Charley Ellis: Six Nuggets Of Investment Wisdom

Posted by TEBI on March 24, 2023

Charley Ellis has been a voice of common sense in the world of investing for more than 50 years. His book, Winning the Loser’s Game, which explains why low-cost, buy-and-hold indexing is the rational choice for all investors, has become a classic. He’s now aged 85 but still working. Charley recently spoke to Cameron Passmore and Benjamin Felix at the Rational Reminder podcast, and we’d strongly urge you to listen to the whole episode.

The interview contains a wealth of wisdom about investing, but here are six lessons that caught our attention.

1. Success is all about minimising mistakes

“A loser’s game is any competitive activity, where the outcome is not controlled by the winner, but it’s actually controlled by the loser. Golf is a good example. People that are really good at golf will shoot less than par, by two or three strokes on a regular basis. A lot of other people are proud to be able to shoot 90. There are some people who’ve never broken a 100. Well, the difference between the two groups is the mistakes of the people who’ve never broken a 100 and make all the time.

 “Another loser’s game is tennis. If you look at your game, or at least my game, how many times do you win a stroke, instead of hitting it at the net, hitting it out of bounds, laying it up so easily for the other person hit it back, that you’ve essentially forced yourself into a loss? If you could cut back on the number of mistakes and let the other guy increased the number of mistakes he made, you’ll come out the winner of a loser’s game.

“That’s what investing is all about. Most of the activity that most of us spend our time engaged in, in investing actually doesn’t help. It actually does harm. Our long-term results are impoverished by the mistakes that we’ve made along the way.

“In investment management, if you could just reduce the number of mistakes you’ve made, you would come out as a winner. The easy summary of all that is, if you index, you won’t be making any mistakes. You have to choose the right index, that’s fair. If you index, you won’t be timing the market, you won’t be trading too much, you will get excited about something you just heard from a friend of yours who heard from a friend of his that looks like it might be a really great idea.”

2. Active managers do more harm than good

“It’s gotten harder and harder and harder to be an active manager, and successful at the same time. More and more people have accepted indexing is a perfectly rational way of taking advantage of the realities of the market, then not getting suckered into doing things that actually do you harm. It does take a sense of humour, and it does take an appreciation for history to realise. I know you’re wonderful. I know you’re terrifically talented. I know you work very, very hard. But you’re actually not helping yourself, or your clients.

“The perception is, you’ve got brilliantly talented people working hard for you all the time, that’s true. That perception is that they’re going to be able to make a real difference to your economic situation. That’s very unlikely to be true. What’s very, very likely to be true is you’re going to make a wonderful difference to their economic situation.”

3. Outperformance gets harder as aggregate skill increases

To continue reading, please go to the original article here:

https://www.evidenceinvestor.com/charley-ellis-six-nuggets-of-investment-wisdom/