Being a professional investor is the hardest profession on the planet.
Not because the financial markets are global and 24/7. Not because the markets are full of extremely driven and intelligent competitors. Not because the emotional highs and lows can be soul crushing.
It is because of the constant and measurable competition against passive benchmarks.
Each day, month, quarter and year a professional investor’s performance is measured against both the benchmark and their peers. Outside of professional sports, I’m not sure there is any other industry that generates such objective and continuous measurements. And even in sports, there is no equivalent of a “passive benchmark”. If a player is struggling, teams do not have the option to replace that player with a benchmark that guarantees them the averaged production of every player at that position .
Benchmarks are the most ferocious of competitors. They show up for work everyday. They never get sick. They don’t take vacation. They are always 100% invested so their results are continuously compounding. Most importantly, they’re not aware of their own performance. The S&P 500 will never enter the 4th quarter feeling it needs to really press to have good numbers for the year. Nor will it take December off to “lock in” a good year.
Not only is the pressure unrelenting, but your failures are public on a scale that again only professional athletes can relate to. If you do become a successful professional investor and overcome all of the above, there is always the question of skill versus luck.
No fan in their right mind believes they have a chance of beating a Kobe Bryant or LeBron James at basketball. Yet any investor can now buy a portfolio of index funds and have a good chance to outperform not just a few, but the majority of mutual and hedge fund managers.
This inconvenient truth is like a little voice in the head of every successful investor – “Am I really good at this or have I just been lucky?”. A voice that never goes away as it only takes a couple bad years to destroy an lifelong track record.
A few quick thoughts I had after reading have to do with short-term results versus long-term investing. For example, investors love to know how they did last month or so far this year. When in reality they will not touch the money for at least 10 years if not longer. The real way to measure is over several years as there will always be up and down years. When basing long-term investing on short-term goals is the strategy, the odds of beating the market are very low.
Not because the financial markets are global and 24/7. Not because the markets are full of extremely driven and intelligent competitors. Not because the emotional highs and lows can be soul crushing.
It is because of the constant and measurable competition against passive benchmarks.
Each day, month, quarter and year a professional investor’s performance is measured against both the benchmark and their peers. Outside of professional sports, I’m not sure there is any other industry that generates such objective and continuous measurements. And even in sports, there is no equivalent of a “passive benchmark”. If a player is struggling, teams do not have the option to replace that player with a benchmark that guarantees them the averaged production of every player at that position .
Benchmarks are the most ferocious of competitors. They show up for work everyday. They never get sick. They don’t take vacation. They are always 100% invested so their results are continuously compounding. Most importantly, they’re not aware of their own performance. The S&P 500 will never enter the 4th quarter feeling it needs to really press to have good numbers for the year. Nor will it take December off to “lock in” a good year.
Not only is the pressure unrelenting, but your failures are public on a scale that again only professional athletes can relate to. If you do become a successful professional investor and overcome all of the above, there is always the question of skill versus luck.
No fan in their right mind believes they have a chance of beating a Kobe Bryant or LeBron James at basketball. Yet any investor can now buy a portfolio of index funds and have a good chance to outperform not just a few, but the majority of mutual and hedge fund managers.
This inconvenient truth is like a little voice in the head of every successful investor – “Am I really good at this or have I just been lucky?”. A voice that never goes away as it only takes a couple bad years to destroy an lifelong track record.
A few quick thoughts I had after reading have to do with short-term results versus long-term investing. For example, investors love to know how they did last month or so far this year. When in reality they will not touch the money for at least 10 years if not longer. The real way to measure is over several years as there will always be up and down years. When basing long-term investing on short-term goals is the strategy, the odds of beating the market are very low.
It also hit home with me as an advisor that not only deals with the markets 24/7, but also with many different views on the market via my clients (basically my many bosses). I really think this article will open the eyes of all investors and I suggest you pass it along to your friends.
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