, eventually, certain biases (or what psychologists call heuristics) will creep into the subconscious and entice you to make sub-optimal decisions.

How about a fun little game of Q&A?

I’m going to provide you with some basic data (no opinions, just facts), and then I’m going to ask you a couple questions.

The Data: Most of us have heard that the stock market has averaged about 10% returns per year for the last 100 years or so. That data point is very close to accurate, although 100 years is high, as the analytical pundits don’t really feel great about the data prior to 1926 (the computers weren’t quite as robust in 1925…). What we can say with certainty is that from 1926 – 2017 (91 years), the stock market – as defined by the S&P 500 – has returned almost exactly 10% per year.

Fine Tuning

I have had clients over the years ask me if I could ever envision a scenario where I would change my tune. My tune, of course being that – over time – owning small pieces of all of the great companies of the world (aka owning stocks) gives folks a significantly greater chance of growing their wealth and also lessens the chance of them running out of money than lending to companies/governments (aka owning bonds). I cannot imagine ever changing this tune, as the evidence overwhelmingly points to this tune as being gospel.

First Aid Kit

I’m thinking it possible that you may have caught wind of a little action in the stock markets. If a financial website or network or person has gotten you feeling a bit freaked out, or if you’re feeling more stress than you’d like (and note, you shouldn’t be feeling any stress relative to your portfolio), don’t spend too much time reading the below. Instead, call me when you can, and let’s talk. Don’t ever let anything financial related fester. Let’s always nip it in the bud.