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Heroism Depends on Lost Causes

There is nothing heroic about making money in a bull market, specially when the government decides to boost stock prices. That’s essentially what happened for nine straight years under Ben Bernanke and Janet Yellen. All you had to do to be a player was come up with the cash to buy a TOTAL STOCK MARKET ETF. But not every one could be a genius. And, as strange as it may seem to anyone well versed in finance, a good number of hedge funds couldn’t take advantage of this simple scheme. In fact, the industry could barely keep up with the S&P 500. Read THIS and THIS. There’s an important lesson for investors here: simplicity is the best strategy of all.

In reality, of course, markets don’t go up forever or correct in an orderly fashion. If anything, markets go down savagely and mercilessly. Luck runs out on every one and that’s when skill and discipline come into play. People fail to understand that stocks are dedicated to perpetuating an illusion—and that illusion is about making us believe that the future is always brighter. But this is harder to grasp than a balance sheet or a quarterly report.

To be able to make money when things go wrong requires a special mindset, prodigious market knowledge, and precision. Those who truly understand the game will tell you that anyone can get lucky in a bull market, but to thrive in adverse environments you have to be able to see things nobody else is seeing. It’s about thinking the worst because the worst will happen and still be willing to takes risks.

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