No. of Recommendations: 6
Recently ADrumlin Daisy asked if there are any investing Mozart’s (IMs) out there? [1] I answered that there are a few of them that have been documented by Jack Schwager. [2]

In hindsight, I should have done a better job answering ADrumlin’s question. There are about a gazillion IMs out there. I am sure you know many of them yourselves. These are the investors that always buy at the bottom and sell at the top. They never pick a dog or having a losing trade. They might be a family member, a co-worker or somebody you met in the Starbucks line.

These IMs also are referred to as “That Guy.” (TG) I am sure you know have some names you could add to the list. We are not the only ones that know TGs. It seems that financial pros run into TGs all of the time.

Several years ago I was talking to an investing professional well known around here. His main business was matching high net worth investors up with different hedge funds and/or separate account managers. After he shows the high net worth investors what kind of returns they should expect, he told me he always gets the same question. “Where is the list of the advisors that return 20%+ every year? I want to see that. Do I have to pay more to see that list?” He always answered that the list did NOT exist. There were NO managers that consistently achieved 20%+ returns in modern times. Obviously you can argue that quite a few well known investors like Warrant Buffet did achieve this back in 1950’s through 1970’s. How many investors did that in the 2000’s?

Investment advisor Carl Richards had a column: A Warning About That Guy Who Is Beating the Market this week in the New York Times.[3] Carl is the one that draws simple investing charts with Sharpie pens on napkins. There are two main points to Carl’s article:

1) That Guy is about as common as Bigfoot and the lochness monster. Carl suggests TG might selectively forget to mention a few bad investments that he made over the years. He might over emphasize the good trades. The few TGs that REALLY exist are probably running large hedge funds.

2) Investors should have a rational plan that does NOT count on having outsized “That Guy” like returns.

An excerpt from the article:

Do you understand the implications of these assumptions now? In this hypothetical world, you can assume 12 percent, and if you’re wrong, you’re in big trouble. On the other hand, if you take the more conservative approach and assume 7 percent on the portion you have in stocks, and you wake up 40 years from now having earned more than that, it’s fantastic.

That’s why this issue is so important. If you’re serious about your financial goals, you can’t afford to take “that guy” seriously. I wish there was a shortcut or some magic way to find the best investments, but the fact of the matter is that meeting your goals is about boring things like saving as much as you can, knowing not to chase after past performance and avoiding the pain of buying high and selling low. Counting on a high number like 12 percent takes your eye off those things that matter and over which you have some control.

Now, back to “that guy.” Over time, I’ve learned just to ignore those guys. I used to try to reason with them, but that is a waste of time. It’s a little bit like trying to have a logical conversation with a teenager.

So if you find yourself at a barbecue and “that guy” tries to start up a conversation about his investment prowess, maybe it’s time to excuse yourself and go see if the hamburgers are ready.

The article is brief and you might enjoy reading it. No graduate level math required.



[1] ADrumlinDaisy post: Begging the Question

[2] Yodaorange post on investing Mozart’s

[3] Carl Richards New York Times article: A Warning About That Guy Who Is Beating the Market
Print the post Back To Top
No. of Recommendations: 1
I think its all about mean reversion. If you are running a small amount of capital and you embrace volatility and special situations one can drive some pretty special returns but only until such time as your capital pool becomes material and then one begins the long march to the mean.
Print the post Back To Top