Want to be ‘smart’? Or want to make money?

Who could’ve seen this coming? Me.
The post Want to be ‘smart’? Or want to make money? appeared first on The Motley Fool Australia. –

Woman in mustard yellow blouse on laptop holds both hands out to either side with graphic illustration of question marks above them

It’s not cool to take ‘victory laps’, especially when others have done it tough.

And I’m the first to criticise those who make bold (often outlandish) predictions.

After all, when they’re right, they claim victory, but when they’re wrong, they’re strangely quiet, hoping we’ll forget. (It’s a good strategy: when was the last time you saw a newspaper article reviewing some ‘experts’ bold claims?)

So, I’m treading carefully, here.

I still don’t do predictions.

They’re usually of two types.

They’re either consensus calls that are so close to the average to be useless when they’re right, and when they’re wrong they just say ‘well, we all were’.

Or, they’re outlandishly bold, seeking attention, or conforming to some long held (and seldom, if ever changed) worldview, and trotted out at every opportunity… in which case, they’re of the type I outlined at the top.

In short: They’re generally useless.

But that’s different from choosing an investment approach, based on experience, education and a basic understanding of human nature, and letting it play out.

A prediction is: I expect the ASX 200 to be at X points by Christmas.

An expectation is: I think the market will likely go higher, from here, over the long term.

And you know which one is more useful, right?

I make the point, today, because we’re almost exactly 12 months on from the market’s 2020 low point.

This time last year, investors were freaking out, and were in the process of sending the ASX down almost 40% in just over a month.

It was the fastest bear market in history: truly a panic for the ages.

And when I say panic, I mean it.

The market lost control of its senses.

Many people who hadn’t invested through a downturn took flight.

Many people who had invested longer — and arguably should have known better — still lost their nerve, and also fled.

And it’s not just those who sold after the first 5%, 15% or 25% fall.

On March 23, as the market was down 38% (and, while we couldn’t know it at the time, would not fall any further), people were still selling.

Now, in hindsight that looks silly, doesn’t it.

But here’s where I want you to listen closely.

Because, at the time, I was shouting, loudly, that investors should be buying. 

Or, at the very, very least, not selling.

Not because I knew it was the bottom.

And not because I knew the fastest bear market in history would be followed by the fastest recovery in history.

None of that.

I didn’t make a single prediction.

I simply said something like this (I said it so frequently, there would have been many versions):

“It is, in my opinion, likely that the ASX eventually gets back to pre-pandemic levels. And, if I’m right, when it does, it will have gained 50%.”

In other words, unless the ASX was never, ever going to get back to the levels of February 2019, shares were on sale.

I didn’t say where the ASX 200 would get to.

I didn’t say when.

I just said, in essence, “things will get better, and that’ll make money for those who hang around, or buy more”.

It was, in my opinion, one of the lowest risk investing statements I’d ever made.


Meanwhile, other investors, who were keen to show just how smart they were by trying to pick the bottom, or to time the recovery, were largely left on the sidelines.

They waited… and watched as the market recovered.

They told us how the recovery couldn’t last. 

How shares would get cheaper as the pandemic continued.

And then they’d buy and make a killing.

And did they?


Now, to be fair, it could have turned out that way.

They might have made a fortune, buying as shares bottomed out down 50%, 55%, or 60%.


But, in my view, it was just a low return bet, given what was on offer for the rest of us.

There was a potential 50% return, on the table, just asking to be picked up.

And yet, in search of a little bit more — because they were ‘smarter’ than the rest of us — they couldn’t help but try to be a little too clever.

By half.

I don’t mean to be critical of those people. In a different universe, they might have made money.

I simply want — in this age of Reddit groups playing funny buggers to try to make a point, and people punting on Bitcoin — to remind you of Aesop’s tortoise and hare.

Those clever hares, trying to outsmart the rest of us, missed their opportunity to buy shares when they were cheap, because they were looking for ‘cheaper’ — an opportunity which never came.

Meanwhile, we tortoises just plodded along.

Yes, it was uncomfortable.

Scary even.

I’m not going to pretend it was easy, or fun.

But, once we put our egos aside, we just needed to look at what was in front of us.

If (I thought ‘when’) the market went back to pre-pandemic levels, we were going to get a 50% return.

That was it.

If it took 5 years, we’d get 8.5% per annum. Not wonderful, but not bad. Plus, we’d probably get some dividends along the way.

If it took 3 years, we’d have earned 14.5% per year.

In two years? That’s a gain of 22% or so.

I didn’t even consider the possibility we’d be almost all the way there in a single year!

See, I wasn’t making a prediction.

Just thinking through the probabilities.

The ASX had never, before then, failed to set a new high after a big decline.

Sure, sometimes it took a while.

But as a net-buyer of stocks, that’d actually work in your favour: imagine getting an extended time to add meaningfully to your portfolio at low prices!

Oh, the media would have decried a stock market that was ‘going nowhere’, but that would have hidden the real opportunity.

So, heads — the market recovered quickly — we win.

And tails — the market took longer to recover — we win.

The only way to fail was to be too clever, trying to time the market, and missing out altogether.


I didn’t predict anything.

I didn’t claim any special insight.

I didn’t try to outsmart anyone.

I just recommended you buy — or at least hold — because I thought the odds were overwhelmingly in your favour.

The lessons:

1. Don’t predict.

2. Check your ego. There are no extra points for ‘degree of difficulty’ or being smarter than the next bloke

3. Keep buying.

4. Ignore the noise

5. Focus on being roughly right (thus avoiding being precisely wrong).

Don’t make investing harder than it needs to be.

Fool on!

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Want to be ‘smart’? Or want to make money? appeared first on The Motley Fool Australia.

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