Touched by the Gods

If a tall man has a son, chances are the son will be shorter than him. Mean reversion. Things tend to be pulled back to their long-term average. But we tend to run like headless chickens after things that are doing well, which (if it involves limited supply and demand) leads to self-fulfilling (and often excessive) further success. Momentum. The trend is your friend. Till it isn’t. These two forces compete and create a large cloud of smoke around investment performance. Numbers mean very little over a short period, and over a long period are stale (they tell more about what has happened, than what will happen). I don’t believe investors are touched by the Gods. Even the father of value investing, Benjamin Graham, only modestly outperformed the benchmark. I believe what really matters is the actual work the Capital is doing, risk management, and making sure that the Capital is earning its keep over a long period of time. It isn’t about being clever. It isn’t about being different. It is about solving problems consistently and sustainably.