Why You Can’t Beat the Market
Posted August 26, 2021
Imagine how different things would’ve been had Achilles just worn boots instead of sandals.
The lesson of Achilles from Greek Mythology is both simple and profoundly important;
Knowing your limitations and vulnerabilities is just as powerful as understanding your strengths.
This single insight allows you to plan for the worst and still shoot for the best.
But still, people -- especially professionals and experts -- tend to ignore it.
When it comes to investing, beating the market is incredibly difficult. The vast majority of finance professionals won’t and can’t.
Thousands of articles have been written about this simple fact. And yet, 99% of investors still believe the following:
I know I'm better than the average. I can beat the market.
After taking our lumps -- we, for the most part -- get it. We’re not fortune-tellers. We understand our limitations.
That’s precisely why we’ve partnered up with a risk-management software firm called Tradesmith.
Most investors trade with sandals on, exposing their vulnerabilities. Tradesmith gives you boots.
Using established and back-tested insights from behavioral economics, Tradesmith gives you the tools to, in real-time:
→ Know when to sell
→ Know when to buy
→ Know how much to buy
→ Know what not to buy
Daniel Kahneman, author of Thinking Fast and Slow, won a Nobel Prize for his insights on human bias.
He revealed that humans are riddled with biases. Many of us understand these biases on an intellectual level, but it doesn’t help much. We still fall prey to them every day regardless.
Most of his insights apply to investing.
One, called prospect theory, says we are frequently risk-averse with gains and risk-seeking with losses.
Meaning, we tend to sell winners way too early and hold onto losers for way too long. Much of this stems from a profound fear of regret and a deep desire for pride.
We also suffer from what Kahneman calls the “illusion of validity.”
Kahneman defines it as “the tendency to be overconfident about our skills of prediction.”
Here’s what’s most troubling:
The more chaotic the markets, the more chances we have to delude ourselves. That’s because there are more opportunities for the noise to appear to form a coherent, actionable narrative.
As science writer Michael Shermer said, “Humans are pattern-seeking story-telling animals, and we are quite adept at telling stories about patterns, whether they exist or not.”
Tradesmith helps you cut through the noise, biases, fake narratives, and useless emotions.
It’s the difference between going to battle in sandals and going to battle in boots.
A final insight from Kahneman:
"The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments."
Back-testing shows that, in uncertain times, sticking to tried-and-true formulas wins out.
That’s where Tradesmith can help.
And we’ll prove it.
On August 31, we’ll be hosting a live commitment-free event with the team at Tradesmith.
You’ll see how it works…
How it could radically transform your investment strategy…
And how much you could make in the coming months with its help…
Managing editor, Laissez Faire Today