Invest Like the Best: Just Give Up Now!

I mean it.  Just give up trying to beat the market.  If you’re a Canadian MD (or virtually anybody else), it’s just not going to happen.  And what’s more is that persistence in trying to do so is going to cost you both time and money.

Here are the 2 things I want you to understand about trying to beat the market:

  1. Don’t even try.  Outperforming the market IS possible – JUST NOT BY US.  Investing professionals who devote every waking moment of their lives try their very best to do so succeed over the long term less than 10% of the time.  We’re doctors, not investing professionals with an abundance of time, information, and resources that can be appropriated for the goal of consistently capitalizing on the few opportunities that exist out there for better-than-market returns.  The sooner we realize this, the better off (and wealthier) we’ll be.
  2. Don’t think that you’ll be able to pick one of those rare diamond-in-the-rough investment managers who will outperform the market for you.  You just can’t know ahead of time and it can be prohibitively expensive to try. As Jack Bogle very succinctly puts it:

“Fund investors are confident that they can easily select superior fund managers.  They are wrong.”  – John C. Bogle

That’s why I index.  I’m more than happy achieving market returns because I know that, over the long term, the market rises.  As such, so too does my portfolio’s value.  Easy.

“But why do you want to be only average?!?” you might ask.

I don’t.  And I won’t.  When all of the costs are factored in (i.e., the bottom line, which is the only situation I really care about), the returns I get with a well-diversified indexed portfolio over time will absolutely trounce the returns of stock pickers and owners of actively managed mutual funds.  That’s not average.  That’s superior.

You might also ask, “But what about being nimble and reacting quickly to market changes so that you can take advantage of upturns and not lose your shirt when the market crashes?  Aren’t you worried that your passive strategy puts you at more risk?”

Nope, not at all.  This is because the evidence shows that this isn’t actually what happens, despite what your investment advisor may tell you.  Take a look at how these “nimble” actively managed funds did in 2008-2009.  People who owned those products still got hurt very, very badly, just like everybody else. Remember, as long as your investing time horizon is long enough (e.g., 10 years or more), you’ll be able to recover from any downturns in the market by just waiting them out.  Also remember, the market rises over time.  Sure, it’s a roller coaster but I’m ok that because I know that, after the market drops, it will eventually rise again to a higher level than it was at before the drop.

In fact, precisely because I have such a long time horizon for my investing, I get downright giddy during a market downturn.  The reason for this is that stocks have gone on sale!  This is when I invest more than usual.  Remember, as Warren Buffet said:

“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffet

Others are fearful in a bear market.  So that’s when I jump in with both feet.

In a bull market, I just stick with the plan.  I continue my automated monthly purchases and annual portfolio rebalancing to return to my preferred asset allocation, comfortable in the knowledge that I will continue to stay very close to the benchmark indices I’m tracking and that my “passive” investments will pretty much always outperform the active ones over the time period that I care about.


Action Steps (30 minutes total)

  1. Make a list of the actively managed mutual funds you own.
  2. Figure out which ones you can sell right away without penalty and do it. (Sell the others as soon as you’re able to do so without taking a bath in penalties.)
  3. Check out my post on index portfolios to find the well-diversified, passive, superior-performing strategy that suits you best and use the money from the above to get started indexing.


What do you think about whether or not Canadian MDs have a prayer of beating the market or choosing someone who’s likely to?

Please add your two cents below.

And as always, if you found this helpful, please share it with someone you like on social media and/or email.

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