The investors with the best records over the last decade have proven themselves more adept than others at navigating the shifting investment landscape.
Is it because they’re better at valuing businesses, digging into financial statements, analyzing competitive advantages, assessing the ability of management, forecasting economic outcomes? No.
Great investing records over the last 10 years have been generated by correctly assessing how, when and where the government will intervene.
Betting on AIG, Citigroup, Bank of America, General Motors, General Electric, and so on, before or shortly after the government bailed them out has made fortunes for a handful of hedge and mutual fund managers. AIG, et al., should have gone bankrupt, and their share prices properly reflected that reality. But, when Uncle Sam intervened, lumps of useless coal were transformed into valuable diamonds. No one investing more prudently could beat such out-size returns.
Investors who have correctly forecast the Federal Reserve’s frequent and haphazard interventions have rung up major dollars, too. If they had been wrong, they would have lost their fortunes. But, they were right.
I’m not drawing attention to conspiracy, here, because I don’t believe a conspiracy exists. Those investors with the best records have simply better realized that the investing landscape has changed, and that correctly guessing Uncle Sam’s intervention is the new way to make big dollars.
Am I envious of such results? In a way, yes. I wish I had been more perceptive that the game had changed. But, in another way, I’m not at all envious.
First, guessing Uncle Sam’s next move may win for a while, but it will eventually fail. Even Uncle Sam’s pockets aren’t infinitely full of economic stimulus.
Second, correctly guessing Uncle Sam’s next move is as much a matter of luck as skill. Just because someone wins the lottery or makes $10,000 in Vegas doesn’t mean that’s the way to plan for retirement. Lady Luck will eventually come to collect the bill.
No, I’m quite satisfied to invest prudently, if unspectacularly, and slowly build wealth over time. Just because the new game is popular and seems more profitable (remember the dot-com craze of 1999 or flipping houses in 2005?) doesn’t mean the old rules no longer apply. They do.
Eisenhower warned of the military-industrial complex in his 1961 Presidential farewell address. Did he know it would become the military-real estate-banking-automobile-pharmaceutical-tobacco-airline-firefighter-teacher-investment banking-college funding-steel manufacturing-etc.-industrial complex?
If he had, I think he, too, would have looked at Roman and British history and said such complexes are nothing new, and always end poorly.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.