With most market participants making money this year, the timeless quote by Napoleon in the subject line rears its head, once again. Regular non-readers know the wonderment I have on the impact of luck on investment outcomes.
The markets have been on a tear (sure you didn’t notice), and my mailbox/chat is seeing two polarized stances. On one side is the Bullish Apology. Where market participants pre-emptively share justifications for continued strong markets everywhere. This group exhibits hyper optimism, using recent history as the periscope through which to peer at and gauge the future.
The second, and potentially, the more interesting group, is the Bubble Babble crowd. This group looks askance at the rallies, and deems things a bubble. This year has given this group a great polarizer. Bitcoin. A tiny bit know much about it. Most know a bit about it; yet there is a growing supply of those sharing their two coins, calling Bitcoin a bubble.
Both groups share certain characteristics. They are tenanted with folks that have ridden the high tide and exhibit a sense of triumph. Both exude high conviction; in their own, and others’, interpretation of reality. Rather than reality itself.
Both have vociferous voices. Of those that missed out on the rally and/or entered belatedly. Many suffer from bouts of ignorance, which is quickly anesthetised with conviction in their own, and others’, interpretation of reality.
This belief inhibits both groups from acknowledging the charms of Lady Luck in influencing investment outcomes.
|India Equity Universe: Falling strike rates of Napoleon’s Lucky Generals.|
The experience illustrates why a probabilistic psyche and a healthy prescription of humility are such useful attributes in investing.
The optimal strategy is to participate in games where one has reason to genuinely believe that they:
1) understand the game.
2) have favourable long-term odds.
Here’s my bullish apology at bursting the CAGR bubble.
Most of us are unlikely to ever be Napoleon’s Lucky Generals over long periods. Positing investment decisions on being one is fraught with the risk of ending with globules in one’s bank accounts.