The Stock Market Doesn’t Care How Hard You Try (Revisited)

Posted by John Posey

Do you think more effort equates to better investment performance? You won’t find a better education on this topic than from Barry Ritholtz, Michael Batnick, and Morgan Housel. I originally shared this video back in 2019 and many foundational investing perspectives are discussed here that all wise investors should be keenly aware of.

Here are a few highlights for the cliff notes reader. When it comes to investing, the correlation between effort and results isn’t that strong which is a significant contrast to other areas of life.  Alpha in the investing world refers to the ability to beat the market or generate excess return over a benchmark. As conventional wisdom goes, the more effort you put in, the better results you are going to get. I would say I know this to be true first-hand.  I also think it’s safe to say most top performers in any craft would tell you it takes hard work, discipline, and determination to master a skill or achieve at a high level.  But this universal truth doesn’t translate 100% to being a successful investor which can be a source of frustration if you fail to recognize it.

Overconfidence can become easy in investing the more research we put in. We can get a false sense of conviction the more time and energy we put towards making calculated investment selections, especially when coupled with the benefit of 20/20 hindsight on some of those winners we picked in the past…why didn’t we buy more?!! The unfortunate truth is the market doesn’t care about how hard you try or how soon you want to see material results. Personalizing financial goals around what we think the market will do can be a fool’s game if you are not fully acknowledging the unknown. I still think history is the best indicator we have to work with while accepting that the present will always provide some unique circumstances and events – history does not exactly repeat but it rhymes.  Once you accept the market is going to do what it’s going to do, it’s wise to consider you may require a long hold period (5, 10, 15 years & beyond!) to achieve the results you are striving for.

Investors are wise to realize that extra effort doesn’t translate into better results which runs contrary to nearly everything else in life.

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