It’s hard to outsmart a crowd when you’re standing inside it.
The only solution is to convince the others to take your side while they attempt to do the same.
Acceptance of this irrefutable fact will save you a boat load of time and money.
Take a look at the Universe.
We are all made of stardust. The age of atoms is mind blowing, Hydrogen, one of the most common elements in your body is nearly as old as the universe itself. This equates to roughly 13.8 billion years.
Every part of our bodies are constructed from atoms that are billions of years old.
It’s estimated the human species is composed of around 7 octillion atoms. That’s a 7 followed by 27 zeros!! These atoms are constantly moving. In effect, we are all apart of perpetual cosmic transformation.
When we gaze at the stars, we are viewing our own origins.
According to Astronomy Vibes:
So when you think about your place in the world, remember this: you are not small or separate from the cosmos. You are the universe, organized into human form, carrying within you the timeless story of creation written into every single atom.
What can the Universe teach us about the financial markets?
It’s not easy pivoting from the origins of life to something as mundane as the stock market but I will give it a go.
Attempting to claim you’re separate from the whole is folly in both galaxies and stock trading.
William Sharpe proved this in his classic illustration: The Arithmetic of Active Management.
Sharpe’s point was before costs, the return of the average actively managed dollar equals the return of the average passively managed dollar because together they comprise the entire market.
If all investors together make up the market, the market return is simply the weighted average of everyone’s performance. To beat that average someone else must fall below it. If you consider frictions like fees, and trading costs, the results aren’t ties but losses.
Post fees, active investors with some exceptions tend to underperform the market.
Think of 100 people betting on a horse race by betting against each other rather than the house. The total winnings cannot exceed the sum of losses. No outside capital entered the arena.
Acknowledging your being the market rather than trying to beat it is the apex predator of wealth creation.
Of course there are exceptions. Markets aren’t 100% efficient. Behavioral biases like panic selling, forced sellers from things like margin calls along with illiquid or underfollowed investments provide opportunities for beating the market.
The point being is most investors don’t have some sort of investing super-power or edge to fight uphill and emerge victorious.
Using this as your baseline , the rational strategy is to accept being the market by purchasing low cost index funds. Competing with professionals who have more firepower like data, speed, and time is a fool’s errand.
Just like staring at the night sky, humility is your greatest asset.
A physicist doesn’t say, “I have a good feeling about gravity.”
The investor who claims to have an edge without identifying its source is betting on astrology rather than reality.
